Column: How To Raise Working Capital Without Selling a Part of Your Company

Lucas Dickey
Lucas Dickey is an aspiring polymath, lover of inventions and the co-founder of Fernish.
Column: How To Raise Working Capital Without Selling a Part of Your Company

You've started your company and it seems like the only way to raise the necessary operating capital and get this damn thing going faster is to sell a stake in your company as equity. You'd rather not sell more of the company than you absolutely have to.

There's always the very popular, but least appetizing, option of pooling all your personal credit cards into an ocean of debt (see every episode of "How I Built This" ever). But before you throw the Hail Mary, take a look at some other options. There are actually a number of alternative financing options. And thankfully, the market is responding to interest in non-dilutive capital of this kind and thus is rushing to meet the demand of this particular customer type (ie. you, my fellow entrepreneurs).

Trust me, at Fernish we know just how costly it can be to finance a new venture, what with engineers, warehouses, advertising, and furniture inventory. So, how can you finance your company other than selling a large portion of it off to investors?


Quick caveat: for the most part, raising a small equity round—with friends, family or smaller institutions and strategic angels—will make it easier for you to get access to the other capital sources listed below. Having cash on your balance sheet and/or a reputation with the institutions familiar to these financiers will make it significantly easier for you to get access to them, and with better terms.

Let's dive into a few of the options.

Revenue Share

Market leader Clearbanc defines this option succinctly: "No dilution. No board seats. No warrants. No personal guarantee. No personal credit checks. No fixed payment timelines. No bullshit!"

But what does that exactly mean? The company extends anywhere between $10k to $10MM in the form of marketing capital in exchange for a percentage of your generated revenue. Put simply: they'll give you X dollars for marketing purposes, and in exchange you'll pay back that principle, plus interest (6-12%) depending on a number of factors, including your historical ad spend to validate you've achieved a positive return on your ad dollar investment—the ad world jargon is Return On Ad Spend (ROAS). If you're running an ecommerce or marketplace, direct-to-consumer (DTC) business or consumer software-as-a-service (SaaS) business, this is likely a good candidate for you. The capital they provide can be used on most popular ad platforms including Facebook, Google, Pinterest, Amazon, Twitter and more.

Given the density of DTC goods companies, gaming startups, ecommerce platforms and marketplace businesses in L.A., this is certainly an option that most readers here should look into.

Good for: Marketplace or DTC businesses already successfully using performance channels from Facebook, Google, et al, to sell inventory.

Traditional Credit from New Lenders

Many legacy corporate credit card companies expect personal guarantees and a lengthy company credit history. That poses a bit of a catch-22 for companies just getting off the ground.

A new class of credit companies like Brex promise credit limits "10-20x" higher than traditional business cards.They also promise not to charge you interest or fees on your balance — which is materially better than those personal cards you've been using. (And you might want to consider Brex's Cash offering as well if you're tired of being nickel-and-dimed with outrageous ACH and wire transfer fees to pay your various vendors. Oh, and their payout on sales hitting your account are available net-zero—which is definitely helpful in the early days when you're managing your cash flow so closely.)

Good for: Pretty much anyone and everyone. You will inherently need access to "traditional" credit and cash transfer/vendor payment options. Find the one that offers you the most value for the lowest cost — it's that simple!

Inventory Financing

If your business requires that you procure inventory that you'll in turn sell—or lease, like Fernish or Fair—to your customers over time, you're going to need cash to cover your purchase orders. Better not to use equity dollars you'd rather allocate towards headcount and R&D to pay for this inventory.

Welcome to inventory financing! It's all about covering your upfront outlay, knowing you'll recoup the underlying costs of goods sold as you retail or rent out your wares. The inventory itself serves as the collateral for the loan here, as the lender knows the goods—which have clearly identifiable value—can always be liquidated if need be.

