While receiving funding in 2020 was difficult for many founders, this was especially true for entrepreneurs from underrepresented groups. According to a report by The State of European Tech, 83% of founders are White/Caucasian and only 2% are Black/African/Caribbean. While the former successfully raised capital, none of the latter was able to in 2020. A similar trend is seen within the realm of gender, where all 78% of male founders raised external capital, while within the 22% of female founders, only 16% raised external capital, and within the 3% of entrepreneurs who identified themselves as “Other”, only 1% did. Systemic discrimination often occurs due to prejudice, but Revenue-Based Financing (RBF) has the ability to change this.
What is RBF?
RBF meets debt (low-risk, low return) and equity financing (high risk, high return) in the middle. When a start-up needs extra capital to grow and has already reached a point of generating revenues, the RBF lender will analyse it’s past performance to project how it could behave in the future.
Repayments are tied to future revenue: essentially, you agree to share a fixed percentage of your future revenue until you have repaid the loan plus the pre-agreed flat fee – giving you a clear repayment horizon and planning security. The obvious advantage: should business be slow during a particular period, it won’t break the bank – you simply have longer to pay back the loan.
In addition, these funds don’t require personal guarantees, giving up a stake in your company or meeting certain, possibly biased criteria by bank staff or investors.
How does RBF benefit underrepresented entrepreneurs?
In cases where the process is data-driven, there is no room for bias. By requesting view-only connections to marketing, sales channels and bank accounts, and data regarding the general health of the company, a funding decision is made mostly according to the information received. The data is plugged into a risk model which calculates the possible funding conditions. Not requesting personal guarantees, credit scores or any other credit metrics also helps reduce bias. This approach results in the removal of prejudice commonly found in the decision-making processes of traditional financial institutions. Moreover, as ownership is maintained and there is a limited financial burden on the company due to repayments being pegged to revenues, wealth is easier to build. Historically, certain demographics have been prevented from doing so due to systemic obstacles.
Remagine: a new world
Remagine is a company born in response to the world’s crises, and built to counteract them. By nurturing founders, those who are creating today’s new businesses, we provide the tools they need with the goal to transform the industry from inside out. Our RBF product is one of the ways we do this. During the course of our growth partnerships with clients, we also actively incentivise them to become more impactful through our Impact X-Rays and tailored recommendations. Creating a sustainable economy is an ambitious task, but together we have the right tools and experience to make it possible.