InSight

Exit and Growth Strategies for Middle Market Businesses

Consider Top-Line Revenue Financing

By Brian Ballo | May 10, 2009
If You Want Funding This Year

Several CFO’s have recently asked me “When will the capital markets “return to normal?”  My answer is:  Not this year.  Therefore, if you are a C-level executive that wants to obtain funding for your company, you might consider leveraging your company’s top-line gross revenues with a new form of financing structure from Entrex, Inc., based in Chicago, and Bank of New York/Mellon, and made available to you through your corporate finance investment banker.

The current reality is that talk by traditional banks about low interest rates is not solving your cash flow needs, particularly when stricter lending requirements have reduced the amount of your working capital line or term loan.  Also, selling or giving up equity at a today’s reduced valuations is not attractive, which explains why raising equity capital in the types of private placements typical a few years ago, are not getting done.  As a result, unless your company is distressed (and, therefore, attractive to vulture investors), then you are most likely frustrated with your inability to access capital for growth and recapitalizations.

One attractive and innovative financing solution that middle market companies might consider is obtaining lump sum capital in exchange for giving the investor a monthly fixed percentage of the company’s top-line (GAAP) gross revenues for a finite period of time, or perpetually. Traditionally known as royalty based financing, this form of financing is accomplished by a company issuing securities known as Top-Line Income Generation Rights Certificates (aka TIGRcubs™) under a license from Entrex, Inc.

For private and public companies with positive cash flows, annual revenues between $5M – $250M, relatively strong gross margins, and promising future revenue growth, TIGRcubs™ appear to be a well-suited corporate finance solution. The main advantage for companies issuing TIGRcub™ securities is that there is no equity ownership dilution to the current shareholders.

This top-line focus to derive investor returns elegantly avoids today’s awkward company valuation discussions, the difficult analyses associated with estimates of future EBITDA results, and the liquidity discount often applied to illiquid private equity valuations. Instead, investors, who receive a fixed percentage of the company’s variable gross revenue, truly become aligned in promoting company growth.  Variable payments enable companies some relief if cash flow drops, at a time when they need it most.

Entrex, Inc. is institutionalizing this form of financing, and intends to operate a secondary exchange for trading of TIGRcubs™, which should cause more institutional investors to make allocations to this type of security.  However, for companies interested in issuing TIGRcubs™, the first step is to begin working with an investment bank (namely, Corporate Finance Associates) which is specialized licensed by Entrex, Inc. to sell TIGRcub™ securities, and who can show you a spreadsheet comparing the cost of capital for issuing TIGRcubs™, versus issuing other forms of securities or taking on additional debt.

Download my article titled Obtain Financing By Leveraging Your Company’s Top-Line Revenues to learn more about how TIGRcub™ financings are now getting done in the new economy, or for more information visit: financing options for middle market companies.





This is not an offer, or a solicitation of an offer, involving the sale of securities. Securities are offered through Corporate Finance Securities, Inc., a SEC registered broker-dealer and FINRA member firm.


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