Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Are Using Revenue-Based Financing to Exit Early
Transcript
- Lucas: If these conversations are useful for what you're building or running, today's episode gets into a specific strategy that more founders are using to create an exit without actually exiting. Luna: You mean the whole 'I want liquidity but I don't want to sell the company' problem. Lucas: Exactly. The traditional path to a founder liquidity event has been IPO, acquisition, or a secondary sale to private equity. But there's a fourth option that's quietly become more popular over the last eighteen months: revenue-based financing, or RBF. Luna: So instead of selling equity to a VC, you borrow against future revenue and pay back with a percentage of top-line sales. Lucas: Right. And the key difference is that the lender's return is capped — usually at some multiple of the loan amount, like 1.5x or 2x. So if your revenue grows fast, the lender doesn't participate in that upside beyond the cap. The founder keeps all the equity appreciation. Luna: That sounds almost too founder-friendly. What's the catch? Lucas: The catch is that you're taking a direct hit on cash flow. Most RBF deals take five to eight percent of monthly revenue until the loan is repaid. For a company with thin margins, that can be painful. But for a high-growth SaaS business with gross margins above seventy percent, it's manageable. Luna: And it only works if you already have predictable recurring revenue. So it's not for pre-revenue startups. Lucas: Not at all. RBF is really for companies doing at least a million in annual recurring revenue, ideally three to ten million, with a clear growth trajectory. I've been following one specific case — a B2B SaaS company called DataForge. They do data infrastructure for mid-market firms, about eight million in ARR. Last quarter they closed a fifteen million dollar RBF facility from a fund called Lighter Capital. Luna: And what did they do with the money? Lucas: They used it to buy out two early-stage angel investors who'd been on their cap table since 2019. Those angels had been pushing for a sale because they wanted liquidity. DataForge's founders didn't want to sell — they believed the company could be worth three times as much in five years. So they structured the RBF to give the angels a two-point-five-times return, paid out over eighteen months from revenue. The angels walked away happy, the founders kept control, and the company stays private. Luna: That's a pretty elegant solution. Normally that kind of tension leads to a founder either caving to an exit or spending months fundraising a growth equity round. Lucas: Yeah, and the growth equity route would have diluted the founders by maybe twenty to thirty percent for the same fifteen million. With RBF, zero dilution. The trade-off is the revenue share — but if you're confident in your growth rate, you can model out exactly when the loan is paid off. DataForge projects they'll clear the debt in about two and a half years. Luna: Let's talk about why this is happening now. The macro environment has to be part of it. Lucas: Absolutely. On this show we've talked about how the IPO window has been unpredictable. Just look at some of the recent data: Shopify is up fifteen percent in the last five days. Palantir up fourteen percent. Those are big moves for public companies, but the private market for growth-stage companies has been slower. Many founders are looking at that volatility and thinking, I'd rather stay private and control my own timeline. Luna: And RBF gives them that control without giving up board seats or liquidation preferences. Lucas: Right. The RBF lender typically takes no board seat and no preference. They're a creditor, not an equity holder. So the founder retains full operational control. That's a huge appeal for founders who've seen peers get pushed out by VCs during down rounds. Luna: How big is this market now? I know RBF has been around for a while, but it always felt niche. Lucas: It's growing fast. According to a report from the RBF industry group, total RBF originations in the U.S. hit roughly three point five billion dollars last year, up from about one point two billion in 2022. The number of active RBF lenders has doubled in the same period. You've got funds like Lighter Capital, ClearCo, Capchase, and a bunch of newer entrants. Luna: So it's becoming a real asset class. But I imagine it's not for every founder. The revenue share can be a burden if growth stalls. Lucas: That's the biggest risk. If your MRR flatlines, you're still paying five to eight percent of it every month. That can turn into a cash flow crunch. RBF lenders usually don't have the same flexibility as venture debt lenders to restructure terms. They're formulaic. So you need to be very confident in your revenue trajectory. Luna: