The Revenue Trades Blog - Good Posts on How Management Can Take All the Revenues

7/30/2019 The Revenue Trades Blog - Good Posts on How Management Can Take All the Revenues

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Novemb er 29, 20 11

But a critical moment during my meeting w ith t he Fed camewhen we discussed how these lenders have internal yield requirements that often do no t necessarily correlate to thegeneral market. BDCs normally target 8-10% returns to meet their shareholders expectations, an d w e of ten hea r hedge fundstalk about the need to deliver high s ing l e di git r etu rns to theirinvestors or else risk losing their ca pita l to alte rna tivestrategies.

So, in many instances, despite the hard w ork by the Fed tocreate a low interest rate environment, it has had a marginal effect on the cost of middle-market borrowings, and, in manycases companies capital structures today have higher weighted average costs of capital than in 2008 when the interest rateenvironment was significantly higher.

nd that led to the next question. Do todays higher borrowingcosts account for the lower than expected borrowing demands,

articularly for acquisitions and growth financings?

http://www.pehub.com/126880/talking-mid-market-finance-with-the-federal-reserve/

Filed under entrepreneurship , finance

September 12, 2011

What Hollywood Accountingteaches us about management risk

eturn of the Jedi grossed $572 million in revenue, claims $0 in profit.

arry Potter, and the Order of the Phoenix grossed $938 million in revenue,claimed a $167 million loss.

orrest Gump grossed $677 million in revenue, claimed a $60 million loss.

y Big Fat Greek Wedding grossed $370 million in revenue, claimed a bigfat $20 million loss.

Apart from an expert lesson in bluffing, the accounting gam es played in thefilm industry teach us the risk in predicting the net profitability of a venture

versus its revenue potential.

Which is easier to predict: profit or revenue?

3 n ote s

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F o l l o wF o l l o w D a s h b o a r dD a s h b o a r d
http://articles.latimes.com/2007/aug/08/business/fi-hanks8http://articles.latimes.com/2007/aug/08/business/fi-hanks8http://revenuetrades.tumblr.com/post/10119543092/hollywood-royaltyhttp://revenuetrades.tumblr.com/post/10119543092/hollywood-royalty#noteshttp://revenuetrades.tumblr.com/archivehttp://www.pehub.com/126880/talking-mid-market-finance-with-the-federal-reserve/https://www.facebook.com/jacobzuppkehttps://www.facebook.com/gloria.ww.7https://www.facebook.com/briangolub7https://www.facebook.com/lisyanskyhttps://www.facebook.com/jacobzuppkehttps://www.facebook.com/gloria.ww.7https://www.facebook.com/briangolub7https://www.facebook.com/lisyanskyhttps://www.facebook.com/nharrisshttps://www.facebook.com/aidan.feldmanhttps://www.facebook.com/1gaetanomaranohttps://www.facebook.com/samir.alliouihttps://www.facebook.com/plugins/likebox.php?id=125645370833292&width=260&connections=10&stream=false&header=true&height=287#http://revenuetrades.tumblr.com/http://revenuetrades.tumblr.com/http://revenuetrades.tumblr.com/abouthttp://www.tumblr.com/dashboardhttp://revenuetrades.tumblr.com/post/10119543092/hollywood-royalty#noteshttp://revenuetrades.tumblr.com/post/13505351068/but-a-critical-moment-during-my-meeting-with-the#noteshttp://articles.latimes.com/2007/aug/08/business/fi-hanks8http://findarticles.com/p/articles/mi_qn4182/is_19950525/ai_n10082506/http://www.boxofficemojo.com/movies/?id=forrestgump.htmhttp://www.slashfilm.com/insane-studio-accounting-warner-bros-claims-167-million-loss-over-harry-potter-and-the-order-of-the-phoenix/http://www.slashfilm.com/lucasfilm-tells-darth-vader-that-return-of-the-jedi-hasnt-made-a-profit/http://revenuetrades.tumblr.com/post/10119543092/hollywood-royaltyhttp://revenuetrades.tumblr.com/post/10119543092/hollywood-royaltyhttp://revenuetrades.tumblr.com/tagged/financehttp://revenuetrades.tumblr.com/tagged/entrepreneurshiphttp://www.pehub.com/126880/talking-mid-market-finance-with-the-federal-reserve/http://revenuetrades.tumblr.com/post/13505351068/but-a-critical-moment-during-my-meeting-with-thehttp://revenuetrades.tumblr.com/http://www.twitter.com/RevTrades/status/253164284912230400http://revenuetrades.tumblr.com/askhttp://developers.facebook.com/plugins/?footer=1http://developers.facebook.com/plugins/?footer=1https://www.facebook.com/plugins/likebox.php?id=125645370833292&width=260&connections=10&stream=false&header=true&height=287#https://www.facebook.com/revenuetradeshttps://www.facebook.com/lisyanskyhttps://www.facebook.com/briangolub7https://www.facebook.com/gloria.ww.7https://www.facebook.com/jacobzuppkehttps://www.facebook.com/samir.alliouihttps://www.facebook.com/1gaetanomaranohttps://www.facebook.com/aidan.feldmanhttps://www.facebook.com/nharrisshttp://revenuetrades.tumblr.com/rsshttp://revenuetrades.tumblr.com/archivehttp://revenuetrades.tumblr.com/privacyhttp://revenuetrades.tumblr.com/termshttp://revenuetrades.tumblr.com/abouthttp://revenuetrades.tumblr.com/homehttp://revenuetrades.tumblr.com/post/10119543092/hollywood-royalty#disqus_threadhttp://revenuetrades.tumblr.com/post/13505351068/but-a-critical-moment-during-my-meeting-with-the#disqus_thread


