Case Studies

Overview

Novel, founded in 2017, closed its first fund at over $12M in 2019. Its co-founders are Keith Harrington, a former VC and Kauffman fellow, and Carlos Antequera, former CEO of education technology (EdTech) company Netchemia, acquired in 2015 by PeopleAdmin. The two wanted to bring the RBI model to the software space as an alternative to traditional VC for startups. The team has grown from the two founding partners at inception to 16 members as of March 2022.

In 2022, Novel closed $115M in equity and debt financing from investors including Community Investment Management, Nueterra Capital, Tenzing.vc, Ulu Ventures, and MatterScale Ventures. The team decided to move away from the traditional GP/LP fund structure that they used for their first fund and scale their RBI platform with a debt facility. This fintech platform approach, similar to Founders First Capital Partners, enables Novel to make more and larger revenue-based investments for entrepreneurs without continuously raising smaller funds from LPs.

Investment Strategy

Novel makes revenue-based loans in early-stage, B2B Software-as-a-Service (SaaS) companies in the Midwest. Novel provides growth capital out of their fund and direct operational support for entrepreneurs from their Revenue Acceleration Platform. The team seeks companies with $500K+ annual revenues, 40%+ gross margin, and 30% year-over-year growth rate. Fund I will invest in 40 – 50 companies over its five-year investment period with an initial check size of $100K to $2M or up to 30% of a company’s annual revenue with reserves for larger, follow-on investments.

Revenue-Based Products: Based on their own entrepreneurial journeys and VC investment experience, Novel’s founding partners knew the super-high growth and high failure rate of the traditional VC model overlooked a large number of entrepreneurs. They wanted to offer a different type of capital product that enabled them to help as many entrepreneurs scale their businesses as possible. Novel decided to use the RBF approach to serve as an alternative to traditional VC or bridge to the next round. Instead of buying equity and waiting for a public or M&A exit like the VC approach, Novel generates self-liquidating returns with a monthly revenue-based payment based on the company’s sales. The company stops making revenue-based payments to Novel once it hits the return cap.

Novel offers two revenue-based capital products: 

1. RevShare Capital is patient growth capital for companies with flexible payment options. It is designed for SaaS companies with a mix of recurring, and non-recurring, revenue streams. Novel provides funding of up to 30% of a company’s total annual revenue structured with 4% to 9% royalty of gross cash receipts, return cap of 1.2x to 1.9x, and six- to 60-month payment schedule. If the capital is paid back earlier, then a lower return cap is used.
2. Upfront Capital is essentially invoice factoring for companies that turns future subscription revenue into immediate capital to help fund short-term needs. Companies can trade up to 30% of their subscription revenue for capital. Novel makes Upfront Capital investments from $100K to $5M in exchange for a one-time upfront fee of 8% of the company’s monthly contracts over a 12-month payment schedule. The cost of capital is an 18% APR. This RBF product is a good fit for subscription-based SaaS companies with recurring revenue streams.

Novel’s RBF model produces faster growth funding for companies within two months compared to traditional VC which typically takes at least 6 months. However, they can partner with VCs and lenders if it makes sense for their companies.

RBI Product Terms

Track Record

Novel Growth Partners Fund I (2017, $12M) – Novel has fully invested the fund across 50+ portfolio companies as of Q1 2022. Portfolio companies include:

• ABODO (Madison, WI) delivers a new, better way to find apartments.
• Branching Minds (NYC) is an EdTech company that helps teachers create personalized interventions for students.
• DivvyHQ (Kansas City, MO) provides a content planning and production workflow tool for high-volume content teams.
• Elevate K-12 (Chicago) is a live streaming learning system focused on impact and outcomes for K-12 students across the country.
• Gremlin Social (St. Louis, MO) is an integrated social media solution for financial services companies.
• MyMajors (Kansas City, MO) is an EdTech company that assists students in identifying a major, career, and college through student friendly assessment technology.
• OpenReel (NYC) provides virtual production studio technology that allows teams to direct and capture 4K video remotely through a user’s phone, replacing the need for a camera crew.
• Passage (Detroit, MI) is an online and at-the-door provider of ticketing and payments for specialty events.
• Precise Telehealth (Timonium, MD) is a MedTech company that provides telemedicine to patients with highly complex conditions or multiple comorbid chronic conditions.
• Wisboo (Palo Alto, CA) provides an all-in-one solution for education businesses in LatAm to easily create a self-branded online academy.
• Zype (NYC) empowers video operations teams to build DTC video streaming services across the web, mobile, connected TV, and social media.

Total Portfolio (2017-22) – In total across Fund I and the fintech platform, Novel has invested in 80+ companies and closed 120+ revenue-based deals across those companies as of November 2022.

Novel Capital Resources – More Reading & Listening