Revenue-Based Financing -

A type of funding in which a company agrees to share a percentage of future revenue in exchange for capital up front. The loan payments are tied to monthly revenue, going up for strong-revenue months and down for low-revenue months.

Description


Revenue-based financing is debt financing with a twist. While revenue-based or royalty financing seems a relatively new financing model, it has been a successful investment model for decades in mining, intellectual property, movies, music and other industries. Speculators who invested in oil, gas or mineral extraction companies, received a percentage of earnings in exchange from successful operations.

It is a loan with a promissory note where repayment of the loan is tied to a percentage of the company’s revenue. Instead of repayment being measured in a fixed interest percentage of the loan amount, the return amount is negotiated and that amount is paid through the agreed-upon percentage of revenue. Its flexibility makes it an ideal vehicle for deploying mid-sized loans through an investment fund.

Ideal Uses


Encipient provides capital to fuel the growth of businesses in a variety of scenarios:

  • As a bridge to a future equity round, likely at a higher valuation
  • As a bridge to a future sale of the business, allowing to preserve ownership and financial value
  • As acquisition capital to finance the cash component of a transaction
  • Or simply as growth capital for the business owner who desires funding that does not require giving up substantial equity and control

Advantages for Companies


Because it is structured as highly flexible debt, revenue-based financing from Encipient™ preserves a company’s equity. It is an ideal source of capital for bridging to a future equity round that will likely be at a higher valuation. Or, for the business owner who wants to keep his or her company closely held, our capital is a practical, attractive financing alternative that does not require a liquidity event for success.

Features


Encipient™ structures each investment as flexible, long-term debt with the following entrepreneur-friendly features:

  • no fixed loan term
  • no minimum payment requirements
  • no balloon or lump sum payments
  • no restrictive conditions
  • no personal guarantees
  • up to $5,000,000 in growth capital available in customized tranches

Benefits


Encipient™ provides revenue-based financing which offers a variety of benefits:

  • Preserves equity because it is structured as debt
  • Friendly to the business’ cash flow due to its adaptive payment structure
  • Provides fuel for growth without the constraints of traditional debt
  • Aligns entrepreneur and investor interests as it does not require a liquidity event for success
  • Preserves control for the business owner who wants to keep his or her company closely held; a board seat may be required.
  • Provides the flexibility to take the capital that the business needs when it needs it; Encipient builds in additional tranches, if needed.
  • Gain an experienced team of entrepreneurs and operating executives who understand the cannabis industry, providing access to useful advice and assistance, industry contacts and other useful resources.

Advantages for Investors


Encipient™ creates an opportunity for investors to invest in a single source and gain the significant upside potential of investing in revenue-generating, high-margin growth companies. Risk is mitigated through this diversification and the added value created by our experienced management team. Encipient™ offers unique investment opportunities for investors with the following advantages:

Gives the investor access to revenue-generating, high-growth companies operating in attractive industry sectors.
Encipient™ receives a percentage of revenue, which means our payments are insulated from production costs and related factors. This makes cash flows potentially a lot easier to predict and model than traditional financing structures.
Made up of industry leading experts dedicated to creating value for our partner companies.
Encipient™ typically makes an initial investment to acquire the royalty, but ongoing cash costs tend to be minimal.
Encipient™ does not require a large staff or resources as production companies, which keeps overhead costs relatively low and predictable.
Through a single investment, investors gain exposure to multiple, geographically diverse high-growth businesses, with a variety of services and products, each having been curated and vetted by our expert management team.
An expected IRR that is above average, typically in excess of 15%.
We are committed to help building companies in vibrant and diverse industries in a socially responsible way while giving investors great returns.