This sponsored post is produced by Lighter Capital.
At Lighter Capital we spend a lot of time talking to early stage technology entrepreneurs about what kind of funding makes the most sense for them at their current growth stage. While we focus on RevenueLoans, we advise entrepreneurs to make sure they consider all the options before setting their funding strategy.
With the proliferation of cloud-hosting platforms, the funding pinch points have changed considerably. In the past, Series A venture rounds were considered critical for developing and launching products. But today, most companies are launching viable products after seed rounds or simply post-bootstrapping. As a result, moving from launch and initial traction to growth has become the most challenging part of the funding question.
Making the right funding choices when you are starting to grow greatly affects the future trajectory of your company. What’s important — from launch to sustainable growth — is to make sure you are aware of all the funding options and figure out what is right for you.
For example, if you start by only asking how to raise money from VCs, you’ll miss the fundamental step of asking whether venture capital is actually the best fit for your business.
Starting with your long-term goals for the business, ask yourself these critical questions:
- What do you want the business to look like in 1, 5, and 10 years? (Is your motto “go big or go home” or “built to last”?)
- Who do you want as partners, beyond your co-founders? These are the people who will be owning and controlling the business with you. (Who controls the big decisions, the co-founders or the investors?)
- What do you want your role to be? (Will co-founders run the business for the long haul, or will “professional” management be brought in before long?)
- How much capital do you need to take advantage of the opportunity in front of you?
- What are you willing to give up for that capital?
- Can you convince investors your company will have enough value for the investor meet their desired return? For example, if you’re willing to sell 25 percent of your company to VCs for $5 million, and they want a 10X return ($50 million), the VCs need to believe you can sell the business for at least $250 million or they can’t meet their investing goal.
Only after answering these six questions should you then examine your financing options:
- What financing fits your goals?
- What’s realistically available to you now? What funding sources will help you through future stages of company development?
- How long and how much distraction will raising funds be? Can the business survive having the CEO focused only on raising funds for several months?
All forms of funding have consequences and will impact the future shape of your business and your personal wealth — including how much control or equity you will retain, what types of capital you can raise in the future, and ultimately the value you will extract from it.
So don’t be hasty, don’t see raising funds as the final goal, and make sure you’ve researched all the options and understand different investors’ goals and desires.
Lighter Capital is the leading provider of revenue-based financing to growing technology companies. By filling the funding gap left by equity investors and banks, they make more growth capital available to more small tech businesses.
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At Lighter Capital, we're breaking down barriers to small business growth funding. Our revenue-based finance model exchanges growth capital for a fixed percentage of the company's revenues. This structure is more flexible, easier, and ... read more »
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