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The Obvious Answer

Revenue is always easier to predict. Management risk represents the distance between revenue and profitability of a venture.

As a financial backer who is not also a manager of the venture, it is easier tospeculate on the revenue potential and performance of a venture than it is tospeculate on its profitability.

Smart managers who drive down the cost of doing business can still makeout like bandits in a royalty situation. But because profitability will always

correlate with revenue, there is never a conflict of interest with increasingrevenue.

Being the Owner sucks. Being the Bank rocks.

Royalties, when executed fairly and efficiently, give the capital managers anadvantage in predicting success. And predicting success is the first thing inthe game of risk capital.

For managers of the venture, a royalty payment must be accounted for inaddition to regular costs of doing business. This can be a problem if the

venture hits a rough patch and that royalty payment is the difference between lights on and off. Maybe a good royalty arrangement needs toaccount for that too.

Being an owner brings with it the reward of running the business wellandit carries with it the spectre of being the last paid or being the captain goingdown with the sinking ship. Managers of a business must be rewardedhandsomely for success because they take the most risk.

By decoupling management risk from growth risk, the capital manager canfocus on the right risk for their role. For the multitude of capital purveyors

who dont care about the benefits that come w ith ownership investments,like control of the business or a wider menu of vengeful lawsuits, its a betterarrangement. Their business is to move and manage capital, and a royalty only on revenue might allow them to actually mind their own business

while the manager minds his!

We believe in the scalable potential of simplified venture investing.

If the masses will ever successfully engage in backing higher risk ventures,some variables in the equation have got to go. Thats why our bet is onroyalty-on-revenue and not on equity: easier to predict success, leavemanagement risk to the managers, less legal hassle for lower transactioncosts.

For all the aspiring actors following along, just remember to get gross points when you can.

Filed under hollywood accounting , royalty , profit sharing

July 22, 2011

Using the Crowd to Help Seed StageInvestorsThis week, Chris Yeh in his Mashable Op-Ed article Why Valuations AreGetting to High for Seed Stage Investors outlined the circumstances leadingto inflated seed stage valuations and the problem that presents for angelinvestors.

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& 4 Comments and 1 Reaction

Chris points out that angel investors have the most to lose with these high valuations. And entrepreneurs should be concerned because they will missout on the expertise of good angels if they are not also financially incentivized as investors.

Reward Investors for their Expertise

Revenue Trades has a new way to reward angels for their expertise and canleverage funding from the public. An angel investor witha complementary background for the current needs of a business can bringextra value to a deal and rally public support.

In many large angel groups, the member with the most relevant industry experience typically leads the round of funding and encourages othermembers to participate. However, the lead angels providing the most non-monetary value do not get special deal terms compared to the rest of thegroup.

Preferential Treatment for the Value Added to the Investment

Revenue Trades emphasizes the value provided by Experts to Businesses. When that match is made, the deal has higher potential and sets the stagefor additional funding parties to enter the round.

