Equity and debt-structured financing has dominated the startup market and the world of investments for some time now. To remain solvent during the debt-repayment process, entrepreneurs and their hopeful companies must keep a significant amount of fixed-value assets on-hand to cover these liabilities. They must maintain both solvency and liquidity of a determined amount, despite having assets and liabilities of constantly fluctuating value (Duke). One proposed alternative to equity and debt is called Revenue-Based Financing (RBF), which eschews the imbalance between shifting value and fixed payments.
Revenue-Based Financing means that investors will reap a small percentage of monthly investments until the amount is paid back, rather than purchasing part ownership of a company, through stocks, or demanding inflated interest over many years. . In this case, monetary returns for investors will either rise or fall, based on the vagaries of the funded company’s variable monthly revenues.
Another possible benefit of this, is that in some cases, investors may become marketing agents for the startups to which they contributed. Not only would becoming ambassadors accelerate the process of return on investment, the success of these prospective companies would be bolstered in the process. Revenue-Based Financing gives investors their pro-rata share instead of interest payments, and unlike equity, it allows the teams who build their companies from the ground up to retain full control and ownership of their creations.
Revenue-Based Financing is an alluring method of diversification for investors’ portfolios. It is also extremely beneficial for startups, quelling worries about unpredictable maturity periods with a ‘pay as you grow’ motto. Typically RBF is used by businesses with scalability and high margins to avoid a protracted, trickling effect of return. Companies using RBF should be regulated and have the ability to pay off their investors in a timely fashion.
Corl: A blockchain solution to revenue-based financing
A company called Corl has created a blockchain-based investment network to symbiotically assist SaaS, Tech and other startups of promise, using Revenue-Based Financing to keep both sides happy, as well as lowering barriers to entry for small-time investors.
Relying on the intellect of management teams and the dynamism of their ideas in the market is crucial to investors, but it remains an incredibly difficult thing to do (locavesting). In the case of Corl, prospective companies are vetted by the Corl team, meaning investors can keep their gambling to a minimum when they entrust their hard-earned money to a third party.
Blockchain for the FinTech industry
It’s no wonder why financial companies like Corl are using blockchain to streamline business operations right now. The blockchain’s power as a self-executing software for financial transactions and record storing make it the greatest piece of technology available to financiers. The automation of blockchain brings trust and reliability to users of the platform, and Corl knows this. In delivering quarterly revenue payments to investors in their program (to ‘CRL’ token holders) through blockchains, the typical clearance period of money transfers and the bank holds on such transfers will be massively sped up. The faster transactions take place, the smoother business operations flow.
Pretty straightforward, right?
Additionally, the permanent, easily viewable, unchangeable log or ‘ledger’ recorded with blockchain facilitates processes like taxes and government audits. It links investors to a public registry of verifiable identities. Token buyers must also be screened through standardized Know-Your-Customer (KYC), anti-money laundering and counter-terrorism financing background checks. This way, normal people can become involved and regulated in financing early companies.
Breaking down barriers to investments in crowdfunding
What was once reserved for private, accredited institutions is now available to anybody through new technology. According to Corl’s business model, atypical investors and those without historical access to investing marketplaces have a chance to jump in, embracing the true spirit of crowdfunding.
Crowdfunding is a fast way to raise money with no upfront fees. It brings easier capital to innovative ideas that may otherwise be ignored by mainstream investors. Corl wants to create ironclad business alliances in between companies and funders.
This is all made possible by the CRL token, as digital tokens permit widespread accessibility to potential participants around the world. Through a decentralized, ‘democratized financial marketplace’, its creators are bringing a network where users on either side are not stymied by fund freezing or rejections of payment ‘requests.’ Uninhibited financial freedom is granted to both investors and their prospective companies to secure and manage financial assets.
When investors use Corl
This brings us to our final point, namely the problems with centralized investment exchanges. According to Investopedia, on top of brokerage commissions, clearage fees, and exchange fees, investors have to deal with endless volatility, especially in foreign or unfamiliar markets. Thankfully, that gap is being bridged with Corl’s platform and the smart screening of promising startups around the world.
When investors use Corl, they can rest easy that some of the biggest investment risks will be mitigated. Corl only works with promising companies that have their operations in order. While large, private investors have the funds to wait ten years to see a suitable return on their debt or equity investment, the average Joe can see quarterly repayments instantly with companies Corl has deemed a good fit for their crowdfunding platform. At the same time, companies who successfully apply with the platform can retain full ownership of their company and pay back a considerably smaller percentage in a more efficient time frame.
I hope this article has been informative on the reasons why it makes sense for investors and startups alike to utilize revenue financing, the blockchain, and crowdfunding. Today, this all takes place on one dynamic platform called Corl. You can learn more by joining their whitelist today!
This article was written by Sean Fast, an MLG contributor.