Inventory financing is used by small startups and Amazon alike (though the heavy-hitters will use financial instruments that differ in name, the idea is the same). Why spend cash from your balance sheet when you can always borrow what you know you'll be paying back imminently? A newer L.A. entrant, Captec, plays in this wheelhouse, but definitely look at the array of players out there (NerdWallet has a pretty timely writeup here).

Good for: Consumer brands selling wholesale or DTC The more predictable your sales cycle is with other retailers or with consumers directly, the more likely the lender will be comfortable offering you terms. Beware of warrants, covenants and other legal commitments you may not be comfortable making as part of the exchange. A variant here is equipment financing, which is great for companies manufacturing their own goods, particularly when their supply is being vastly outpaced by demand.

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This is by no means an exhaustive list; there's also venture debt, asset-backed lending, receivables-based lending, and other securitization options, but those tend to come into play once your business has matured, established a pretty solid credit history and can justify other forms of capital at better rates through its (hopefully) higher revenue or valuation.

Add up all of the options above, and your capital management might look a little more complex than you might have hoped. But the cost of managing this financial cognitive overhead is negligible when you weigh it against the potential upside when a liquidity event (hopefully!) hits down the road. And, frankly, as your business grows, this financial complexity is something you'll have to face anyway; as your initial investors look to protect their own stake in your company, they'll encourage you to identify non-dilutive funding options like those mentioned above. They, too, want to protect their stake in the company, while also looking for capital to accelerate the pace of your company's growth. Might as well get ahead of the curve early.

Building a business is expensive, but just know you don't necessarily have to sell the proverbial shirt off your back. Take advantage of the opportunity to borrow someone else's shirt instead — for a small fee, of course.

(Quick note: Fernish doesn't endorse any of the specific financiers above, but we have used one or two of them.)

Have a question about getting your startup off the ground? Let us know, and we'll consider it for our next column..

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Behind Her Empire: ComplYant Founder and CEO Shiloh Johnson on Helping Small Businesses

Yasmin Nouri

Yasmin is the host of the "Behind Her Empire" podcast, focused on highlighting self-made women leaders and entrepreneurs and how they tackle their career, money, family and life.

Each episode covers their unique hero's journey and what it really takes to build an empire with key lessons learned along the way. The goal of the series is to empower you to see what's possible & inspire you to create financial freedom in your own life.

Behind Her Empire: ComplYant Founder and CEO Shiloh Johnson on Helping Small Businesses

On this episode of Behind Her Empire, ComplYant founder and CEO Shiloh Johnson discusses her journey to building a multimillion dollar business and making knowledge of taxes more accessible.


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How Token and Tixr Plan To Take on Ticketmaster in L.A.

Andria Moore

Andria is the Social and Engagement Editor for dot.LA. She previously covered internet trends and pop culture for BuzzFeed, and has written for Insider, The Washington Post and the Motion Picture Association. She obtained her bachelor's in journalism from Auburn University and an M.S. in digital audience strategy from Arizona State University. In her free time, Andria can be found roaming LA's incredible food scene or lounging at the beach.

How Token and Tixr Plan To Take on Ticketmaster in L.A.
Evan Xie

When Taylor Swift announced her ‘Eras’ tour back in November, all hell broke loose.

Hundreds of thousands of dedicated Swifties — many of whom were verified for the presale — were disappointed when Ticketmaster failed to secure them tickets, or even allow them to peruse ticketing options.

But the Taylor Swift fiasco is just one of the latest in a long line of complaints against the ticketing behemoth. Ticketmaster has dominated the event and concert space since its merger with Live Nation in 2010 with very few challengers — until now.

Adam Jones, founder and CEO of Token, a fan-first commerce platform for events, said he has the platform and the tech ready to take it on. First and foremost, with Token, Jones is creating a system where there are no queues. In other words, fans know immediately which events are sold out and where.

“We come in very fortunate to have a modern, scalable tech stack that's not going to have all these outages or things being down,” Jones said. “That's step one. The other thing is we’re being aggressively transparent about what we’re doing and how we’re doing it. So with the Taylor Swift thing…you would know in real time if you actually have a chance of getting the tickets.”