We think pre-seed and seed stage investors should offer expertise andfunding together. Moreover, our Expert-based system rewards thoseinvestors that not only fund Businesses, but also bring additional value to thedeal. We accomplish this without adjusting the deal terms, instead, wecompensate the lead angels that help businesses achieve actionable goals by rewarding the lead with a portion of the surplus returns delivered to follow on funders.

July 12, 2011

Education - What do Undergraduates

really Gain?Its scary to think that a persons career earnings may be capped before they turn 18.

In the current system, undergraduate professors evaluate their students based on how they performed in accordance with their standardized gradescale. Unfortunately, if students deviate from the path designed by theirundergraduate professors, they lower their chances a t future employmentthrough that schools connections into the corporate world.

Its also prevalent for big service firm human resources to not acceptcandidates for higher paying entry levels jobs if they did not graduate from a

certain tier school with a GPA hurdle being met.

But, hey, thats where entrepreneurship can change things - theundergraduate education ecosystem just needs to get with it and realize thetrouble it is currently propagating.

While I was in college (2004-2008), my professors were complaining thatundergraduates were a burden. They whined that they needed more time toproduce research on over studied topics, so that other professors would citethem.

For example, my senior thesis proposal was shot down by a professor moreinterested in his own pursuits than on supporting an innovative ideasuggested by another of his undergraduate burdens. Shortly after being

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rejected, I posted the concept on the most popular digital media venturecapital blog at the time:

oeter, back in NY

or my economics senior seminar I wanted to build a model on this. I wastrying to figure out more about the attention economy. I felt laboreconomics was the best place to start and used the basic labor-leisure tradeoff.

I made the assumption that users were a cost of input just like factoryworkers since in web 2.0 sites the users add a large portion of the value (orat least keep the site functional).

Y-axis: value of service (insert your marketing effort here)

-axis: trade off between rent on privacy and $ cost of service (i used aercent scale since I didnt fully figure out a way to have them expressed in

the same unit)

The constraint I called the convenience rate, which then allowed fordifferent indifference curves to be drawn tangent to it depending on user

references. The multiple business models on the web would fit in betweenthe x-axis scale.

The model is basic and theres a lot more I can flesh out, but thats becauseits still in infancy; for a poor reason. Unfortunately, my proposal was

turned down. My professor told me to try another topic he knew moreabout like sports betting.

3 years ago

http://www.avc.com/a_vc/2008/02/free-is-a-great.html#comment-179171

Conclusions to be drawn:

Its apparent that theres a giant structural problem with the current system.Students arent encouraged to take risks in college to explore unique ideas,since they do not want to jeopardize meeting the criteria of their professorto HR connection.

Moreover, the cost for college education has been continuously rising (along with student debt), while the number of high paying jobs for young people inthe USA appears to be falling.

To fix this problem, we need to increase the number of college graduates thatgo and create their own businesses to spur future employment. However,the change needs to be effectuated by more than just colleges.

Mentors need to be able to recognize those students who have the potentialto be great entrepreneurs and these mentors must be properly incentivized to

work with this talent. Experienced mentors from any industry could guideentrepreneurs, and thereby accelerate the proliferation of innovative

businesses which are needed to sustain our economy.
http://www.zerohedge.com/article/bill-gross-college-worthlesshttp://www.mikekarnj.com/blog/2010/08/11/college-inc/http://mjperry.blogspot.com/2010/06/higher-education-bubble-its-about-to.htmlhttp://www.avc.com/a_vc/2008/02/free-is-a-great.html#comment-179171http://www.avc.com/a_vc/2008/02/free-is-a-great.html#comment-179171http://www.joeter.wordpress.com/


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& 0 Comments and 1 Reaction

into cash to continue investing.

According to Kauffmans eVenturing guide, While the average time to exit was four years, the home runs took an average of 8.6 years to harvest.Lemons sour quickly but plums take longer to ripen. 2

Its a liquidity problem, of course. It is to be expected when investing directly in an early stage company in exchange for equity in the venture. The benefit,of course, is the potential upside of the venture if it is extremely successful.

For some angel-funded or VC-funded ventures, there is an opportunity tohold on to that upside potential while returning the principal investment sothat it can be reinvested in the next big thing.

