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?
<p>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.</p><p>Let's dive into a few of the options.</p><h2>Revenue Share
</h2><p>Market leader <a href="https://clearbanc.com/" rel="noopener noreferrer" target="_blank">Clearbanc</a> defines this option succinctly: "No dilution. No board seats. No warrants. No personal guarantee. No personal credit checks. No fixed payment timelines. No bullshit!" </p><p>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.</p><p>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. </p><p><strong>Good for</strong>: Marketplace or DTC businesses already successfully using performance channels from Facebook, Google, et al, to sell inventory. </p><h2>Traditional Credit from New Lenders
</h2><p>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. </p><p>A new class of credit companies like <a href="https://brex.com" rel="noopener noreferrer" target="_blank">Brex</a> 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.)</p><p><strong>Good for</strong>: 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!</p><h2>Inventory Financing
</h2><p>If your business requires that you procure inventory that you'll in turn sell—or lease, like <a href="http://fernish.com" target="_blank">Fernish</a> or <a href="https://www.fair.com/" rel="noopener noreferrer" target="_blank">Fair</a>—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. </p><p>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. </p><p>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, <a href="https://captec.io" rel="noopener noreferrer" target="_blank">Captec</a>, plays in this wheelhouse, but definitely look at the array of players out there (<a href="https://www.nerdwallet.com/best/small-business/small-business-loans/inventory-financing-loans" rel="noopener noreferrer" target="_blank">NerdWallet has a pretty timely writeup here</a>).</p><p><strong>Good for</strong>: 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. </p><p>----</p><p>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. </p><p>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.</p><p>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.</p><p><em>(Quick note: Fernish doesn't endorse any of the specific financiers above, but we have used one or two of them.)</em></p><p><em>Lucas Dickey is an aspiring polymath, lover of inventions and the co-founder of Fernish.</em></p><p><em>Have a question about getting your startup off the ground? <a href="mailto:admin+dickey@dot.la">Let us know</a>, and we'll consider it for our next column..</em></p>
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Backstage Capital, the Los Angeles venture firm founded in 2015 by Arlan Hamilton to focus on underrepresented founders, flung itself open to mom-and-pop investors and they quickly smashed down the doors. The firm launched a crowdfunding page Monday with the goal of bringing in slightly over a million dollars by the end of April, with investments ranging from $100 to $50,000.
By Monday evening, it had already raised more than $700,000 from more than 1,000 funders eager to invest alongside the likes of Sequoia Capital and Initialized in Backstage's long roster of consumer-focused startups.
<p>The campaign comes as corners of investing that once were restricted to wealthy individuals have opened up to the masses. Before 2016, one had to make more than $200,000 per year or have investable assets of $1 million or more to invest in a private company. The SEC further loosened the rules last year, increasing the cap on what companies can raise annually from $1.07 million to $5 million.</p><p>Crowdfunding campaigns <a href="https://dot.la/equity-crowdfunding-2646151982.html" target="_self">have been an increasingly common route for startups to raise venture funding</a>, which has coincided with the Robinhood trading boom that fueled the recent GameStop frenzy.</p><p>But individuals investing in a venture firm – normally the province of family offices and pension funds – is something else entirely. </p><p>While Backstage's crowdfunding page is heavy on generalities about the firm's mission, it does not include any specifics on Backstage's financial performance, which like other venture firms is a closely guarded secret. Harlan did not respond to a request seeking comment. </p><p>"We would like to give everyday investors who share our values the opportunity to be a part of the Backstage journey and help us deploy more capital to underestimated founders," the firm said on its crowdfunding page.</p><p>Backstage has raised more than $7 million in dry powder since 2015 – which does not include Monday's haul – and invested in more than 130 startup companies, led by what it describes as "underestimated" founders. </p>
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Bracket Capital Closes $450M Fund to Buy Up Employee Shares at SpaceX and Other Pre-IPO Companies
Jan 27 2021
Bracket Capital, a Beverly Hills-based investment management firm focused on acquiring secondary shares in later-stage tech companies like SpaceX and Bird, announced Wednesday it has raised nearly half a billion dollars in equity.
The firm will split the cash between two funds, a traditional $150 million fund and another $350 million one that will co-invest alongside other firms.
Rather than buying stakes directly in startups, the firm said 80% of its shares come from snapping up existing shares. Those often come from early employees – tired of waiting for their company to go public – who are looking to cash out some of their equity so they can buy a house or pay for tuition.
<p>The goal is to capitalize on the trend of startups taking increasingly longer lengths of time to IPO while avoiding the risk of early-stage startups.</p><p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTU0MjIzOS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY0MTU3OTgxNn0.RbuvUTLUBwN51HeyJ3uBSYWTYN0gOvpL2RcZ5t-vySc/img.jpg?width=980" id="8c052" class="rm-shortcode" data-rm-shortcode-id="dc035831837d055aedb27b5b03b6a751" data-rm-shortcode-name="rebelmouse-image" data-width="1400" data-height="852" />
<small class="image-media media-caption" placeholder="Add Photo Caption...">Yalda Aoukar (right) and Jihan Bowes-Little are the co-founders of Bracket Capital.</small></p><p>For instance, the firm invested in Airbnb's 2017 Series F at a $30 billion valuation. Late last year, the vacation rental service went public at a $47 billion valuation and now it has a market capitalization of $122 billion.<br/></p><p>Other Bracket investments include SpaceX, Clover Health, Palantir, Coinbase, SoFi, eToro, Reddit, Impossible Foods, Bird, Clutter and Hive.AI. </p><p>Bracket was founded in 2017 by two ex-London bankers, Jihan Bowes-Little, formerly of Goldman Sachs, and Yalda Aoukar, who worked at Lehman Brothers, Barclay's and Morgan Stanley. The firm will now be managing a total of $650 million. </p><p>"We have developed a unique reputation in the market given our track record, discerning approach to investing, and deep industry relationships," Aoukar said in a statement. "We thank our new and returning limited partners for their confidence and trust as we act as stewards of their capital."</p>
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