Checking Out Venture Capital Funding Alternatives
Over the last few years there has been an explosion of alternative financing options to venture capital. There are a number of interesting alternatives to venture capital that each have their own pros and cons. Today, these alternative options are becoming more widely available to companies at every stage.
In an effort to help founders sort through different funding options, we’ve shared a few of our favorites below.
Pipe is one of the newer and most interesting options. Pipe is a non-dilutive financing option for SaaS startups. As their website puts it, “Pipe turns MRR into ARR.” So how does it work? Pipe looks at your monthly contracts and offers a cash advance on the annual value of those contracts. In turn, they will take a small % of that contract for offering the cash advance.
For example, if you have a customer paying $1000/mo then the annual value would be $12,000. Let’s assume they are taking 10% (purely a guess, we are not sure what the actual terms are) that would result in $10,800 in cash ($12k*90%).
This allows SaaS companies to get cash up front and hold in their bank account or use for customer acquisition. Presumably, their % take is less than what most SaaS companies offer for an annual discount as well. Learn more about Pipe here.
Earnest Capital provides early-stage funding, resources and a network of experienced advisors to founders building sustainable profitable businesses. Earnest Capital uses their own financing instrument called a Shared Earnings Agreement (SEAL). Essentially, SEALs are geared towards bootstrapped companies who are profitable or approaching profitability.
The SEAL is a form of profit sharing where Earnest receives a share of “Founder Earnings.” This is essentially leftover profit after founders receive modest salaries, dividends, and retained earnings. Earnest also takes an equity percentage but it is reduced as more profit is shared.
David Cummings, Founder of Atlanta Tech Village, summed it up nicely by saying, “This model is better for using cash flow to grow in the near-term (payments are only required if profit is distributed) but more expensive in the long term if everything works out.”
We highly encourage checking out the SEAL document and the Earnest Capital investment Memo (it is a long read but well worth it). We also recorded a webinar with Tyler Tringas, Founder of Earnest Capital, that you can watch here.
Rather than explaining it ourselves we’ll let the Corl website explain what they do. “Corl uses machine learning to analyze your business and expedite the funding process. No need to wait 3-9 months for approval. Find out if you qualify in 10 minutes.
Corl can finance up to 5x your monthly revenue to a maximum of $1,000,000. Payments are equal to 1-10% of your monthly revenue, and stop if the business buys out the investment for 1-3x the investment amount.”
Learn more about Corl and how to apply here.
“Clearbanc offers funding from $5,000 to $10 million in exchange for a steady revenue share of their earnings until it’s paid back plus a 6 percent fee.” ClearBanc is known for their ability to make an investment in just minutes via their “20 minute term sheet.”
Clearbanc is a great option for companies already generating money and are looking to ramp up growth (especially direct-to-consumer companies). Currently, ClearBanc only invests in eCommerce and consumer SaaS companies that meet these minimum requirements:
- “Average monthly revenue of $10,000”
- “6 months of consistent revenue history”
- “Business must be incorporated
Learn more about Clearbanc and their requirements/process here.
These all have the ability to help different companies in different ways. As more alternative funding options come to market, more founders and companies will succeed. Hopefully this will lead to more entrepreneurs starting companies and raising some form of capital.
If you have an experience with a venture capital alternative or can vouch for another option to add to our list send us a message to firstname.lastname@example.org