Revenue Sharing Campaigns

What is an investor buying? - The investor is loaning money to a business by purchasing a promissory note with payments tied to the operations of the business.

How does an investor make money? - The company makes payments to the investor, typically monthly, and pays the investor a specified % of the company’s revenue. IF the company has revenues, the company makes these payments until the investor has been paid a specified multiple of their original investment. For example, an investor who purchases $1000 of a revenue sharing loan paying 5% of gross revenues with a multiple of 1.5x would receive payments from the company until they received $1500.

What are the risks? - Similar to a loan, a company must have revenue to pay investors a percentage of revenue. The fewer sales a company has, the longer it will take for investors to make a return. A revenue sharing note may also have a maturity date. If the company has not paid the full multiple due to the investor by the maturity date, the remainder of the investment will be due. If a company does not receive the sales it anticipated, the company may default on the investment if it cannot secure another form of capital to pay investors at maturity. Investors should take care to analyze a company’s sales figures and projections to determine if their estimates are realistic and that the terms of the revenue share are reasonable compensation for the investment risk before investing.

Why issue this? - Revenue share agreements are appropriate for companies that are post-revenue and have clear financial data from their operations for investors to analyze. Companies typically offer these types of securities when they want to grow and expand operations they are already comfortable with.