Startups Weekly: There’s an alternative to raising VC and it’s called revenue-based financing

Revenue-based financing is on the rise, at least according to Lighter Capital, a firm that doles out entrepreneur-friendly debt capital.

What exactly is RBF you ask? It’s a relatively new form of funding for tech companies that are posting monthly recurring revenue. Here’s how Lighter Capital, which completed 500 RBF deals in 2018, explains it: “It’s an alternative funding model that mixes some aspects of debt and equity. Most RBF is technically structured as a loan. However, RBF investors’ returns are tied directly to the startup’s performance, which is more like equity.”

Source: Lighter Capital

What’s the appeal? As I said, RBFs are essentially dressed up debt rounds. Founders who opt for RBFs as opposed to venture capital deals hold on to all their equity and they don’t get stuck on the VC hamster wheel, the process in which you are forced to continually accept VC while losing more and more equity as a means of pleasing your investors.

RBFs, however, are better than traditional debt rounds because the investors are more incentivized to help the companies they invest in because they are receiving a certain portion of that business’s monthly revenues, typically 1% to 9%. Eventually, as is explained thoroughly in Lighter Capital’s newest RBF report, monthly payments come to an end, usually 1.3 to 2.5X the amount of the original financing, a multiple referred to as the “cap.” Three to five years down the line, any unpaid amount of said cap is due back to the investor. When all is said in done, ideally, the startup has grown with the support of the capital and hasn’t lost any equity.

At this point, they could opt to raise additional revenue-based capital, they could turn to venture capital or they could tap a tech bank to help them get to the next step. The idea is RBF is easier on the founder and it allows them optionality, something that is often lost when companies turn to VCs.

IPO corner, rapid-fire edition

Slack’s direct listing will be on June 20th. Get excited.

China’s Luckin Coffee raised $650 million in upsized U.S. IPO

Crowdstrike, a cybersecurity unicorn, dropped its S-1.

Freelance marketplace Fiverr has filed to go public on the NYSE.

Plus, I had a long and comprehensive conversation with Zoom CEO Eric Yuan this week about the company’s closely watched IPO. You can read the full transcript here.

Second Chances

Silicon Valley entrepreneur Hosain Rahman, the man behind Jawbone, has managed to raise $65.4 million for his new company, according to an SEC filing. The paperwork, coincidentally or otherwise, was processed while most of the world’s attention was focused on Uber’s IPO. Jawbone, if you remember, produced wireless speakers and Bluetooth earpieces, and went kaput in 2017 after burning up $1 billion in venture funding over the course of 10 years. Ouch.

More startup capital

Funds!

On the heels of enterprise startup UiPath raising at a $7 billion valuation, the startup’s biggest investor is announcing a new fund to double down on making more investments in Europe. VC firm Accel has closed a $575 million fund — money that it plans to use to back startups in Europe and Israel, investing primarily at the Series A stage in a range of between $5 million and $15 million, reports TechCrunch’s Ingrid Lunden. Plus, take a closer look at Contrary Capital. Part accelerator, part VC fund, Contrary writes small checks to student entrepreneurs and recent college dropouts.

Extra Crunch

Our paying subscribers are in for a treat this week. Our in-house venture capital expert Danny Crichton wrote down some thoughts on Uber and Lyft’s investment bankers. Here’s a snippet: “Startup CEOs heading to the public markets have a love/hate relationship with their investment bankers. On one hand, they are helpful in introducing a company to a wide range of asset managers who will hopefully hold their company’s stock for the long term, reducing price volatility and by extension, employee churn. On the other hand, they are flagrantly expensive, costing millions of dollars in underwriting fees and related expenses…”

Read the full story here and sign up for Extra Crunch here.

#Equitypod

If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm and I chat about the notable venture rounds of the week, CrowdStrike’s IPO and more of this week’s headlines.

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Fight over how to measure carbon risks is pitting the energy industry against the finance world

CALGARY — A fight over how to measure an oil company’s environmental footprint and social performance has pit members of the energy industry against the financial services industry, with even the Bank of Canada weighing in with a call for more disclosure on carbon emissions. Read More

Utility equipment sparked massive California wildfire, investigators say

workers rebuilding power lines in California.

California Fire officials have determined that Pacific Gas and Electric (PG&E), one of the state’s largest utilities, was responsible for the deadliest fire in a century.

