Equity, debt or revenue-based financing (RBF)?

Marketing is an effective driver of growth, but the payback period is long. Accelerating revenue growth requires front-end-weighted investments that will encumber finances. So growth often has to be financed — but how? This article presents different financing options for marketing, and examples of situations where the various options are best suited.

The most typical sources of financing for a growth company’s marketing are:

  • Share issue/media for equity
  • Loans
  • Cash-flow financing
  • Revenue-based financing

Each of these modes of financing has its own special characteristics and is suitable for different situations. To maximise their growth rate, many growth companies use all of these forms of financing – often at the same time.

Share issue/media for equity

In a share issue, the company receives money by selling a stake in the company to investors. An investor can also be a media company that provides media space in exchange for shares instead of cash.

The media budget obtained through a share issue is “new money”, and as such does not encumber the company’s current finances at all. For this reason, this financing option is particularly suitable for early-stage growth companies. A share issue alone is not suitable for financing a very large budget, because each share issue dilutes – that is, reduces – the holdings of the current owners.

The share issue can be carried out independently by raising money from private investors, business angels, venture capital firms or crowdfunding platforms.


+ No repayment

+ No collateral from investors


– Dilutes holdings

– Sometimes strict control by investors (e.g. board seats)

– Laborious and slow process

– Usually the most expensive* option

*) Depending on the issue price and valuation at the time of exit.


There are several loan options. A loan can be applied for from a bank, individual investors or through loan-based crowdfunding. The cost of a loan varies depending on several factors, such as the collateral and the loan period. The loan is typically repaid in equal monthly instalments or in a lump sum at the end of the loan period. The latter option is typical of equity loans and bonds, for example.


+ The company retains control  

+ Low-cost final cost (especially in the case of bank loans)

+ Does not dilute holdings


– Usually requires collateral

– Burdens the balance sheet

– High interest rates and costs on unsecured loans

– Flat-rate repayment (monthly or one-off)

– Not generally suitable for financing large budgets

Cash-flow financing

In cash-flow financing, the company finances marketing from its own cash flow. Typically, marketing starts with a small budget, which is increased, for example, monthly as revenue increases.


+ Growth can be developed profitably

+ No additional (interest) expenses

+ Does not dilute holdings, does not stress the balance sheet


– No large front-end-weighted investments are possible, so growth is slower

– In general, the budget is directed to tactical short-term measures that do not maximise marketing ROI

Revenue-based financing (RBF)

In revenue-based financing (such as Foppa media financing), the company pays a certain percentage of its revenue from the marketing budget until the agreed repayment period or cap is reached. This financing option is suitable for companies that already have revenue and clear growth prospects for the coming years. Financing is often also conditional on a sustainable profit structure, unless the company has a strong balance sheet or unless other sources of financing, such as a share issue or a loan, are combined.


+ Does not dilute holdings

+ No collateral

+ Fees/costs tied to revenue growth

+ Usually allows financing of large marketing budgets as well


– Not suitable as the sole financial instrument for very early stage growth companies

– Not suitable for companies with low margins and weak balance sheets


Each option has its own levels of risk and return as well as its own pros and cons. Just as every investor must diversify their investment portfolio to increase its marketing budget and accelerate growth, a growth company should take advantage of all possible financing options – sometimes even at the same time.

Whatever your company’s industry or life cycle phase, we at Foppa will be happy to discuss various financing options with you. Contact us and let’s talk!