Investment Terms

Overview

A Few Details

RCM is Equity not Debt

RCM Terms

Overview of General Investment structure:

RCM invests 10-25% of “established” annual revenues
in exchange for a royalty on the Company’s Gross Revenues – which generally is between 1-5%
Paid monthly
with a 1.5-3x repayment cap within approximately five years (with 2x being the investment plus an equal amount)

Why companies choose it:

Less expensive than standard equity and without the typical burdens of commercial debt
Available for working and growth capital, inventory and project financing, and partner buyouts
No ownership dilution – no valuation conflicts – no loss of control
No personal financial guarantees – can subordinate to existing debt
Periodic payments vary with company revenue and no minimum payments
No balloon payments or deadlines

Typical candidates for Revenue Capital investments:

Companies with established annual revenues between $250K – 10M
Companies with immediate term growth objectives, acquisitions, or partner buyouts
Companies that are profitable, or near break-even, with strong gross margins (35%+)
Large scale, VC, growth not required -” lifestyle” businesses fit

A growth capital example:

Standard Business Inc (SBI) has had a current annual revenue rate of $3-5M with very strong margins over the last thirty months. SBI has identified an opportunity for expansion, and is seeking approximately $500K of growth capital. After a short period of due diligence review, SBI and RCM agree to terms: RCM will invest $600,000 (12% of SBI’s proven revenue stream) and receive 4% of SBI’s gross revenues up to a 2x cap ($1,200,000). SBI pays RCM monthly; however, the payment amounts are not fixed. Instead, payments are variable; 4% of each month’s gross revenues – or no payment at all in any period that has no revenues. Looking briefly at the numbers:

$5M x 12% = $600,000 of growth capital invested

With this new capital SBI can proceed with its growth opportunity and avoid both the non-negotiable burdens that come with commercial debt and the high costs of obtaining standard equity capital:

No personal or business financial guarantees
No dilution of ownership
No valuation negotiation
No loss of management control
Payment varies with revenue, no minimum payments
RCM investment is capped, and without any ballon payments or deadline

With the final payment the investment contract is completed. RCM has not taken any control or cap table from SBI as would be expected with a standard equity investment – nor has need to push SBI towards an exit. Additionally, RCM required no financial guarantees.