A Revenue Share Agreement (‘RSA”) is a quasi-equity financing instrument (also called revenue-based loan) where periodic repayments are based on a percentage of the revenues up to a predetermined return on the investment (“Cap” or “Multiple”).
The RSA allows for higher level of flexibility because the repayments are not tied to a monthly amount or interest rate, but they fluctuate with the company’s revenues allowing for greater flexibility. Hence, when revenues are down due to seasonality or other unexpected factors, the repayment will be lower, and it will represent a smaller burden on the company’s cashflow.
Conversely, when revenues are high, the repayment will scale with the increasing revenue base and it will allow the investment to be repaid faster.
The RSA debt-based allows to retain ownership and control of the company, avoiding equity dilution or interferences in the management by external parties.