Scholarship programs work in exactly this way, funding outstanding university students for tuition fees, with repayments made from a portion of their income once they enter the workforce. RBF is the corporate equivalent of this, where investors provide funding in advance, before sales begin, using future income as collateral.
This investment scheme is possible due to the increasing number of companies that can forecast sales for several months to a year, thanks to the spread of recurring revenue such as SaaS and subscriptions. Investors decide on investment companies based solely on data that can predict the future, such as the number of annual contracts and customer retention rates, so the shortest time from application to receipt of funds is within 24 hours.
To secure growth capital, many SaaS companies recoup their revenues early through "discounts" on annual contracts, which they then use for upfront investments such as product development and marketing activities. This essentially amounts to "borrowing" revenue from customers, and raising funds by paying a 20-30% discount (i.e., the cost). RBF is offered as a mechanism for raising funds at a lower cost from investors rather than from customers.
Bank loans can be difficult to repay during periods of low sales, but with RBF, the repayment amount fluctuates according to sales, and because it is not a loan, there is no interest, and the balance does not fluctuate even if the repayment period is extended. While VC investments require a 20-30% equity stake, RBF is equity-free, so there is no dilution or need to give up management rights.
While traditional startup investments monetize through an exit driven by exponential growth, RBF monetizes through business continuity, so founders aim to manage their companies for the long term rather than abandoning them.
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