A New Playbook for Startup Fundraising • TechCrunch


A few years Before, founders had only two options when starting a company — bootstrap yourself or turn to VC money, and use that money primarily to pursue growth. Later, venture debt began to gain prominence. While not solvent, the problems are similar to VC equity: it takes time to secure, involves guarantees, is not very flexible and not every startup can afford it.

But in recent years, there are more options for founders. Most startups can now use equity capital, and purpose-driven financing has entered the fray.

While venture capital remains the most popular avenue for startups, founders should take advantage of all available financing options. Using the best sources of capital means using cost-effective, short-term financing for immediate goals and more expensive long-term financing for activities with uncertain returns.

What is income-based financing?

Let’s define it as capital based on future income.

While venture capital remains the most popular avenue for startups, founders should take advantage of all available financing options.

So what’s so special about income-based financing? First of all, it is fast to grow. Compared to the months-long process of other types of equity or debt financing, income-based financing can be set up in days or hours. It’s also flexible, meaning you don’t have to spend all of the capital up front and choose to take it in installments and deploy it over time.

Income-based financing adjusts as your credit availability increases. Usually, there is only one simple payment with a fixed monthly payment.

How should startups develop their financial playbook?

In order to facilitate fundraising using different sources of capital, startups should consider balancing short- and long-term activities with short- and long-term funding sources. Income-based financing is short-term in nature, and the typical term is between 12 and 24 months. Venture capital and venture debt are long-term sources of capital, typically two to four years.

A startup’s short-term activities may include marketing, sales, implementation, and associated costs. If a startup knows economics, CAC and LTV, it can predict how much revenue it will generate if it invests a certain amount in its development. As the return on these activities is likely to be higher than the cost of income-based financing, startups should use income-based financing to support early-stage startups.



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