Venture Capital has changed the way capital was provided, but how vigilant founders should be when bringing in investment into their companies.
By Zeus Dhanbhura
In today’s startup world, you will read many articles and countless twitter threads telling you how capital is a “commodity” and that access is no longer limited to the selected few. Yes, Venture Capital has changed the way capital was provided by giving it almost ‘robin-hooding’ to those brave enough to dream, wake up and execute. You will hear much of what it brought, little of what it took away – your control of your dream. In fact, you signed that into something arguably so modest and so perfectly positioned in your SHA that you were too tired to care – Reserved Matters.
You had a dream, you executed it, you reached a suitable product in the market, you gave some of your company away to Capital, it felt good – the valuation felt valid, you got hooked, wanted to do it again and then all of a sudden before you knew it – you gave too much away. How much is too much? In your case, the answer is clear: it’s 51 percent.
It didn’t stop there though, did it? No, it never does. Then came something that dictated which airport lounges you can access, the right swipes on your Tinder profiles, the increased Twitter followers — your appreciation. When I say yours, I mean your company’s, but when you consider how intrinsically you and your assets are tied to it, it might as well be yours. What they don’t tell you about your appreciation is that it’s not something you’re worth today, but you’re about to work really hard to justify it.
There’s nothing wrong with hard work, but what you’re going to do in the good name of hard work is burn a lot of money to show growth. This strategy of growth at all costs justifies burning money that you would ideally never do in your right mind. Especially if it wasn’t so readily available and that strategy encouraged by the people giving it to you. Sound crazy? Well, that’s because it is. But we’re here to tell you that growth at all costs comes with other costs that you haven’t factored in – how long can you sustain this? How many more valuation and growth cycles can you flush and repeat before you can’t do it anymore? What is the end goal? You run all possible statistics in the world or are asked to show the growth in your valuation bundle. Some are also very creative. But how do you miss perhaps the most crucial? What is your company’s success rate with this strategy?
Again, what they don’t tell you here is that for a long time you will never find a way to make a profit. Those Excel sheets showing profitability in 3.4.5 years are nothing more than a band-aid that you will eventually have to lift. Why? Because the way you grew was never meant for profit – it was meant to trade you as an asset. Now, I’m sure you’re asking yourself what’s the difference between me and the hamster on that treadmill? Good question. I’ll tell you what it is – the hamster almost always gets the cheese at the end by their happy boss. You are not. Less than 2 percent of companies make it this way, but those that justify the means and those that don’t are collateral damage.
Why are we saying all this? I mean, get to the point, right? Right. Because not all business models are designed to ‘grow at all costs’. Some of the greatest companies in history have come about thanks to accelerating growth. Yes, you heard that right. Explosive growth works for some, but not for everyone. Sometimes you just want to build slowly, but you want to build sustainably. You didn’t want to be part of the “rat race” that you so infamously quit when you decided it was better to run your own business than sell your time. But what did you do after that glow of glory? You joined another. Much more financial, but a rat race nonetheless.
This is by no means a hit in the venture capital field. VC is likely responsible for the largest systemic shift in wealth of the 21st century. It works for many companies and has changed several lives. Venture capital’s upfront income is still very important. It just doesn’t work for everyone. For those for whom it doesn’t work, there are companies that provide non-dilutive financing and those companies are not necessarily an alternative to venture capital, but a complement, if you would like to use them that way.
If you are a founder who understands the true cost of capital of your equity. You value your time, your control, your decision-making power and no shilling porn, I want you to know you have options out there. They can help you build your business the way you want by giving you immediate access to non-dilutive capital.
You used to call this going to the bank, entering into a relationship with the bank, putting your house as collateral for money and building your business from that. That’s guilt. These finance companies don’t need your home, in fact they don’t need collateral and you can do all of this at the touch of a button from anywhere in the world. They believe in your business not because of the 4 slides in your deck you have dedicated to your TAM, but rather because of your existing customer base and the revenue they bring you. They can help you capitalize your contracts, your revenue streams, your customers, your subscriptions to provide you with capital in a way that allows you to run your own business, your way. The capital is less, but it also comes at a much lower cost. Do the math.
(Zeus Dhanbhura is the CEO and co-founder of BridgeUp)
This post Non-dilutive capital: what founders didn’t know they needed was original published at “https://www.financialexpress.com/industry/non-dilutive-capital-what-founders-didnt-know-they-needed/2461420/”