When is Venture Debt Right for Me?
Venture debt can be an efficient and useful way to accelerate your company’s growth, but it may not always be right for every founder. In our experience, there are a handful of use cases that work best with revenue-based financing.
1. Extending runway
Having a healthy runway allows you to be prepared for the unexpected, both good and bad. Revenue-based financing allows you to extend your company’s runway without additional dilution or giving up board seats, giving you the ability to better capitalize on new opportunities should they arise.
2. Hiring new employees
Many early-stage companies find themselves ready to hire new employees, like sales or marketing staff, but not necessarily ready to raise a full round. In these instances, venture debt can be a great way to hire new employees who will bring money back into the company.
3. Expanding marketing efforts
Similar to hiring new employees, revenue-based financing is an efficient way to expand your marketing efforts. While traditional equity fundraising can take 8-12 months, revenue-based financing can have money in your bank account in 30-45 days, allowing you to quickly expand your marketing or capitalize on new customer segments.
4. Using as a bridge between rounds
Raising a bridge round from current investors can be expensive and a red flag for future investors. Instead, revenue-based financing is a great fit if you find yourself needing bridge money before raising your next round. And, preventing more dilution keeps current and future investors happy, as well as allows yourself more flexibility for future raises.
5. Funding acquisitions
Occasionally, situations arise in which you need an amount of capital too big to dip into your cash on hand but an amount too small to raise a full equity round, like acquiring another company. In cases like this, revenue-based financing can be a great fit, since you can raise the exact amount of money you need efficiently.
While this is by no means an exhaustive list, if you’re looking to raise capital for your software company and would use the funds for one or more of the above reasons, revenue-based financing may be right for you!