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Beyond Venture Capital: Exploring Alternate Business Funding

Beyond Venture Capital: Exploring Alternate Business Funding

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Tracy Osborn

July 23, 2020
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  1. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Beyond Venture Capital: Exploring Alternate Business Funding
  2. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Hi, I’m Tracy! @tracymakes
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    S B OR N @tracymakes
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    S B OR N @tracymakes
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    S B OR N @tracymakes
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    S B OR N @tracymakes First things first:
  7. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes First things first: Proof of traction / product-market fit will make everything much easier.
  8. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Getting funding for just an idea is significantly harder.
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    S B OR N @tracymakes Let’s move onto the giant landscape of funding options:
  10. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Venture Capital vs. Bootstrapping the past
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    S B OR N @tracymakes https://techcrunch.com/sponsor/lighter-capital/why-startup-ceos-are-turning-to-non-dilutive-debt-funding-to-fuel-growth/
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    S B OR N @tracymakes Bootstrapping
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    S B OR N @tracymakes Bootstrapping Founding and running a company using only personal finances or operating revenue.
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    S B OR N @tracymakes Upsides: •You (and your cofounders) keep 100% ownership of the business. •Complete freedom to grow your business as you like it.
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    S B OR N @tracymakes “Don't get me wrong, there is nothing bad about being funded. Moreover, in some niches being funded is your only option - especially when you're inventing the niche. Meaning you have to market the problem first, and then your solution. Just consider this my own professional bias - I hate bosses. Even when they come in a "lightweight" form - as investors. Ages ago, when I was still working as a hired programmer, companies did not have fancy campuses, free smoothies and a remote work option. Instead we had dress code, toxic meetings, stupid managers, "corporate culture" and small salaries. All of this has developed a huge hostility towards bosses in me - any bosses. When you're self-funded your only boss is the client. The client is the only person you have to please. The client is the only person you have to report to. I do not want a "board". I do not want any strangers inside the company. I don't want to pitch anyone. I do not want to survive from one round to another. I do not want graphs, slides and "improving my presentation skills" - is this Hollywood or what?” Alex Yumashev Founder, Jitbit Software https://www.jitbit.com/alexblog/289-a-quick-note-on-being-self-funded/
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    S B OR N @tracymakes Downsides:
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    S B OR N @tracymakes Downsides: •Long Slow SaaS Ramp of Death™
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    S B OR N @tracymakes https://businessofsoftware.org/2013/02/gail-goodman-constant-contact-how-to-negotiate-the-long-slow-saas-ramp-of-death/
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    S B OR N @tracymakes CartHook
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    S B OR N @tracymakes CartHook 27 months
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    S B OR N @tracymakes Graphic via Rob Walling Drip 13 months
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    S B OR N @tracymakes Graphic via Rob Walling HubStaff 12 months
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    S B OR N @tracymakes Downsides: •Have to be a lot more efficient with your capital. Need to always think about how you can reduce costs. •Getting to product-market fit is slow; could be faster if you had another sales-person, engineer, etc. now.
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    S B OR N @tracymakes Examples
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    S B OR N @tracymakes spanx.com
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    S B OR N @tracymakes basecamp.com
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    S B OR N @tracymakes balsamiq.com
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    S B OR N @tracymakes Venture Capital (“VC”)
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    S B OR N @tracymakes Upsides: •Money to accelerate growth. •Built-in advisors.
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    S B OR N @tracymakes Downsides:
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    S B OR N @tracymakes Downsides: •Once you’re on the VC track, it’s really hard to get off.
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    S B OR N @tracymakes https://techcrunch.com/sponsor/lighter-capital/why-startup-ceos-are-turning-to-non-dilutive-debt-funding-to-fuel-growth/
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    S B OR N @tracymakes Downsides: •Once you’re on the VC track, it’s really hard to get off. •Losing board seats.
  34. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Downsides: •Once you’re on the VC track, it’s really hard to get off. •Losing board seats. •Pressure gets higher.
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    S B OR N @tracymakes Downsides: •Once you’re on the VC track, it’s really hard to get off. •Losing board seats. •Pressure gets higher. •Investors could potentially block a sale.
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    S B OR N @tracymakes Downsides: •Once you’re on the VC track, it’s really hard to get off. •Losing board seats. •Pressure gets higher. •Investors could potentially block a sale. •In general, discourages capital efficiency.
  37. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Founder-friendly V.C. investment terms for tech are on the rise.
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    S B OR N @tracymakes Founder-friendly V.C. investment terms for tech are on the rise. Priced-rounds
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    S B OR N @tracymakes Founder-friendly V.C. investment terms for tech are on the rise. Priced-rounds Convertible notes
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    S B OR N @tracymakes Founder-friendly V.C. investment terms for tech are on the rise. Priced-rounds Convertible notes SAFEs
  41. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Venture Capital vs. Bootstrapping the past
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    S B OR N @tracymakes Venture Capital vs. Bootstrapping the past
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    S B OR N @tracymakes Venture Capital vs. Bootstrapping vs. Bootstrapped…ish now
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    S B OR N @tracymakes Revenue-based financing first, let’s discuss
