Planting the Seed of Revenue-Based Financing in the Cincinnati Ecosystem
As a result of the partnership between Flywheel and Miami University, social entrepreneurs in the Cincinnati region will have an innovative new source of startup capital. Miami has created one of the nation’s first undergraduate student-led social impact investing funds, which will utilize revenue-based financing. Social ventures exiting Flywheel’s Elevator social impact accelerator program will be eligible to receive this new source of startup capital.
Revenue-based financing is a better fit for social impact startups.
With limited access to exit-focused venture capital, social impact startups turn to collateralized debt. However, this type of debt contributes to a high cost of failure for both the startup and the founders’ families. Social entrepreneurs can achieve greater social impact with access to startup capital that aligns with their mission, and revenue-based funding models create that access.
Revenue-based financing not only fills the startup’s need for early-stage capital, but also provides investors with the opportunity to receive a market rate of return and create social impact. Investors receive a percentage of a venture’s revenue until they reach the agreed upon return of their investment. We know businesses are not linear — revenue-based financing aligns the return of capital with the flow of revenue, ensuring a shared success model.
This model has been tested and validated by leaders in the industry.
Flywheel has piloted a revenue-based financing model for two years and benchmarked Fledge, a Seattle-based social impact accelerator. Fledge has successfully launched 82 startups using revenue-based financing, and their portfolio startups have consistently received follow-on investments. Additionally, Lighter Capital and other leading investor groups are also successfully using revenue-based financing to provide early-stage capital to startups and expansion capital to growing businesses.
Elevator and other social enterprises have more access to early-stage capital.
Elevator cohort companies can expect to exit the accelerator well-equipped to seek investments of this startup capital from Miami University’s Social Impact Fund. The relationship will bring deal flow of vetted, investable social startups to the fund, which will, in turn, provide critical access to early-stage funding for the startups.
This fund will act as a catalyst for social impact within our community.
The partnership between the Miami fund and Flywheel is only the beginning. Through this collaboration, we aspire to provide a leading example and an opportunity for local impact investors to increase their understanding and confidence in revenue-based financing. We believe this innovative funding model will ignite a new wave of impact investing in our community.
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