Daniel, the founder of Tex Capital, has been clear about what’s driving the renewed interest: revenue-based financing is entering its second phase—and technology is the catalyst.
Often grouped with merchant cash advances, revenue-based financing (RBF) allows investors to deploy capital in exchange for a contracted share of a business’s future sales. For years, the asset class has delivered attractive returns through short duration, rapid capital recycling, and performance tied directly to operating revenue rather than interest-rate exposure. But until recently, it remained operationally heavy and opaque to most investors.
That’s now changing.
Phase One: Proving the Model
The first phase of revenue-based financing was about proving viability. Underwriting relied on bank statements, tax returns, and manual reviews. Servicing was labor-intensive, and growth was constrained by operational friction rather than capital availability.
Even so, disciplined operators built profitable portfolios by focusing on real cash flow, diversification, and active risk management. As a result, revenue-based financing quietly embedded itself into the infrastructure of commerce.
Platforms like PayPal, Shopify, Stripe, Amazon, and Toast began offering sales-linked funding directly to merchants. Institutional capital followed. J.P. Morgan’s senior funding of YouLend, enabling billions of dollars in revenue-based advances across global marketplaces, underscored that this was no longer a fringe product; it was institutional credit wearing fintech clothes.
“Phase one proved the economics,” the Tex Capital founder says. “Phase two is about removing friction and letting the asset class scale the way it always should have.”
Phase Two: No-Doc, Automated, and AI-Driven
Phase Two of revenue-based financing is defined by automation, real-time data, and AI-driven underwriting. Instead of static documentation, decisions are increasingly made using live transaction feeds, payment processor data, and open-banking integrations.
This shift is turning RBF into a true “no-doc” asset class. Merchants no longer need to submit tax returns or financial statements. Underwriting happens continuously, not episodically. Risk models update as sales change, allowing capital to move faster and with greater precision.
For investors, the implications are significant. Faster underwriting means a shorter time from capital commitment to deployment. Automated servicing reduces operating costs, and AI-driven monitoring allows managers to identify deterioration or opportunity earlier than traditional credit frameworks.
Just as importantly, these advances enable balance-sheet-light models. Capital can be originated, distributed, and recycled with minimal overhead, making RBF more scalable and repeatable than its earlier iterations.
Discipline Still Defines Winners
Technology does not eliminate risk—it reallocates it. The same fundamentals still apply: tight position sizing, controls against stacking and fraud, industry-level diversification, and conservative exposure management. AI enhances these disciplines; it doesn’t replace them.
“In this space, automation without discipline just lets you make mistakes faster,” the Tex Capital founder notes. “The edge comes from combining technology with conservative risk frameworks. This way, all merchants can benefit from no-doc approvals, rather than only those who accept card payments.”
The Future of Alternative Credit
Revenue-based financing remains largely underrepresented in traditional portfolios, but that gap is narrowing. As Phase Two infrastructure matures, the asset class is becoming faster, cleaner, and easier for institutional capital to access—without sacrificing its defining characteristics.
The Tex Capital founder sums it up succinctly: “This asset class stayed hidden because it was operationally hard. AI and automation are changing that. The investors who understand this transition early are going to benefit the most.”
