Revenue-based finance (RBF) offers an attractive funding source that is complementary to classic angel finance and beneficial to both investors and early-stage companies. For the investors, RBF offers regular cash flow and lower risk. For the companies, RBF provides non-dilutive growth capital. For both, it eliminates negotiations over valuation and conversations around exit strategy.

 

Unlike classic angel investments, revenue-based investments are not dependent upon an exit. Rather, the company taking the investment makes regular payments to the investor based upon its sales achievements until the investor has received a multiple of the investment, typically 2 to 3 times the original amount. What is uncertain is the amount of time it will take to yield that return.

 

This case study reviews a recent investment made by Sage Growth Capital.1

 

eTripTrader (https://ettaviation.com/)

 

eTripTrader (eTT Aviation) offers a software solution for Aviation Resource Management (ARM). Here is what the company says about its services on its website:

 

The vision to create something fellow pilots could use to make their lives easier has turned into a comprehensive Aviation Resource Management [ARM] software solution.

 

Their professional team and unique Airline Ops Suite have resulted in high quality systems that assist airline clients with flight and crew management, 4D flight planning, and information management. As of September 2021, eTripTrader services 29 clients.

 

Financing

 

In January of 2021, eTT Aviation was completing the acquisition of Eagle Cap Software IP, now known as SkedFlex Flight Planning. The company needed additional capital to integrate the new software into their platform. Sage provided that capital with a non-dilutive $400,000 revenue-based investment.

 

The investment instrument was a convertible note. Unlike traditional convertible notes, the Sage convertible note bears no interest rate, converts to equity only upon maturity and then only any amount that remains unpaid. The note is unsecured and unguaranteed, and therefore sits in the capital stack as an unsecured liability.

 

The terms of the investment were:

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Impact of Revenue-based Investment

 

The investment enabled the company to hire the necessary staff to integrate the Eagle Cap software with the eTT Aviation platform, thus increasing the services it can provide to its customers. The integration has been successful, and the company is now reaping the benefits of a complete platform. It plans to return to the equity market at a substantially greater valuation than it would have received prior to completing integration of the acquired software.

 

Summary

 

• In January of 2021, eTT Aviation was completing the acquisition of Eagle Cap Software IP

• $400,000 of revenue-based capital enabled eTripTrader to successfully integrate the newly acquired software into its platform.

• The company has a multi-tiered payoff option depending upon the number of months to payoff. If the company takes advantage of early payoff, it will pay back $600,000 at 5.00% of sales.4

• The investors have enjoyed regular cash flow from their investment and are likely to achieve an IRR around 30%.

• The company expects to return to the equity market at a significantly higher valuation

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About Sage Growth Capital

Sage Growth Capital makes revenue-based investments in companies who need growth capital. It is our mission to provide a more flexible funding option to growing companies who do not fit traditional lending models or for whom equity is not the best current choice. To learn more about Sage Growth Capital or to apply for funding visit: www.sagegrowthcapital.com.