When it comes to starting a company, many founders default to seeking venture capital as their primary source for growth, given how quickly it can fuel their trajectory. But for women-led start-ups, VC funding has proven hard to come by and is often more expensive than for male counterparts due to more conservative valuations.
In 2020, women-led start-ups received just 2.3% of funding, a decline from the previous year. While a hard number to swallow, this isn’t particularly surprising when you look at the make-up of the venture capital firms themselves – estimates are that only 9% of general partners at venture capital firms are women. What’s more, these figures don’t even take into account the massive impact that the pandemic has had on women’s place in the workplace in general. The pandemic caused nearly 3 million women to leave their jobs and was hardest on women with children under the age of 10.
Female founders have clearly faced their challenges, but they have persevered. Since 2009, the number of companies founded by women has doubled. Many of the most exciting start-ups today have women at the helm. So, when it comes to the startup journey and seeking funding, it’s the perfect time for female entrepreneurs to think outside the VC box and consider a much broader set of financing options.
Few founders, male or female, realize there are other ways to finance business growth aside from venture capital and venture debt. These are often called “dynamic” funding models. When used in conjunction with venture funding, they can be the difference between success and failure for many startups.
At Capchase, we help hundreds of companies around the country to secure the funding they need for growth. Many of the companies we work with have impressive leadership teams and a solid product that is already being supported in the market. We’ve seen first-hand how they’ve deployed capital in different ways and at different times, and what’s worked as a result. Based on our experience, below are some additional financing options to consider and how they can complement your overall growth strategy.
Subscription businesses with committed monthly recurring revenue (MRR) should consider programmatic funding. Unlike traditional venture funding, programmatic funding is provided in recurring installments aligned with the dynamic nature of your business. It requires exceptional modeling and data analysis but, if done correctly, can lead your business to a much stronger financial position.
Revenue financing has been around for a few years. Lending institutions that will front you a multiple of your MRR (usually 2x to 4x) in return for a percentage of your net monthly revenue. This model can work well for ecommerce, but it’s hard to calculate how much this type of funding will cost a subscription business with long conversion cycles and fluctuating conversion metrics. If the company is growing quickly, the principal is paid very quickly, and the price becomes very steep.
Programmatic funding is a new alternative that unlocks the right amount of funding at any given time. It is deployed just-in-time, which minimizes the amount of spare cash that’s not generating returns. It charges a fixed percentage on each draw and includes a finite repayment term.
The key to success with programmatic funding is to know your business model with a clear understanding of your cash inflows and outflows. Every dollar you bring in can be used efficiently, if you can determine the right amount of capital needed month by month. This can make a huge difference to you. The ROI with programmatic funding is usually between 8x and 11x. By comparison, static funding typically results in an ROI of 1.5x to 3x the cost of capital.
When you think about your growth journey, just remember that there are multiple options for you to consider – even if some funding doors are harder to open than others. Venture capital and debt can be really important as you get going, but they aren’t the only options as your business grows. More dynamic options, such as programmatic funding, are often more efficient and should be considered as well.
As you go through the financing journey, know the options available to you and the position they will put you in when you approach an exit. Retaining equity is a key marker of success for any founder. So, while female founders continue to evolve the startup landscape, looking at evolved financing options can be the best fit for delivering long term success.