Happy Sunday, everyone. This Sunday, I’m going to step back into being a bit controversial. Here’s why. There is a trend developing out there: new funding platforms are prioritizing capital deployment over what I’ll call goodness-of-fit with an entrepreneur or company. That is, speed has become such an important component of the RBF market, that I’ve heard of entrepreneurs saying things like:

• It felt like [newly-minted RBF funder] was trying to shove money down my throat. This reflects aggressive tactics of several platforms prioritizing capital deployment over the goodness of a deal.

• I’m worried that if I get on the train with [newly-minted RBF funder], I won’t be able to get off. This reflects the short-term nature of some of the new funding options out there, and recognition by some entrepreneurs that short-term capital can be like heroin, a difficult and expensive habit to break.

I’ve said this before, but I think that several of the new (and a few of the louder but less new) players in this market are making waves that threaten the good name of Revenue-Based Financing. But I have to admit that there are two sides to this.

I’ll start with the positive. The RBF market was nascent for quite a while; it was a niche that few people understood and that even fewer were pursuing.Then there were the fundraising announcements of ClearCo in 2019, then Pipe in 2020 and Capchase in 2021, and on and on and on. As these players raised increasingly large amounts of capital (nine figures in many cases, and at nine and ten figure valuations) more people paid attention to the RBF market. LPs, entrepreneurs, angels, VCs who weren’t excited about RBF were suddenly tuned in. That has been good for all of us because there’s more awareness in the market. 

But alongside the positive effect of the attention on the market, there has been an increasing number of non-RBF players entering the market billed as RBF. And that is where I continue to see danger. After all, isn’t any funder that causes a visceral reaction including the words “shove money down my throat” doing more harm than good? When an entrepreneur has that experience with a funder billing themselves as RBF, that’s bad for everyone. And when an entrepreneur sees that super-fast payback timeframes and daily payments won’t allow them to deploy the money they borrow, and they think that’s RBF, isn’t that also bad for everyone? I think the answer is yes. 

I’m not sure how to solve this issue. I am motivated to do something, as I think this is more than just a high-minded issue about ensuring entrepreneurs get the best possible options at the best possible terms that help them grow their businesses. I think we all want that. I think we all also want to ensure the long term viability of a healthy and robust RBF ecosystem, and to minimize the probability of entrepreneurs having bad experiences and telling the market to avoid RBF, or of a regulatory crackdown based on bad experiences reported to relevant agencies. I think those two things require more work.

So I ask you, dear reader, what suggestions do you have? Some suggestions are already in. For example, we’ve talked for a long time as a community about the idea of building a Revenue-Based Financing association, or a code of ethics RBFers would adhere to. That could work. What other ideas do you have? I’d love to explore how we can work together on this as a community.