How Predictable Revenue sourced startup capital without sacrificing equity (or control)

When the time comes to scale your startup business, you need to find the right type of finance. Compare this process to the biggest road trip of your life — to determine the fuel (finance) you’ll need for your journey, must have your route (business goals) mapped out.

Whether your objective is to secure short-term capital to boost growth or to go down the IPO track and sell the company, your desired destination will dictate the type of capital you should seek.

“View capital as a means to the desired end”

As second-time entrepreneurs, we built the foundation of Predictable Revenue over the course of four years before we weighed up our finance options. Applying lessons we learned the first time around, we embarked on a decision-making process that prompted us to consider the inherent value of the time and money already invested.

After countless hours of research, we were confident about the worth of our business and considered three lessons we’d learned in the past before securing capital.

3 Lessons in Seeking Startup Capital

1. Know Your Personal Worth

Take stock of how much time and money you have already personally invested in your venture and decide how much more of your investment and savings you are willing to put on the line to secure capital. In other words, what personal value exchange is required to get the capital you need?

Be conscientious of contractual jargon — a personal guarantee (personal assets like cash and real estate secured against the loan) is sometimes a condition of receiving startup capital.

We didn’t want to assume the risk of a personal guarantee in the early stages of Predictable Revenue. If things didn’t work out, we’d lose a lot more than just our company.

2. Know Your Company’s Worth

Many finance models, including venture capital, require a company valuation with proof of positive cash flow. Others, like revenue finance, allow you to take your company to the next level without having to give up any equity.

The aptly-named unicorn companies of today are rare for a reason — very few companies are valued at one billion or more in their startup stages.

Rather than having to surrender equity (or company shares) in exchange for capital, revenue finance is repaid incrementally as a percentage of future revenues. The payment terms are cash-based — as your company earns revenue, you pay a small percentage of that revenue. This means you’re not tied to one big payment and you can grow your business at your own pace.

This pay-as-you-grow model is suitable for companies that generate recurring revenue i.e. software-as-a-service.

3. Know Your Investors

Thoroughly research your investors before signing any contracts. Your business might only be a year old — the contracts you’re signing will last for five, six, seven, or even ten years. You will be bonded to your investors for a long time so make sure you know what you’re getting into.

Seek investors that align with your vision, have the ability to listen, respect your autonomy, and provide mentorship that adds value to your relationship.

The investor team should provide fair and balanced guidance over the course of the relationship. It’s easy for founders to get into the weeds so it’s valuable to have someone who’s been there and done that.

A good investor can provide advice on governance, your relationship with your co-founder, and other high-level things that are easy to miss when you’re just focusing on the ground-level execution. They will also give you the space you need to make their own decisions.

Some investors will go so far as to provide really strong dashboarding. They take all of the metrics you provide and send you back visual representations of how you’re performing. They can also provide access to a business analyst to explain it all — it’s always good to get a different perspective.

For us, revenue finance offered the stability to scale up without sacrificing equity or the decision-making authority needed to catapult us to next-level growth. With flexible repayment terms based on revenue rather than a lump sum payment, startups like ours can focus on generating steady income growth rather than unsustainable high-trajectory returns. For Predictable Revenue, it was a no-brainer.