The Camp Fire, which killed 85 people and burnt down nearly 15,000 homes, was sparked by PG&E power lines, according to a report that Cal Fire officials discussed with the press. The report was not widely released, but it was forwarded to the Butte County district attorney’s office.

The district attorney may bring criminal charges against the utility, and Cal Fire Deputy Director Mike Mohler told reporters that, “Investigators determined there were violations of law.” According to the San Francisco Chronicle, charges could include “recklessly causing a fire or manslaughter.”

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Innowatts raises $18 million for its energy monitoring toolkit for utilities

Innowatts, an automated toolkit for energy monitoring and management targeting utilities, has raised $18.2 million in a new round of funding from investors led by Energy Impact Partners .

Previous investors Shell Ventures, Iberdrola and Energy and Environment Investment participated along with another new investor, Evergy Ventures.

As utilities respond to new, renewable power coming online and adapt to the challenges presented by natural disasters and intermittent energy sources stressing old power grid assets, they are increasingly turning to new software toolkits to adapt.

Innowatts and its software fit squarely into that category of offering.

“Competing in today’s complex and evolving marketplace requires utility companies use data and intelligence to drive business and customer value,” said Siddhartha Sachdeva, founder and chief executive of Innowatts, in a statement.

The company’s technology is used to analyze meter data from 21 million customers globally in 13 regional energy markets.

Innowatts boasts that it’s the largest body of customer intelligence data consumed by a software company. How that data will be used is an open question.

“We invest in companies driving the transformation of the energy sector towards an increasingly decarbonized, digitized, and electrified future – solutions that our utility partners can commercialize at scale and have the greatest impact,” said Michael Donnelly, partner and chief risk officer at EIP, in a statement. “Innowatts is poised to become a key building block in the software-driven, intelligent grid of the future, and we look forward to working closely with them alongside our utility partners.”

The company uses the data it collects to predict the potential for outages or problems created by surges in energy demand so that utilities can dispatch resources to meet that demand without sacrificing reliability for customers.

“Utilities have the opportunity to deliver more value to customers, at lower costs and with greater personalization than ever before, while helping streamline the complex energy marketplace,” said Geert van de Wouw, vice president of Shell Ventures.

Fourth-largest coal producer in the US files for bankruptcy

coal train.

Cloud Peak Energy, the US’ fourth-largest coal mining company, filed for Chapter 11 bankruptcy late last week as the company missed an extension deadline to make a $1.8 million loan payment.

In a statement, Cloud Peak said it will continue to operate its three massive coal mines in Wyoming and Montana while it goes through the restructuring process. Colin Marshall, the president and CEO of the company, said that he believed a sale of the company’s assets “will provide the best opportunity to maximize value for Cloud Peak Energy.”

Cloud Peak was one of the few major coal producers who escaped the significant coal industry downturn between 2015 and 2016. That bought it a reputation for prudence and business acumen.

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Market map: the 200+ innovative startups transforming affordable housing

In this section of my exploration into innovation in inclusive housing, I am digging into the 200+ companies impacting the key phases of developing and managing housing.

Innovations have reduced costs in the most expensive phases of the housing development and management process. I explore innovations in each of these phases, including construction, land, regulatory, financing, and operational costs.

Reducing Construction Costs

This is one of the top three challenges developers face, exacerbated by rising building material costs and labor shortages.

Vancouver expected to headline long Canadian summer of high gasoline prices

CALGARY — Gasoline prices are expected to remain just below record highs all across Canada this summer except in Vancouver, where a perfect storm of factors will likely ensure motorists continue to set new all-time records at the pumps. Read More

Japanese railway company starts testing 249mph bullet train speeds

The long nose of the Alfa-X.

This week, Japanese railway company JR East showed off its new Alfa-X, a high-speed bullet train that is designed to achieve a top speed of 400kph, or 249mph, which would make it the fastest commercial train in the world. In day-to-day operations, the train would shuttle passengers at 360kph, or roughly 224mph.

On Friday, JR East will begin testing the Alfa-X, without passengers, on its railways. According to Bloomberg, the 10-car train will make the trip “between the cities of Aomori and Sendai at night” for the next three years during a testing phase. JR East hopes to use the Alfa-X commercially by 2030. Japan News says the line will eventually be extended to Sapporo.

That long lead time suggests that there might be an opening for another high-speed bullet train option to overtake the Alfa-X Shinkansen train in speed for commercial railway service.

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