RBF does not affect your financials the same way a loan or an equity sale does. Lets see how Levenue's RBF method affects your company.
Levenue is a marketplace connecting companies with recurring revenues to institutional investors, offering a unique and impactful financing solution within the fintech landscape. This distinctive approach not only secures quick and cost-friendly short-term financing for founders, ensuring market value, but also brings many benefits that set Levenue apart from competitors.
Another advantage of Levenue for eligible business founders seeking funding is that the solution is not regarded as a loan. Instead, the company and the investor enter into a revenue purchase agreement. Essentially, the company sells a portion of its revenues to an investor for a 12-month period (with a discount) in exchange for an immediate injection of capital.
Levenue has meticulously developed this type of contract over several months, providing high growth companies with tailored financing for their new projects. Levenue can also be incorporated as part of the mixed financing strategy, offering a non-dilutive solution that isn't credit-based.
In this context, let’s see how Levenue’s RBF solution can improve the financial health of your company.
1. Better metrics
Essentially, Levenue RBF system extends the financial runway without creating any additional debt. Instead, it leverages the most important company’s asset, which is the company’s existing recurring revenues. This asset serves as the foundation for financing through Levenue, enabling companies to leverage the value they have already generated to access upfront cash. This approach is beneficial only if the company has a strong certainty of ongoing growth. Consequently, one of the key criteria that the Levenue underwriting team examines during its assessment of historical performance is whether there's an increased line in subscriptions. If a company is experiencing growth and is confident that the upfront funds obtained through Levenue will facilitate further investment in additional growth (leading to the creation of new subscriptions that bring in additional revenue), the impact on growth becomes exponential.
2. Better analytics
At Levenue, we use three main data sources to assess companies: accounting, banking, and revenue data. This not only provides Levenue with valuable insights into each company's trajectory but also empowers entrepreneurs with an elevated level of visibility through Levenue's advanced metrics. Ultimately, this approach encourages a strong assessment of the company's health and often leads to improved financial management by entrepreneurs.
3. Better valuation
Speaking specifically about Levenue in comparison to competitors, some competitors provide RBF in the form of debt. So, how does choosing Levenue differ from opting for another competitor?
Upon analyzing the company's balance sheet immediately after Levenue financing, there's no additional debt created. Instead, it represents a portion of revenue that has been invoiced but not yet recognized. That's the same thing as it would appear in a company’s accounting if the company would request a client to make a one-year advance payment. There's no debt owed to the client; it's simply an unrecognized component of the company’s revenue received upfront in cash, with services yet to be provided.
On the contrary, opting for RBF through a competitor structuring it as short-term debt, means that it would appear on the company’s balance sheet as a debt. This affects the company’s capacity to secure loans from banks for other purposes and also influences the company's valuation (as a company valuation is typically based on a multiple of revenue or EBITDA minus debt).
4. Better accounting
Levenue is categorized as deferred revenue in accounting. This is exactly like annual subscriptions offered by companies to their clients: an upfront payment (often with a discount) before the service is provided. This is a crucial element of accrual accounting, ensuring revenue recognition occurs as it is earned.
Deferred revenue constitutes a liability on the company's balance sheet, representing the sum received from customers for goods or services yet to be delivered or provided. Same with Levenue. The company receives the money upfront for the future incoming revenues.
These deferred revenues are classified as working capital. To illustrate, suppose a company receives an upfront payment of €180,000 for the annual value of €15,000 monthly subscriptions. The deferred revenue journal entries would be as follows:
When the money is received:
- Debit Accounts Receivable: €180,000
- Credit Deferred Revenue: €180,000
Each month throughout the 12-month contract:
- Debit Deferred Revenue: €15,000
- Credit Sales or Revenue: €15,000
Revenue recognition only takes place after all services have been delivered. The company is committed to delivering the necessary goods or services, leading to the advance payment being recorded under the liabilities account on the balance sheet.