Headlines about big values and big funding rounds hide the fact that a huge number of venture-backed startups are failing. And yet, it’s part of the game plan: most VCs expect three out of ten of their investments to fail completely. This leads to VCs securing their investments in one or two startups and reserving follow-up funding for them. It also leads to pressure to grow fast, make additional investments and leave.
For a start, it is time consuming to take venture capital. It can be a founder’s full – time job and take them away from building their business and team. In return, they give up the capital and get an extra vote at the decision-making table.
Despite many initiatives, it is no secret that VC is not inclusive. Investments in women-led companies have decreased to 2% globally. According to Atomico’s State of European Tech report 2020, 62% of color founders had a hard time raising VC. The need for networks, warm introductions and family and friends to prove a company’s dissertation does not create a diverse industry.
Because of all this, companies increasingly want other options. What if the founders could keep their equity and their board and leave when they chose?
Alternative finance providers are emerging to meet this demand in the United States and increasingly in Europe.
So what is available in Europe? Who has used them so far? And what exactly do they offer?
Revenue-based financing can help democratize access to finance because it does not require warm introductions – you just apply. It requires no personal guarantees, there is no equity on the table and no board seats are requested.
What is it doing? Provides revenue-based financing between £ 10k – £ 10m to e-commerce and SaaS companies. It plans to invest £ 500 million in startups in the UK by 2021.
How? Clearbanc assesses a start-up eligibility for financing based on measured values such as recurring income and growth. It connects to payment processors such as Shopify, WordPress and Paypal to assess what level of financing a company can afford and the percentage of monthly revenue to repay. There is a flat fee between 6% and 12% that depends on whether the cash is spent on ads – which have the lowest fees – or inventory, invoices or other expenses.
Where? The United Kingdom is the first European market to be entered by the Canadian Clearbanc. It is currently testing other European countries.
How do startups use it? Mainly for marketing on Google and Facebook.
How much has Clearbanc invested in European companies so far? “More than £ 30 million in more than 250 startups in the UK – a larger share of funding goes to companies outside London than with traditional VC. Funding also goes to eight times more women than men in the UK. ”
Who has it invested in? The alcohol brand Haus and the online learning platform Superhi.
You can read more about Clearbanc in the Sifted archives here.
What is it doing? It provides e-commerce and SaaS companies with revenue-based financing of up to £ 2 million, plus unlimited top-ups.
How? Like Clearbanc, companies connect their payment processor or bank account to determine the amount offered and the revenue percentage to repay. Different cost types entail different standard fee percentages between 5-12%.
Where? The London-based company finances British companies and tests in 13 European countries, including Germany, Spain and Poland.
How do startups use it? Mainly for marketing on Google and Facebook.
Who has it invested in? Insurance start Marshmallow, tights company Hedoine and used fashion company Vinokilo.
How much has Uncapped invested in European companies so far? “Millions in hundreds of companies.”
How much debt has Uncapped had to write off? “0%. Our first customers were friends, so we created this product to be really fair and friendly with plain English terms and no hidden fees or tricks. We will never make an offer that we do not think the company can afford. ”
Why are other business expenses, in addition to marketing, reimbursed at a higher interest rate? “We do not charge interest, only a fixed fee. Funds spent with our marketing partners such as Google and Facebook have a lower risk of fraud, so we transfer the savings to our customers in the form of lower fees. ”
How does Uncapped decide who will finance? “We have removed bias from the traditional investment process by using technology to make fast data-driven decisions. Most e-commerce and SaaS companies that generate between £ 10,000 and £ 2 million in monthly sales and grow will be funded within 24 hours. “
What is it doing? It provides e-commerce and SaaS companies with revenue-based financing. It has invested in over 450 companies over the past year and is committed to lending over £ 100 million in 2021.
How? It charges a fixed fee of 5% no matter what the business cost making it more competitive than Clearbanc and Uncapped if you want to use it for more than marketing costs. It considers a wide range of payment processors, including invoice-based companies that are primarily B2B.
Where? London-based Outfund is currently financing British companies and will be launched in two new European countries next quarter.
