Venture debt financing is a great option for early-stage companies that don’t yet have a proven track record of generating revenue. Traditional debt financing can be hard for early-stage organizations to secure due to the higher level of perceived risk for lenders.
Venture debt, however, is available through lenders who specialize in higher-risk investment – no risk, no reward!
How venture debt financing works
Venture debt financing comes from specialty investment organizations that have significant experience with early-stage companies and higher-risk investments. Before you secure funding, a venture debt firm will review your company’s business plan, your projected growth, and your financial state. A strong product-market fit is essential, as is a clear vision for the future.
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Venture debt is designed to help you cover key costs that may be posing barriers to major growth. Once you’ve secured your funding, a venture debt partner will often work with you to ensure that the funds are being put to effective use.
How SaaS startups can use venture debt to power growth
If you’re an early-stage organization looking to raise funds, one obstacle you may frequently encounter is your lack of significant revenue generation history. Newer companies naturally have less of a track record which means that lenders may be more reluctant to offer you growth capital. It’s simple: without a track record, investing in your organization can be too much of a risk.
In today’s market, financing is harder to come by than ever, and while we’re seeing a slow but steady uptick in funding options for early-stage companies, it’s still not easy to secure the working capital you need.
Raising capital without a track record of revenue generation
While it might seem impossible to raise capital without a proven history of revenue, there are still options. Today, we’ll explore the pros and cons of some traditional financing options, then share our thoughts on how venture debt can help power growth for early-stage startups.
Equity financing vs. venture debt financing
Equity financing is a popular way to raise working capital, but it comes with significant downsides. Equity financing involves selling shares of your organization to investors. It can be a straightforward way to get funding without going into immediate debt, but it comes at a steep cost. This form of financing dilutes founder equity. In cases in which shareholders own more than 50% of a company, decision-making can be taken out of the founders’ hands.
For founders that wish to stay in control of their company and lead future growth, relying completely on equity financing can be risky. Venture debt financing, revenue-based financing, and other alternatives can help minimize dilution, as we shared in this guide.
Equity financing plays well with others
Equity financing is a great option when used in conjunction with other financing methods that help limit the amount of equity that can be sold off. When combined with other methods, equity financing at its best can help you establish strategic partnerships with experienced investors – partnerships that can bring mentorship opportunities, open doors, and support continued growth.
How startups can use venture debt
Venture debt typically takes the form of a loan that allows your growing company to meet essential financial needs as you grow. Venture debt can be used for product development, market research, expanding headcount and operations, and marketing purposes.
In today’s market, venture debt is frequently used in combination with other funding methods, such as equity financing, allowing founders to retain control of their companies while still offering some amount of equity to investors. We believe that this combination of funding methods is the future of sustainable growth.
Venture debt can build partnerships
Venture debt investors want your company to do well. The better your company does, the higher their returns. Choosing to pursue venture debt funding can be a strong strategic move, as your lender may offer you mentorship, partnerships, or foster connections within the industry to help support your growth. Additionally, your lender could be a valuable source of strategic wisdom that can strengthen your growth trajectory and prepare you for a sustainable long-term future.
Interest rates on venture debt
Venture debt loans tend to have higher interest rates and shorter payback periods than other debt options, but because your lender shares your interests, venture debt can represent a partnership and mentorship opportunity of sorts, as your lender works alongside you to put their money to work.
Some investment organizations may offer refinancing or loan redemption with special terms. That said, venture debt interest rates and repayment schedules can be extremely hard on a growing business, prompting many companies to seek alternatives to venture debt that scale alongside your growth
Venture debt alternatives that scale as you grow
In an oversaturated market, it can be difficult for early-stage SaaS companies to secure funding. In our industry, where 90% of SaaS startups fail, competition can be stiff. Without suitable funding, it can be difficult to make it through a single year of R&D.
It can be tempting to raise funds through a massive equity financing round, but you risk losing control of your company that way. Venture debt through a partner such as Capchase Grow is a non-dilutive option that scales alongside your predicted ARR, so you can access more capital as your needs grow. Plus, you only pay for what you use. It’s a modern take on a revolving credit line.
What is Capchase Grow?
Capchase Grow is revenue-based financing
Available to companies that have operated for at least 6 months, have 3+ months of runway, and at least $100K in ARR, Capchase Grow has helped thousands of companies grow to the next level with on-demand financing. Powered by a seamless underwriting process, Capchase Grow doesn’t require a pitch deck, a business plan, or cutthroat competition. Just connect your data through our easy integrations, get approved, and draw from your available credit whenever you need it.
Capchase Grow is SaaS funding for companies around the globe
Capchase Grow is an international company, so our funding is available in multiple countries and currencies, and functions smoothly without exchange rate and support availability options. We’re passionate about powering your growth, whether it’s in dollars, pounds, or Euros.
Powering growth, within your means
Capchase Grow is a venture debt alternative that provides SaaS funding that can be used and repaid in manageable intervals. As your predicted ARR grows, so does your borrowing capacity, meaning that your company can count on financing that meets your needs regardless of what size your company is.
Most importantly, Capchase Grow is an accessible partner option for early-stage companies with a 3+ month runway that are seeking to power lasting, sustainable growth.
Ready to learn more about Capchase Grow? Try a demo to see how Capchase can help.
Try our runway calculator to see if you might qualify for Capchase Grow.
