It was very easy for most startups to fetch funding at a high valuation till early this year. However, today’s market is a bear market and it is very common for most investors to value startups at a lower amount, along with much stricter deal terms as compared to earlier times.
So, most startups that need some additional funding have been turning towards funds like venture debt and several other forms of non-dilutive financing. Most marketplace owners say that they have become the most attractive financing options now.
These days most startups have been banking on several revenue-based financing because this has become quite attractive these days, and they also come up with contractual and predictable sales models. There are various companies that engage in lending upfront capital against the startups’ recurring revenue, and they reveal that they have seen an increase in demand ever since the downturn had begun.
There are various startups operating in the fintech space like Capchase and its founders believe that companies like his play a very important role in helping startups so that they can avoid any kind of down rounds. They also share that with the current scenario startups can either grow as fast as possible or grow slowly, but for quite a period of time.
Startups would obviously need money on both options and those companies that specialize in non-dilutive capital can help. These companies hold the view that their offering is much superior to any kind of traditional venture debt. This is because of their lending actions, which are data-driven, they are faster while fetching money can take weeks from venture debt providers.
Many early-stage startups and bootstrapped companies are abiding by this route and taking capital from such kinds of companies. Non-dilutive companies specializing in this space like Pipe, which had a valuation of $2 billion last year in 2021 note that it helps companies with capital with an amount which is as little as $100,000 in annual recurring revenue, and also companies that have been publicly traded with over $1 billion in revenue.
Then there are other companies like Capchase where they say that for every customer, on average there is a growth of around 60%, even before Capchase. This happens due to the fact that companies usually indulge in investing their loan towards growing their top line to get additional funding, and they also create a growth cycle which is virtuous.
These factors indicate that the cost of borrowing from such kinds of lenders is likely to go up at a rising rate, however, there are some experts in this field who said that these days alternative lenders have been becoming discerning. They also share that there has been an increase in the number of loan applications, however, there are risks involved too, which has led the approval rates to decrease.
Since more and more startups have been banking on this kind of investment, there must be some value in it, time can only tell what the future holds.