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Beyond Venture Capital: Exploring Alternate Business Funding

Beyond Venture Capital: Exploring Alternate Business Funding

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

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  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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  3. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes

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  4. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes

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  5. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes

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  6. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    First things first:

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  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.

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  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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  9. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Let’s move onto the giant
    landscape of funding options:

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  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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  11. WE-C A N P RO JECT
    T RAC Y O 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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  12. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Bootstrapping

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  13. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Bootstrapping
    Founding and running a company using only
    personal finances or operating revenue.

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  14. WE-C A N P RO JECT
    T RAC Y O 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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  15. WE-C A N P RO JECT
    T RAC Y O 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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  16. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Downsides:

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  17. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Downsides:
    •Long Slow SaaS Ramp of Death™

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  18. WE-C A N P RO JECT
    T RAC Y O 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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  19. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    CartHook

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  20. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    CartHook
    27 months

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  21. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Graphic via Rob Walling
    Drip
    13 months

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  22. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Graphic via Rob Walling
    HubStaff
    12 months

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  23. WE-C A N P RO JECT
    T RAC Y O 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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  24. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Examples

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  25. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes spanx.com

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  26. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes basecamp.com

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  27. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes balsamiq.com

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  28. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Venture Capital
    (“VC”)

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  29. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Upsides:
    •Money to accelerate growth.
    •Built-in advisors.

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  30. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Downsides:

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  31. 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.

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  32. WE-C A N P RO JECT
    T RAC Y O 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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  33. 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.

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  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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  35. 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.
    •Investors could potentially block a sale.

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  36. 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.
    •Investors could potentially block a sale.
    •In general, discourages capital efficiency.

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  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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  38. 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.
    Priced-rounds

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  39. 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.
    Priced-rounds Convertible notes

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  40. 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.
    Priced-rounds Convertible notes SAFEs

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  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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  42. 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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  43. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Venture Capital
    vs.
    Bootstrapping
    vs.
    Bootstrapped…ish
    now

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  44. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Revenue-based financing
    first, let’s discuss

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  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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  46. WE-C A N P RO JECT
    T RAC Y O 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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  47. WE-C A N P RO JECT
    T RAC Y O 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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  48. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Examples

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  49. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes lightercapital.com

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  50. WE-C A N P RO JECT
    T RAC Y O 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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  51. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    bigfootcap.com

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  52. WE-C A N P RO JECT
    T RAC Y O 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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  53. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    pickandshovel.ventures

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  54. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes riversaascapital.com

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  55. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes stripe.com/capital

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  56. WE-C A N P RO JECT
    T RAC Y O 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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  57. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Bank loans and debt
    financing

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  58. WE-C A N P RO JECT
    T RAC Y O 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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  59. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Crowdfunding

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  60. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes kickstarter.com

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  61. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes indiegogo.com

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  62. WE-C A N P RO JECT
    T RAC Y O 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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  63. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Early-stage bootstrapper
    funds and accelerators for
    tech startups

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  64. WE-C A N P RO JECT
    T RAC Y O 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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  65. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    indie.vc

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  66. WE-C A N P RO JECT
    T RAC Y O 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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  67. WE-C A N P RO JECT
    T RAC Y O 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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  68. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes https://github.com/indievc/terms

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  69. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    tinyseed.com

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  70. WE-C A N P RO JECT
    T RAC Y O 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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  71. WE-C A N P RO JECT
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    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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  72. WE-C A N P RO JECT
    T RAC Y O 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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  73. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes

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  74. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    “Capital is a tool”

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  75. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Grants

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  76. WE-C A N P RO JECT
    T RAC Y O 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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  77. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes innovation.ised-isde.canada.ca/innovation/s/

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  78. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes innovation.ised-isde.canada.ca/innovation/s/

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  79. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes nerdwallet.com/article/small-business/small-business-grants-for-women

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  80. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Friends and family

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  81. WE-C A N P RO JECT
    T RAC Y O 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.

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  82. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes
    Other programs

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

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  84. WE-C A N P RO JECT
    T RAC Y O S B OR N @tracymakes ifundwomen.com

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

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  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?

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