Happy Sunday, everyone. I wanted to share some reflections with you, as it was five years ago this past week that I attended the meeting at the Kauffman Foundation that set me on a path into revenue-based financing. Most of you have heard this story, but in case you haven’t, here’s the short version. It was April 13, 2017, and I had recently left the agtech firm where I was a founding GP because I just wasn’t excited about what we were doing there. I was also frustrated by the number of conversations I had with entrepreneurs that, frankly, I couldn’t help with the capital toolbox I had then. Victor Hwang, then VP of Entrepreneurship at Kauffman, and his team (shout out to my man Nathan Kurtz!) invited me to attend this meeting to discuss creative ways to unlock capital for more entrepreneurs. 

Honestly, it was a room I had no business being in, and I figured that out pretty quickly upon walking in. (Side note: I’ve been in a lot of those rooms over my lifetime – filled with innovators, thinkers, and disruptors – and it is in those rooms that I usually find some lightning bolt of inspiration. That was true on this day, too.) Andrew Yang was there. And Jonny Price, and Ross Baird. These were people who were really making a dent in the world. It was also at that meeting that I met Mike Hokenson, cofounder of CIM, who would later provide Novel the $100M debt facility we needed to scale our RBF funding platform. 

But it was John and Lula from Fin Gourmet that ended up really grabbing my attention. They had a food company that was struggling to find growth funding (and that was not a candidate for VC), and they ended up taking a revenue-based note from Village Capital. As they described it to me, I was struck. I did deals with similar structures before, but in life sciences, so I immediately saw the potential for this structure across different industries and markets. I dug in, decided to learn all I could, and talked to everyone who knew about RBF and who was willing to share their experience with me. I talked to more than 100 people in the following 90 days – entrepreneurs, RBFers, potential investors – and emerged with a set of beliefs and a conviction that I needed to launch an RBF firm. I came out of that effort with the core of what Carlos and I would soon launch as Novel. 

When I look back on my notes from those meetings I have to chuckle at how naive I was, at how I thought entrepreneurs would simply snap up this money if we could raise it. That was before I started saying, “selling money is hard”. That’s been an interesting cycle to be a part of as well, as there is now a market pull developing for RBF. More on that later though.

Sorry, that wasn’t really a short version after all. So here we are, five years on, and I wanted to share some thoughts and observations about the market and my experience over that period:
 

• It’s not just impact anymore. In 2017, there was an open question as to whether RBF could be a mainstream capital structure, and many investors thought it would mostly be relegated to impact investments where there was a lack of clarity (and perhaps a lack of belief) around the economic viability of the structure and the potential customer base. A combination of new market entrants and entrepreneur demand dispelled that notion though, starting around the end of 2019. 

• RBF isn’t a foreign language, a fringe topic, or some weird idea that investors dreamt up and entrepreneurs don’t understand anymore. I might even go so far as to say the opposite: it’s mainstream. Now there are huge amounts of capital flowing into this space, and absent a high-profile flameout, I don’t see it stopping anytime soon. 

• RBF is the hottest non-crypto asset class out there. Ok, that’s a stretch, but there is a new RBF or RBF-like firm popping up seemingly every other week now. This is a great development for entrepreneurs around the world. Whether they are funding businesses in ecommerce, software, the gig economy, or businesses on Main Street, it has become a regular occurrence. Interestingly, it’s happening in developing economies at breakneck speed. 

• Five years ago, the existing RBF investors wanted more RBF players in the market. Now there is friction in the market between players. Non-RBF firms are calling themselves RBF to give themselves a shinier veneer. And let’s be honest: OG RBFers do not like many of the new entrants. I might be one of those, and I’m not even an old-timer. The firms that were established before we got into the market do not like the way that RBF is being conflated with MCA and other short term debt structures by these new entrants. I don’t either. I think entrepreneurs will have bad experiences, chalk them up to RBF, and the market will sour as a result. There, I said it. 

• It is easier today to raise capital for a RBF platform than it was in 2017. Period. There are so many more proof points out there. So all you upstarts out there – you’re welcome. You don’t know what it’s like to walk uphill in the snow for every LP commitment for a first-time RBF fund. You can point to all of these players in the market today for validation. 

• It turns out capital access is not a geographic problem; RBF solves a systemic issue in the capital ecosystem. This market is simply much, much larger than we thought.

All in, these past five years have been incredibly rewarding, challenging, and exciting for me. I’m grateful to have the opportunity to be a part of this new asset class, and to learn from each of you along the way. So thank you – this is a pretty amazing place to be at this particular moment. 

I’m also really excited for the future. As we all continue to build our platforms and grow, I am proud of how we can continue to ease access to capital for entrepreneurs as they grow their businesses. Personally, I believe that what we’re building at Novel is making the kind of dent I hoped to make, and I know that dent is only going to get bigger.

So keep building, friends, and here’s to the next five years!