Who has it invested in? Weighted blanket company Mela Comfort and interior design platform Olivias.
Other revenue-based finance companies in Europe include:
- Berlin-based Lift 1. Its investments include pet tech Vetevo and fashion brand Buckle and Seam.
- Berlin-based Remagine. To apply, you must have 12-month accounts with growth, have at least 20,000 euros a month in revenue and a digital business model. For every company it finances, it donates a laptop to a teenage refugee. The portfolio includes fragrance start Ava & May.
- Cologne based Riverside Acceleration Capital. It provides $ 1-5 million to B2B SaaS companies with $ 3 million in annual recurring revenue with the opportunity for follow-on capital investments.
Media for equity
Media for equity or revenue is a financing option that provides advertising products for television, print, online, etc. in exchange for equity in a company or monthly revenue. The benefits of this type of model are to increase brand awareness, audience data and professional experience from media companies without having to spend money.
What is it doing? The investment arm of Seven.One Entertainment Group provides media services to B2C companies in exchange for revenue or equity. Media services take the form of advertising time on seven of Germany’s free TV channels. Cash is also an option but always in connection with a media gig.
How? Due diligence takes place, a valuation is determined and an offer is made. Creating TV locations is a start-up responsibility, although Seven Ventures helps with introductions to agencies at preferred prices. A great added value is Seven Ventures data about the audience.
Who has it invested in? Fashion brand Zalando, cleaning platform Helpling and mattress supplier Casper.
Other media for stock organizations in Europe include:
- UK based Channel 4 Ventures. The portfolio includes location systems What3Words, mattress company Eve and crowdfunding platform Crowdcube.
- Scotland STV Growth Fund. Its portfolio includes Cheeky Chompers for baby brands and local brick and mortar companies.
- Spain and Italy-focused Ad4Ventures. It is the investment arm for Italy’s largest transmitter, Mediaset Group, and has worked with the home furnishing company Westwing, the sports shop Deporvillage and fintech Satispay.
Other VC options
What is it doing? It finances companies at an early stage that build “calm, sustainable, profitable” companies.
How? Through a shared profit agreement – this agreement means that all money is repaid only after the company is profitable above a predetermined threshold. Founders have an incentive to share profits with investors because it effectively repurchases their shares. Typical check sizes are $ 200,000 but there are syndicated rounds of $ 500,000 +.
Where? An American company that invests globally. Five of the first 30 investments were made in Europe.
Who has it invested in? Photo app 1 Second Everyday and no code platform Makerpad.
What makes Earnest Capital different? “We connect founders to a platform of services and products called Earnest OS. We have a group of more than 150 experienced entrepreneurs who are both investors in the funds (skin in the game) and mentors to the companies. ”
Earnest Capital retains equity when 2-5x of the initial investment has been repaid. Why? “It helps us stay in line with the founders in the long run and support them if they really want to go far.”
What type of company is Earnest looking for? B2B SaaS mainly, but also developer tools, apps for remote teams, niche markets and revenue-based media and content companies.
What is it doing? It buys internet companies with 3+ years of operating history, annual net profits over $ 500,000 and a solid team and provides resources and management to keep it going. Portfolio founders can stop or go; all options are on the table. Corporate purchase price is between 5 and 50 million dollars.
Where? It is completely remote and open to businesses anywhere. It has over 300 scouts worldwide who help with the flow of business.
Who has it worked with? Creative network Dribble, job card Unicorn Hunt and digital product studio Z1.
Other VC options include:
- London based Great find. It provides cash advances to e-commerce merchants. Sellers must be on the Amazon or France marketplace, CD discount and an average of £ 25,000 a month to be eligible.
- London based Conscilience Ventures (CV). The community-based platform built on blockchain enables startups to sell equity to the network in exchange for their CV currency. This currency can be used to acquire expertise in the community to help the business where it is needed. You can read more about them here.
- Liechtenstein-based Money Turtle. A new app built on blockchain to simplify and legalize the upbringing of a family and friends. Part of the proceeds goes to protecting sea turtles.
Anisah Osman Britton is the co-author of Sifted’s newsletter Startup Life, which is published every week on Wednesdays. Sign up here.