Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why Startups Are Offering Revenue Share Agreements Instead of Equity
Transcript
- Lucas: So there's a term I'm hearing more and more from founders lately, and it's one that cuts against the grain of traditional venture capital. It's called a revenue share agreement, or RSA. And the basic idea is pretty straightforward — instead of giving up equity, a startup agrees to pay an investor a fixed percentage of future revenue until they've returned a predetermined multiple of their investment. Luna: Right, so it's almost like a hybrid between debt and equity, but without the interest rate of a loan or the dilution of a typical VC round. Lucas: Exactly. And the reason it's coming up now, particularly in mid-2026, is that we're in a relatively high-interest-rate environment compared to a few years ago. A traditional venture loan might carry a 12 or 15 percent rate. An RSA, in contrast, doesn't have an interest rate at all — the investor's return comes from the revenue stream itself. Luna: But that means the investor is betting on the startup's ability to generate real revenue, not just on a big exit someday. That's a different risk profile. Lucas: It is. And it's particularly appealing for startups that have a clear path to recurring revenue but maybe don't fit the venture model of hypergrowth at all costs. Think of a B2B SaaS company that's growing at 20 percent year over year, not 200 percent. A traditional VC might pass because they need that hockey-stick trajectory. An RSA investor, on the other hand, is happy with steady, predictable revenue. Luna: So who's actually doing these deals? I've seen some examples in the food and bev space, where a chain of coffee shops is using an RSA to open new locations without giving up equity. Lucas: Yeah, that's a classic use case. But it's also popping up in software. There's a company called IndieBill — it's a subscription management platform — that raised a round entirely through RSAs a couple of years ago. And more recently, we've seen fintechs and even some biotech tools companies adopt it. The key is that the business needs to have a clear, predictable revenue stream to pledge. Luna: And the terms can vary pretty widely, right? What's a typical structure? Lucas: Typically, the investor gets between 2 and 8 percent of monthly revenue until they've received a return of 1.5x to 3x their original investment. So if an investor puts in $500,000 at a 3 percent revenue share with a 2x cap, they'll keep collecting 3 percent of revenue until they've received $1 million total. After that, the obligation ends and the startup keeps 100 percent of its revenue. Luna: And there's no board seat, no veto rights, no liquidation preference — none of the governance baggage that comes with equity. Lucas: Right. And for a lot of founders, that's the big appeal. They retain full control. And if the company does become a massive success, they don't have to give up a huge chunk of the exit to early investors. The RSA investors already got their multiple out of revenue. Luna: But there's a downside, too. If the company's revenue grows really fast, the total payout to RSA investors could end up being much higher than what they would have gotten from equity. Because equity is fixed — you give up a percentage of the company once. With an RSA, the faster you grow, the more you pay. Lucas: That's a real risk. In fact, some critics argue that RSAs can be more expensive than equity if the company hits it big. But the trade-off is control and simplicity. And for many founders, especially those who've had bad experiences with investors exerting influence, that trade-off is worth it. Luna: Speaking of the broader market, I notice that some of the high-growth companies we track — like Roblox, which is up more than 10 percent in the past five days — are examples of businesses that have been very capital-intensive. They raised huge equity rounds. But if they had used RSAs earlier, would they have been better off? Hard to say, because their revenue growth was explosive. Lucas: And that's the thing — RSAs aren't right for every company. They work best for businesses with high gross margins, predictable revenue, and a moderate growth rate. A company like Airbnb — up 7.4 percent in the past five days — actually has that profile. It's a high-margin marketplace with steady revenue. In theory, it could have used RSAs to fund some of its earlier expansion. Luna: So if you're a founder listening right now, how do you decide whether to explore an RSA? Lucas: Start by looking at your unit economics. If your customer acquisition cost is low relative to lifetime value, and you have a repeatable sales motion, you're a candidate. Then look at your growth rate. If you're growing at 10 to 30 percent year over year, RSAs are worth considering. If you're growing at 100 percent, an equity investor might still be a better fit. Luna: And if these kinds of practical, real-world insights are valuable to what you're building or running, it's worth mentioning that listener support is what keeps this show ad-free. If you find the conversations useful, you can buy us a coffee — literally — at buy me a coffee dot com slash fexingo. That helps us keep doing deep dives on topics like this. Lucas: Yeah, it genuinely does. And it lets us stay independent, so we cover what actually matters to founders and operators. So back to RSAs — what's the one big mistake founders make when structuring one? Luna: I'd say not defining the revenue base clearly. Is it gross revenue? Net revenue? Recurring revenue only? If the agreement says 'revenue' without specifics, you can end up in a dispute over what's included. Lucas: That's a great point. And the other common mistake is not modeling the worst-case scenario. Founders often assume steady growth, but if revenue dips, the percentage still applies — and that can squeeze cash flow when you need it most. So you really want to stress-test the numbers before signing. Luna: And there's also the question of seniority. If the startup later takes on debt, does the RSA get paid before or after the lenders? That has to be spelled out. Lucas: Absolutely. The legal docs are still evolving. There's no standard template like the SAFE note yet, so each RSA is custom. That means legal costs can be higher upfront, but proponents argue it's worth it for the flexibility. Luna: I've also heard of 'revenue share plus' structures, where the investor gets a small equity kicker in addition to the revenue share. That seems like a hybrid that could bridge the gap between traditional VCs and RSA investors. Lucas: Yeah, those are becoming more common. The investor gets some upside if the company does exit big, but the founder still retains most of the control. It's a compromise. And I think we'll see more innovation in these structures as the market matures. Luna: So for a founder who's raising their first outside capital, what's your advice? Should they consider an RSA over a SAFE? Lucas: It depends on their priorities. If preserving ownership and control is paramount, and they have a clear path to revenue, an RSA can be a great tool. But if they need a lot of capital quickly and expect explosive growth, traditional equity or a convertible note might still be the right path. The key is to know your own numbers and be honest about your growth trajectory. Luna: And to talk to other founders who've done it. There are enough examples now that you can find real-world case studies. Lucas: Exactly. And that's where we'll leave it for today. Next time, we're going to look at how the IPO window is opening up again for a specific type of startup — and what that means for founders with RSAs on their cap table. Luna: Looking forward to that. Thanks for listening. Lucas: See you next time.