Events

Ms. Yifei Wu
PhD Candidate in Strategy Unit
Harvard Business School

Revenue-based financing (RBF) has recently emerged in the digital age as an innovative approach to fund entrepreneurial firms underserved by traditional finance. Yet little is known about how RBF performs in practice. Using proprietary data from MicroConnect – a pioneering RBF startup that invests in growth-oriented consumer-sector brands and chains in China – I examine the impact of RBF contracts on firm and investment outcomes. I find that the RBF investor faces significant challenges in recovering returns, with visible post-investment revenue declining significantly in the early stage of implementation. This puzzle motivates a deeper investigation into moral hazard behaviors induced by RBF contracts. Combining modeling with empirical analysis, I identify revenue hiding and brands’ strategic resource reallocation as key mechanisms. These findings have important implications both for the RBF investor—a startup carrying a value-creating model— and for entrepreneurial firms in search of alternative growth capital.