One of the biggest challenges of any business — and growth stage SaaS startups in particular — is cash flow management. Especially when funds are moving quickly, it’s tough to ensure that there’s enough of a financial foundation in place.
That’s why so many startup founders turn to venture capital (VC) as a solution for extending their financial runway. With cash on-hand, companies have the buffer to take calculated risks and pursue untapped growth opportunities.
Meanwhile, VC is only one tool in a company’s overall financial toolkit. It’s important for startups to build their credit histories with access to different tools like credit cards, lines of credit, and other resources.
Capchase has created a financial product for this exact need, for high-growth SaaS startups with monthly recurring revenue (MRR) business models. It is a type of non-dilutive funding, meaning that founders do not have to give up equity in order to be eligible for this financial product.
Across our customer base, a question we frequently receive is whether to wait to use non-dilutive funding. Here are some answers.
When to use non-dilutive capital
Ultimately, the decision of when to use funds is up to the discretion of your company’s CEO, CFO, and other business leadership. Every business is unique, and there are many variables to consider when building a healthy financial picture.
Many of our customers choose to use non-dilutive capital from Capchase sooner rather than later, for a few reasons:
- Capital is available and accessible to our customers in as little as 24 hours.
- Companies can take flexible draws, as needed, without caps or restrictions on how capital is used.
- Funding capacity grows along with ARR, which means that high-growth startups can use non-dilutive capital to fund their business operations — Capchase uses performance-driven metrics to calculate a CapScore, which ensures optimal financing rates as companies evolve.
After years of hard work, it’s important that as a founder, you receive the outcome and financial compensation that matches your level of contribution. That means protecting your equity. Accessing non-dilutive funding now vs 6 months from now could be the determining factor of how many x you’re able to grow your ARR.
How cost of capital fits into the equation
Some of our customers use an add-on product, Capchase Earn, to our core financing solution, Capchase Grow, to reduce the cost of their capital. If you’re new to the term cost of capital, this article can help provide insight.
For reference, here’s a quick summary of key points:
- Cost of capital is the amount of money that it costs to maintain access to working capital in a business. Put short, getting access to money costs money.
- Capchase Earn is an account backed by FDIC and DIF insurance, where Capchase Grow customers can park their idle cash. The FDIC insures up to $250,000 and DIF insures the rest. With Capchase Earn, Capchase Grow customers can offset their cost of capital. As a result, high growth companies can extend their runways and demonstrate efficiencies in their metrics for investors.
- Each day, you will accrue a portion of those earnings equally over the days in the calendar year. Each month, you will receive a payout to your Capchase account based on the number of days in that month.
Ultimately, every business is different. So you need to make responsible decisions for your company’s specific financial goals. Non-dilutive financing allows you to grow faster and get better valuation, which is a win-win scenario for your business. Additionally, with the current volatility in the capital markets, it’s hard to predict how much and what kind of terms you might be offered from funding sources. Non-dilutive financing allows you the take the reigns and access what’s at your disposal for growth today, especially with uncertain times present.
How to use non-dilutive capital
There are many options for non-dilutive capital. It’s normal for financing partners to establish terms for what you can or cannot do with these funds. At Capchase, we do things differently in that we offer autonomy to founders and CEOs on how to spend the funds.
Here are some common ways that we see companies using revenue financing for growth at Capchase:
- Expand headcount
- Invest in marketing
- Accelerate product development
- Invest in establishing systems & buying critical software
- Improve overall capital efficiency
- Reduce the cost of growth
- Gain access to cash, expediently
We have a few case studies to help you gain a deeper understanding of how different high-growth SaaS businesses use non-dilutive funding:
- FIIT App uses Capchase to access financing at scale. FIIT is a streaming interactive fitness app that has already grown 700% in the last 18 months. This growth is representative of a fruitful partnership between FIIT and Capchase. FIIT leveraged access to a large amount of working capital provided by Capchase to strategically expand their reach.
- Blackthorn doubled their headcount using Capchase. With event management and payment processing software, Blackthorn helps their customers automate repetitive tasks. Capchase helps Blackthorn gain access to funds as-needed for different purposes.
- Webshare uses Capchase Grow & Earn as self-serve solutions for their funding. Webshare enables enterprise proxy services, enabling deep data collection, aggregation, and analysis for businesses around the world.
If you’re curious to learn more about Capchase, a valuable first step is to get in touch with our sales team. We can help you create a clear financial picture for potential revenue based financing options.
