How revenue financing works
Many entrepreneurs know that financing a business is expensive. How do you make sure that you’re choosing the right financial products for your business?
At Capchase, we care about helping founders make good decisions. We encourage you to research your options — that means having open, direct, and transparent communication with potential providers. Knowing your options for obtaining capital is a must.
We wrote this guide to help you make the right decision when choosing your financing partner.
Table of contents
- How revenue financing works
- Types of revenue based financing companies
What is revenue financing
Revenue financing is a type of alternative financing, outside the institutional finance system of banks and capital markets. These alternative financing solutions have emerged due to shifts in the economy, as traditional banks tend to evolve slower than newer solutions.
As an example, Capchase’s programmatic financing solution is for monthly or annual recurring revenue (MRR or ARR) based business models. It is a solution designed for the use case of near-real time access to capital, in moments when companies need access to funding quickly.
Capchase uses a proprietary CapScore™ software that integrates directly with our customer’s financial systems to calculate ideal monthly payments. Behind the scenes of this software, a team of highly sophisticated underwriters is powering the success of the lending relationship, and a team of highly specialized growth advisors are providing white-glove service and analysis for continued growth.
How customers can use revenue-based capital
Alternative financing capital can be applied to a variety of use cases. Here are some example ways that Capchase customers use our revenue financing solution, for instance:
- Expanding headcount
- Investing in marketing
- Accelerating product development
- Investing in establishing systems
- Improving overall capital efficiency
- Reducing the cost of growth
- Gaining access to cash, expediently
For example, many of Capchase’s startup customers use our lending products to manage the overall efficiency of capital and cash from their venture rounds. Because founders do not need to give up equity to access revenue based financing, it’s possible to extend the shelf life of venture capital, without diluting equity.
Some technology-enabled providers like Capchase can approve or reject applications within a 24 hour timeframe — much faster than traditional venture capital.
Types of revenue based financing companies
When you search for revenue financing, you’ll come across names of providers that are not typical banks or credit unions. Many of these companies are themselves venture-funded startups and private investors. For this reason, revenue financing companies tend to have their own unique investing and underwriting criterion.
As a financing customer, it is important to do your due diligence. That means speaking to a person on the team, researching the company’s reputation, and even requesting direct customer references. You are well within your right to request the information you need to make a confident decision.
Here are a few different types of companies in the revenue financing ecosystem. Remember that companies may fall into more than one category:
Venture capitalists
Some VCs have begun offering growth capital to entrepreneurs, in addition to providing traditional Series A or Series B funding. These groups tend to be smaller, independent firms that are passionate about helping founders scale their operations sustainably. As the VC ecosystem becomes more diverse, many investors care about differentiating their offerings to provide more value to founders.
Industry-focused firms
Technology has sparked the invention of new business models — and traditional banks don’t have the financing solutions to provide the right levels of support. There are a variety of revenue-based financing options available for specific types of businesses (i.e. ecommerce, SaaS). The value proposition of each financing company is the unique underwriting method.
Technology-driven solutions
Capchase is an example company that fits into this category, in the sense that we rely heavily on technology to facilitate efficient, expedient, and founder-focused underwriting decisions. We’re headquartered in New York, and our team has first-hand experience with revenue management and ARR. We know first-hand the pain of debt and the worries of a new venture: the never-ending fundraising, the constant need to bootstrap, and the dilution dilemma of financing every founder faces. You can learn more about the Capchase mission here.
Alternative financing is a game-changer for startups that need more tailored approaches to managing their working capital. Remember that you are ultimately the customer — it’s your right to shop around to choose the right solution for your business. To access non-dilutive financing with Capchase visit Capchase.com/Grow.