ROYALTY AND EQUITY, LI KE PEANUT BUTTER AND JELLY Revenue Trades is pioneering the process of combining equity and royalty investments. For ventures with the right margins and growth potential,royalty with equity provides benefits to entrepreneurs and investors.

A royalty investment is a promise to pay out to the investor a percentage of future revenue for capital given today.

Investors can plan on a return of their principal and even interest from therevenue of the company. And an uncapped royalty can tie the upsidepotential to steady liquidity. Entrepreneurs can give up less equity. After all,they expect to stay in the venture until the end!

A simplified royalty agreement consisting of a set percentage over a setperiod of time would not work for many typical startups. What aboutincluding a delayed period where revenue is 100% retained for a couple

years? How about a variable royalty percentage tied to other growthmetrics?

Getting principal back sooner from a healthy investment can be thedifference between saying yes or no to that next new entrepreneurwhilemaintaining that portfolio of long term investments with fantastic upsidepotential.

Will this solve the problem of negative ROI for 39% of angel investors?Probably not. But we must all do our part to solve that problem. After all, we

want to be angel investors too.

eferences1 Page 4 of the Kauffman report, Returns of Angel Investors inGroups. About the study or download the full report.

2 Page 9 of the Kauffman-sponsored eVenturing guide. Download the guide.

Entry by: Israel Vicars

Filed under angel investing , royalty , royalty based finance

June 20, 2011

Moving Forward into the Unknown After an initial grinding phase to organize our business, we are finally ready to start blogging a few times per week.

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Since we first started building the concept of RevenueTrades.com inSeptember, a lot has happened in the venture business. Mark Suster does agreat job explaining how the game is changing for VCs.

We do not view these changes as negative - weve been expecting disruptionin this industry ever since the proliferation of startup accelerators (aka

Ycombinator clones).

We do, however, anticipate things to get even more exciting forentrepreneurs - and we want to open up the potential returns to anyone; notust the wealthy.

To get our content rolling, here are a few trends we have been watching and will be commenting on over the next year:

1. Education and big service firm Hum an Resources have co-evolved to anunsustainable point

2. Apps are becoming simpler to create for even non coders and althoughthere will be next generation Marios, expect most apps to have a similarhalf-life as hot NYC night spots

3. A persons attention is quickly becoming their most valuable asset whilediscovery technologies are vastly improving and being introduced toconsumers in more relevant ways

4. Web platforms are communicating more data back and forth every day

5. Privacy concerns are growing and these are not only isolated to Facebook blunders or data mining companies trying to serve you targeted ads

More to come soon, but on a final note, we have started evaluatingapplications from companies to be included in our first batch of businesses.

Fill out this form to start the process, and we will be in touch.

Entry by: Joe Williams

Filed under entrepreneur , revenuetrades , trends

February 19, 2011

"It'll never work"


December 17, 2010

Thats right. 2011. These six ideas emerged in 2010 as powerful innovation invitations and seem sure to intensify in powerand influence. Theyll increasingly be a source of, and resourceor, innovation differentiation in 2011, if not for your

organization, then for the firm you most dread competingagainst.1. ContestificationWhether Google Demo Slam or Sprints App Competition,digital media has become an innovation battleground forcustomers, clients, prospective partners, and young talent. Frito-Lay has already made competition the cornerstone of its

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Super Bowl advertising, and Toyota, desperate to remind peoplewhat a wonderful corporate citizen it can be, invites aspiringinnovators to suggest how the firms technology can be used forgood in unexpected ways. Crowdsourced contestification isbecoming institutionalized as a way firms can grow their owninnovation nations. If youre not running an innovativeinnovation contest to invite participation and build brand, thenyoure reacting to your competitors competition. Will yourcontest be competitive with their contest? Whos running it? Whos judging it? Whos winning it?

Harvard Business Review


Filed under revenuetrades , contests , gamification , revenue based finance ,

revenue funding , crowdfunding , crowdsource

December 15, 2010

RevenueTrades First Blog PostThe purpose of this blog is to:

1. Help businesses2. Educate readers about revenue based funding3. Provoke intelligent debate4. Provide updates about RevenueTrades.com

Stay tuned


Filed under crowdfunding , crowd-funding , crowd funding , venture capital ,

entrepreneur , business , small business , funding , finance , loan , revenue ,

revenue funding , royalty based finance , revenue based finance , microfinance ,

revenue based investing , royalty based investing , small business lending

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