Although venture capital is a prominent source of funding for early-stage companies, it is far from the sole one. Debt, as well as non-dilutive, revenue-based financing, is becoming more prevalent. So, at TechCrunch Disrupt 2021 last week, we asked Accel Partner Arun Mathew, Clearco co-founder, and president Michele Romanow, and Pipe co-founder and co-CEO Harry Hurst to explore the numerous methods firms may acquire funding and which would be the greatest channel for entrepreneurs. (Unfortunately, Hurst was unable to attend the full panel due to a power outage.)
ClearCo provides revenue-based finance, and Pipe has developed a trading platform that connects investors with businesses that generate predictable recurring income. Both firms have raised significant amounts of venture funding, which some may regard as ironic. However, Romanow and Hurst were certain that venture capital and other types of capital do not have to be “mutually exclusive.”
“I believe the largest firms in our portfolio are utilizing a variety of funding sources,” Romanow added. “I would advise you to conduct study on what form of financing is appropriate for the stage of your business and the purpose for which it is being used. In addition, I believe you will find that if you do that, you will wind up much less diluted at the end of the day. And you’ll find additional leverage over time, allowing you to expand much more quickly.”
According to Mathew, the majority of businesses are not a good fit for venture capital. “Venture investment is costly, and it comes with particular expectations depending on who you get money from,” he added. Romanow pointed out that whether a founder should seek venture capital or other forms of funding is primarily determined by their intended use of the funds.
For example, if a firm needed money to buy merchandise and advertise, venture financing would not be the ideal option. “It doesn’t make sense to give up significant equity at this level of the game to undertake something that’s a recurring and scalable expenditure with a fixed return,” Romanow said.