Here’s how it works: Users register for Token’s app and then purchase tickets to either an in-person event, or an event in the metaverse through Animal Concerts. The purchased ticket automatically shows up in the form of a mintable NFT, which can then be used toward merchandise purchases, other ticketed events or, Adams’s hope for the future — external rewards like airline travel. The more active a user is on the site, the more valuable their NFT becomes.

Ticketmaster has dominated the music industry for so long because of its association with big name artists. To compete, Token is working on gaining access to their own slew of popular artists. They recently entered into a partnership with Animal Concerts, a live and non-live event experiences platform that houses artists like Alicia Keys, Snoop Dogg and Robin Thicke.

“You'll see they do all the metaverse side of the house,” Jones said. “And we're going to be the [real-life] web3 sides of the house.”

In addition, Token prides itself on working with the artists selling on their platform to set up the best system for their fanbase, devoid of hefty prices and additional fees — something Ticketmaster users have often complained about. Jones believes where Ticketmaster fails, Token thrives. The app incentivizes users to share more data about their interests, venues and artists by operating on a kind of points system in the form of mintable NFTs.

“We can actually take the dataset and say there’s 100 million people in the globe that love Taylor Swift, so imagine she’s going on tour and we ask [the user], ‘Would you go to see her in Detroit?’ And imagine this place has 30,000 seats, but 100,000 people clicked ‘yes,’” he explained. “So you can actually inform the user before anything even happens, right? About what their options are and where to get it.”

Tixr, a Santa-Monica based ticketing app, was founded on the idea that modern ticketing platforms were “living in the legacy of the past.” They plan to attract users by offering them exclusive access to ticketed events that aren’t in Ticketmaster’s registry.

“It melts commerce that's beyond ticketing…to allow fans to experience and purchase things that don't necessarily have to do with tickets,” said Tixr CEO and Founder Robert Davari. “So merchandise, and experiences, and hospitality and stuff like that are all elegantly melded into this one, content driven interface.”

Tixr sells tickets to exclusive concerts like a Tyga performance at a night club in Arizona, general in-person festivals like ComplexCon, and partners with local vendors like The Acura Grand Prix of Long Beach to sell tickets to the races. Plus, Davari said it’s equipped to handle high-demand, so customers aren’t spending hours waiting in digital queues.

Like Token, Tixr has also found success with a rewards program — in the form of fan marketing.

“There's nothing more powerful in the core of any event, brand, any live entertainment, [than] the community behind it,” Davari said. “So we build technology to empower those fans and to reward them for bringing their friends and spreading the word.”

Basically, if a user gets a friend to purchase tickets to an event, then the original user gets rewarded in the form of discounts or upgrades.

Coupled with their platforms’ ability to handle high-demand events, both Jones and Davari believe their platforms have what it takes to take on Ticketmaster. Expansion into the metaverse, they think, will also help even the playing field.

“So imagine you can't go to Taylor Swift,” Jones said. “What if you could purchase an exclusive to actually go to that exact same show over the metaverse? An artist’s whole world can expand past the stage itself.”

With the way ticketing for events works now, obviously not everyone always gets the exact price, venue or date they want. There are “winners and losers.” Jones’s hope is that by expanding beyond in-person events, there can be more winners.

“If there’s 100,000 people who want to go to one show and there's 37,000 seats, 70,000 are out,” he said. “You can't fight that. But what we can do is start to give them other opportunities to do things in a different way and actually still participate.”

Jones and Davari both teased that their platforms have some exciting developments in the works, but for now both Token and Tixr are set on making their own space within the industry.

“We simply want to advance this industry and make it more efficient and more pleasurable for fans to buy,” Davari said. “That's it.”

