Revenue Participation: Some Words of Caution

Revenue Participation financing can be very attractive for investors and businesses alike – when the business fits the Revenue Participation paradigm of relatively predictable (timing and magnitude) high gross margin revenues.

Most companies that are good candidates for venture capital investment don’t fit that paradigm, and investors and entrepreneurs alike should be careful not to let the attractions of the Revenue Participation – primarily a first call on any available revenues and a “potential” return for the investor; primarily the lack of any equity interest and related pressure for an “exit” event for the entrepreneur – color their analysis of the future performance of the business in terms of size, magnitude and timing of future high margin revenues. 

Source: https://www.natlawreview.com/article/introduction-to-revenue-participation-financing