  45. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Revenue-based financing Provides upfront capital in exchange for a set percentage of future revenue. first, let’s discuss
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    S B OR N @tracymakes https://techcrunch.com/sponsor/lighter-capital/why-startup-ceos-are-turning-to-non-dilutive-debt-funding-to-fuel-growth/
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    S B OR N @tracymakes Details: •Good for businesses with existing steady MRR (monthly recurring revenue.) •Limits dilution, as investors don’t receive equity. •Maturity usually 3-5 years. •Keeps the option option to sell the business in the near future. •You can continue to run the business for the long-term, or raise VC later. •Aimed at tech businesses
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    S B OR N @tracymakes Examples
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    S B OR N @tracymakes lightercapital.com
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    S B OR N @tracymakes Details: •$15K MRR minimum •$50,000-$3,000,000 investment size. •Repaid over 3-5 years, payments ranging from 2-8% of your revenue. •Money returned is 1.35-2x. •Businesses need a clear path to profitability. •US and Canada only.
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    S B OR N @tracymakes bigfootcap.com
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    S B OR N @tracymakes Details: •$1-10M ARR (annual recurring revenue) businesses. •$100,000-$1,500,000 investment size. •At least 12 months of customer history – generally 10+ enterprise customers or 100+ SMB customers. •Bootstrapped or lightly capitalized – i.e., not multiple rounds of prior financings.
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    S B OR N @tracymakes pickandshovel.ventures
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    S B OR N @tracymakes riversaascapital.com
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    S B OR N @tracymakes stripe.com/capital
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    S B OR N @tracymakes Details: •Invests smaller amounts, but your business can be a lot smaller to apply. •Upfront fee (10% of loan amount.) •Pay through Stripe a percentage of your sales.
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    S B OR N @tracymakes Bank loans and debt financing
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    S B OR N @tracymakes Details: •Loans based on revenue, but may come with performance requirements and an equity component. They also traditionally require a personal guarantee (your house, etc.) •Regular payments required, rather than based on the health of your business (revenue-based means months where there are no profits, no payments made; debt still requires them.) •Because of the above factors, something that might be good to avoid if you can.
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    S B OR N @tracymakes Crowdfunding
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    S B OR N @tracymakes kickstarter.com
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    S B OR N @tracymakes indiegogo.com
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    S B OR N @tracymakes Notes: • Not the best fit for software businesses (especially if you’re targetting businesses), but could be a good option if you are selling to consumers. • Physical products are a great fit. • Have seen some success raising money for brick-and-mortar stores but only when they have an existing audience.
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    S B OR N @tracymakes Early-stage bootstrapper funds and accelerators for tech startups
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    S B OR N @tracymakes No board No controlling interest Dividends are an option (exit ok, too) LLCs and C-Corps Future rounds ok, not required Healthy/sustainable growth Not necessarily U.S. only “Alternative”
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    S B OR N @tracymakes indie.vc
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    S B OR N @tracymakes Details: •Funding for simulated equity. •Payback starts on a schedule, % of topline revenue •Once paid back 3x, equity bought down to 10% of original. •If company sells, converts to real equity. •Average MRR in the $25k range at funding. •Specific application periods.
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    S B OR N @tracymakes https://techcrunch.com/sponsor/lighter-capital/why-startup-ceos-are-turning-to-non-dilutive-debt-funding-to-fuel-growth/
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    S B OR N @tracymakes https://github.com/indievc/terms
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    S B OR N @tracymakes tinyseed.com
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    S B OR N @tracymakes Details: •1 year remote accelerator/investment •Specific focus on B2B SaaS businesses. •Invest $120k-$200k per company for equity. •Paid back via dividends (not topline revenue) or an exit. •Founders have a salary cap, anything over is a dividend. •Fund gets paid when founders get paid. •No board seat.
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    S B OR N @tracymakes Details cont: •Typical MRR is $2k-$20K. •No repurchasing back of shares. •Generally US LLCs or C-Corps (founders don’t need to be in the US), expanded in the last batch. •Application rounds, but there is a form for submissions outside the application period with higher requirements.
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    S B OR N @tracymakes https://medium.com/swlh/alternative-funding-calculus-a-quant-comparison-of-tiny-indie-and-earnest-8d61d35d5ad5
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    S B OR N @tracymakes
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    S B OR N @tracymakes “Capital is a tool”
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    S B OR N @tracymakes Grants
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    S B OR N @tracymakes Notes: • Spend time doing research here! Huge area, too many options to list here. • Double check your eligibility as a lot have specific requirements (minority-owned business, etc.) • Create a system for your applications.
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    S B OR N @tracymakes innovation.ised-isde.canada.ca/innovation/s/
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    S B OR N @tracymakes innovation.ised-isde.canada.ca/innovation/s/
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    S B OR N @tracymakes nerdwallet.com/article/small-business/small-business-grants-for-women
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    S B OR N @tracymakes Friends and family
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    S B OR N @tracymakes Notes: • It’s an option… but be okay with the chance you’ll never be able to pay them back. • Not worth it (in my opinion) if it could cause a rift in my relationship.
  82. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Other programs
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    S B OR N @tracymakes thebalancesmb.com/obtaining-alternative-financing-for-your-small-business-393412
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    S B OR N @tracymakes ifundwomen.com
  85. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Thank you! Chat with me online: @tracymakes
  86. WE-C A N P RO JECT T RAC Y O

    S B OR N @tracymakes Thank you! Chat with me online: @tracymakes Any questions?