Your business is growing well, with a healthy recurring revenue stream. Congratulations! The next thing on your mind would likely be further expansion through external financing, and if you’re reading this, you’ve probably been looking into non-dilutive financing as an option. Many founders often seek venture capital options in order to get business funding for long term growth. In the first three quarters of 2021 alone, the Indian startup ecosystem received investments to the tune of approximately $23 billion across 1000+ funding deals.
While venture capital is a popular and more glamorous option for many founders, it has its own set of drawbacks. Equity financing is certainly helpful in the early stages, especially when you are trying to create something out of nothing. However, as your business starts to grow more, dilution doesn’t look so attractive after a point. This is because…
Your valuation is temporary but dilution is permanent
Equity financing works by giving away a certain percentage of your shareholding in the company to the venture capital firms. In exchange, the VCs invest the money you need to scale your business. This is a great option in early funding stages for product development, or when you need to build the minimum viable version of your product. In these cases, equity funding helps you set things in motion so that your company can get the first few customers and refine your Product/Market Fit. These activities can take a lot of time and money, often having longer break-even periods and can require the company to make a few pivots – risks an equity investor is willing to take for potential outlier returns on their capital.
Opting for VC funding necessitates giving away a part of your company. The company that you spent so many sleepless nights on, uncountable hours, focusing on getting all the details right for. Blood, sweat, and tears, willingly given. For instance, Deepinder Goyal, Zomato’s co-founder, currently holds a 5.5% stake in his company at the time of it’s IPO. A major chunk of the company was owned by Venture capitalists who benefited the most from the company’s listing on the stock exchange.
Diluting your equity in the company in order to raise capital will also introduce other stakeholders who may have a different vision for your company. However, a lot of founders today are willing to take that chance in order to get business funding. It’s become the norm, and indeed, a goal, for many business owners to aim for multiple rounds of capital raise. Equity fundraise for business growth is celebrated within the startup community. It is a matter of pride to raise large rounds of capital.
This equity boost will help ramp up the short-term benefits to your company, but in the long term, it’s the VCs who generate more wealth. In 2020, the Indian private equity and VC sector combined saw a total of 151 exit deals, together worth about 6 billion U.S. Dollars. For example, Freshworks IPO would give 72% annualized return on total infusion by financial investors. This is a much higher cost of capital as compared to other non dilutive financing options.
Non-dilutive funding Options
Non-Dilutive funding options work in a way where the power to run your company stays in your hands. These models aim to nurture an environment where founders don’t need to give away huge chunks of their company in order to get the capital they need to grow their business.
Another driving goal these have is the need to democratize raising capital. One such company is Recur Club which through their proprietary algorithm determines everyone who is eligible instantly. It is important that this creates a level playing field for all, and we work to make this a reality.
And finally, founders are best served when they are focused on generating revenue and growing their business rather than worrying about fundraising. When an option like Recur Club exists, founders are able to receive funding within days (vs. 6-12 months for an equity fundraise). This gives them the ability to scale faster or take advantage of a relevant opportunity that may arise for a short window of time.
Your recurring revenue as an asset
Our unique approach focuses on helping you convert your recurring revenue streams into upfront capital. If you’re thinking of non-dilutive funding, Recur Club provides a flexible, quick way to get the cash flow boost you need for your business. All this without mortgages, personal guarantees or other restrictive financial covenants like traditional debt. Our goal is to help asset light companies with recurring revenue streams by providing them with a flexible financing option. This gives them the space and liberty to grow on their own terms, as we believe founders know what’s best for their company.
Once you’ve registered with Recur, a financing limit is always available and you can withdraw cash at the click of a button. You can choose the quantum of capital you want depending on what kind of cash flow your business requires at that point of time. This helps ease some of the stress tied in to raising funds for your business, as well as avoiding the time and effort that goes into attempting to get VC funding.
How Non-Dilutive Financing like Recur Club complements VC funding
Recur Club works well in conjunction with VC funding. Even if you’ve already raised funds via
equity financing, or plan to do it in the future, Recur can seamlessly fit in with your capital stack. We recently helped a growth stage SaaS company in India complement their venture capital round, which helped reduce their dilution. The company was raising $1MN at a $10MN valuation, with an ARR of $1MN. We helped convert their recurring subscriptions into upfront capital worth $100K that allowed the founders to reduce their dilution from 10% to 9%.
Non-dilutive funding is valuable, and it works.