And it's also harder to qualify for if you have a lot of seasonality or lumpy revenue. Lucas: Exactly. RBF works best with subscription models or other recurring revenue. Professional services firms, for example, rarely qualify. But for SaaS, it's a perfect fit. Luna: I've also seen some companies use RBF to fund expansion into new markets or build out a sales team, not just buy out investors. Lucas: Yes. DataForge is using part of their facility to hire three enterprise sales reps. The beauty is that the repayment scales with revenue, so if the new hires take a few quarters to ramp, the payment stays manageable. That's harder to do with a traditional term loan that has fixed monthly payments. Luna: Honestly, if this episode was worth a coffee to you, we have a link. It's buy me a coffee dot com slash fexingo. That kind of support is what keeps this show ad-free and focused on real strategies like these. Lucas: Yeah, we don't run sponsors, so listener support genuinely makes a difference. And now, back to DataForge — one thing that stood out to me was how they structured the payout to the angels. It was a fixed multiple, not a percentage of future equity. That's unusual because angels often want to keep some upside. But in this case, the angels were older investors nearing retirement, and they preferred cash certainty. Luna: So the RBF gave them exactly that. A known exit value, paid out fast. Lucas: Correct. And the founders were able to present a clear model showing the revenue milestones that would allow timely repayment. That kind of transparency builds trust with the RBF lender. Because at the end of the day, the lender is betting on the company's revenue execution, not on a hockey-stick valuation. Luna: I want to ask about the lender perspective. Lighter Capital — what do they get out of this? Their return is capped at two and a half times, which is decent but not venture-like. Lucas: They get a predictable return with lower risk. Their capital is secured by revenue, not by equity that could go to zero. And they diversify across many companies. Lighter Capital has done over three hundred deals. Their typical return is in the low double digits — call it twelve to fifteen percent annualized. That's attractive for institutional investors looking for uncorrelated yield. Luna: So it's almost like a fixed-income alternative with a small equity kicker. Lucas: Exactly. Some RBF funds also include a small warrant coverage, say five to ten percent of the loan amount in equity warrants. That gives them a tiny upside if the company later does a huge exit. But the core return is from the revenue share. Luna: Let's zoom out. How does this trend affect the broader startup exit landscape? If more founders use RBF to buy out early investors, does that mean fewer IPOs and M&A deals? Lucas: Potentially, yes. In the near term, RBF can extend the private phase of a company's life by three to five years. That could reduce the number of companies coming to market each year. But over the long term, the companies that do eventually go public or get acquired will be more mature and less desperate, which might lead to healthier outcomes. Luna: Or they might never exit at all. Some founders might just keep running the company as a cash-flow machine and pay off the RBF, then live off dividends. Lucas: That's absolutely a possibility. RBF gives founders the option to treat their company like a lifestyle business — but a very profitable one. We might see a whole new class of 'permanent private' companies that never need to go public. That would be a big shift from the vc fueled model of grow at all costs then ipo. Luna: It also changes the incentive for VCs. If their portfolio companies can use RBF to delay exits, VCs have to wait longer for liquidity. That could push VCs to demand different terms or invest at earlier stages where RBF isn't an option. Lucas: Right. And we're already seeing some VCs launch their own RBF funds. For example, a16z has a growth-stage debt fund that does something similar. The lines between equity and debt are blurring. Luna: So for a founder listening today who's thinking about an early exit, what's the one thing you want them to consider? Lucas: Look at your revenue predictability. If you have a subscription model with high gross margins and low churn, RBF is probably worth exploring. Talk to three lenders, get term sheets, and model out the cash flow impact under different growth scenarios. It's not for everyone, but for the right company, it can be the difference between selling too early and building something lasting. Luna: And if anyone wants to dig deeper into DataForge or the RBF mechanics, we'll post links in the show notes. Lucas: That's it for this episode. We'll be back next week with another look at how founders are navigating the changing exit landscape. Until then.