In this Compassionate Capitalist Podcast, Karen Rands is joined by Jonathon Bragdon, Founder of Capacity, to discuss Revenue Based Investments as a non-dilutive capital source gaining in popularity with entrepreneur founders and investors. Revenue Based Investments, also known as Royalty Financing, is a hybrid of debt and equity in that it can be converted to equity, unlike cash flow lending, yet is paid back as a percentage of revenue on a predictive basis until an agreed to multiple of the original amount is returned to the investor. When the agreed to amount, usually 2x - 4x the investment, is paid back to the investor, the entrepreneur's obligation is fulfilled and the company retains any equity used as collateral on the financing. The unique characteristics of Revenue Based Investments is well suited for businesses seeking growth capital to expand and have a long term vision for the future of their company to remain private. Investors accustomed to re-occuring revenue streams from their investments, can choose this type of investment in entrepreneur endeavors without the risk of waiting for the company to be acquired or go public in order to get their return on investment.
Before founding Capacity as a fund for entrepreneur invesment and Capacity Partners to provide services to help companies increase revenue and capacity to scale, Jonathon Bragdon was a serial entrepreneur with numerous successful exits. Most notable was Tricycle, acquired by Shaw Industries, which was also how Karen and Jonathon met as he sought capital through the Launch Funding Network and NBA&I.
Karen Rands explains Revenue Based Investing as a wealth creation strategy in her best selling book Inside Secrets to Angel Investing