

VCs Look to Royalty-Based Financing to Fund Startups - gbookman
http://blogs.sun.com/sun4startups/entry/vcs_look_to_royalty_based

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ramsh
Payments start with revenue. No revenue, no payments. People say revenue
starts "immediately" assuming that the royalty-based VC funds a business that
already has some revenue. To your other point, it's not that there is less
pressure for revenue, but less pressure for "growth" (ex. hiring, expansion,
etc.) at the expense of profitability. VCs often push for premature growth at
the expense of profits (so they can inflate the company and sell it as fast as
possible), whereas RBF is more in line with rapid profits at the expense of
growth - i.e. more organic growth through profits. As for Vinny - in RBF if
the venture doesn't earn revenue, no payments go back to the VC. Also, if the
venture fails and closes, the VC never gets his/her money back. In contrast if
you don't pay Vinny, he breaks your legs. :) Banks too.

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JoeAltmaier
Don't understand. No cash flow for months; how can payments start immediately?
How can the pressure be LESS to build/ship product for revenue? How is this
different from Vinny the loanshark?