Here’s Why Streaming Looks More and More Like Cable

Lon Harris
Lon Harris is a contributor to dot.LA. His work has also appeared on ScreenJunkies, RottenTomatoes and Inside Streaming.
Here’s Why Streaming Looks More and More Like Cable
Evan Xie

The original dream of streaming was all of the content you love, easily accessible on your TV or computer at any time, at a reasonable price. Sadly, Hollywood and Silicon Valley have come together over the last decade or so to recognize that this isn’t really economically viable. Instead, the streaming marketplace is slowly transforming into something approximating Cable Television But Online.

It’s very expensive to make the kinds of shows that generate the kind of enthusiasm and excitement from global audiences that drives the growth of streaming platforms. For every international hit like “Squid Game” or “Money Heist,” Netflix produced dozens of other shows whose titles you have definitely forgotten about.

The marketplace for new TV has become so massively competitive, and the streaming landscape so oversaturated, even relatively popular shows with passionate fanbases that generate real enthusiasm and acclaim from critics often struggle to survive. Disney+ canceled Luscasfilm’s “Willow” after just one season this week, despite being based on a hit Ron Howard film and receiving an 83% critics score on Rotten Tomatoes. Amazon dropped the mystery drama “Three Pines” after one season as well this week, which starred Alfred Molina, also received positive reviews, and is based on a popular series of detective novels.

Even the new season of “The Mandalorian” is off to a sluggish start compared to its previous two Disney+ seasons, and Pedro Pascal is basically the most popular person in America right now.

Now that major players like Netflix, Disney+, and WB Discovery’s HBO Max have entered most of the big international markets, and bombarded consumers there with marketing and promotional efforts, onboarding of new subscribers inevitably has slowed. Combine that with inflation and other economic concerns, and you have a recipe for austerity and belt-tightening among the big streamers that’s virtually guaranteed to turn the smorgasbord of Peak TV into a more conservative a la carte offering. Lots of stuff you like, sure, but in smaller portions.

While Netflix once made its famed billion-dollar mega-deals with top-name creators, now it balks when writer/director Nancy Meyers (“It’s Complicated,” “The Holiday”) asks for $150 million to pay her cast of A-list actors. Her latest romantic comedy will likely move over to Warner Bros., which can open the film in theaters and hopefully recoup Scarlett Johansson and Michael Fassbender’s salaries rather than just spending the money and hoping it lingers longer in the public consciousness than “The Gray Man.”

CNET did the math last month and determined that it’s still cheaper to choose a few subscription streaming services like Netflix and Amazon Prime over a conventional cable TV package by an average of about $30 per month (provided you don’t include the cost of internet service itself). But that means picking and choosing your favorite platforms, as once you start adding all the major offerings out there, the prices add up quickly. (And those are just the biggest services from major Hollywood studios and media companies, let alone smaller, more specialized offerings.) Any kind of cable replacement or live TV streaming platform makes the cost essentially comparable to an old-school cable TV package, around $100 a month or more.

So called FAST, or Free Ad-supported Streaming TV services, have become a popular alternative to paid streaming platforms, with Fox’s Tubi making its first-ever appearance on Nielsen’s monthly platform rankings just last month. (It’s now more popular than the first FAST service to appear on the chart, Paramount Global’s Pluto TV.) According to Nielsen, Tubi now accounts for around 1% of all TV viewing in the US, and its model of 24/7 themed channels supported by semi-frequent ad breaks couldn’t resemble cable television anymore if it tried.

Services like Tubi and Pluto stand to benefit significantly from the new streaming paradigm, and not just from fatigued consumers tired of paying for more content. Cast-off shows and films from bigger streamers like HBO Max often find their way to ad-supported platforms, where they can start bringing in revenue for their original studios and producers. The infamous HBO Max shows like “The Nevers” and “Westworld” that WBD controversially pulled from the HBO Max service can now be found on Tubi or The Roku Channel.

HBO Max’s recently-canceled reality dating series “FBoy Island” has also found a new home, but it’s not on any streaming platform. Season 3 will air on TV’s The CW, along with a new spinoff series called (wait for it) “FGirl Island.” So in at least some ways, “30 Rock” was right: technology really IS cyclical.

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