Am I confident the capital I raise will get the company to sustainably cash positive?
This is arguably the most important question you will need to consider that will help define where you should look for funding. If you plan on using the capital to fund resources or projects that will require more funding, that is venture capital. On the other hand, if you are confident this batch of capital will get your company to cash flow positive, move on to the next question.
Can I raise equity at such a high price that I don’t mind the dilution?
You’ve worked hard to build your company from the ground up. Why are you selling it away? Many founders steer away from equity dilution due to its growth in value over time as they continue to grow the company. If a founder raises an equity round and the company grows significantly, the cost of that capital ends up being much more expensive. Although unlikely, if the valuation is extremely high, it may be the case that dilution is not as big of an issue.
Can you secure debt?
If you can secure debt, can you secure it at an attractive rate without a due date, amortization, PGs and/or covenants? If you can, take it. If not, consider Flow Capital to complement or replace the equity.
Flow Capital’s Alternative to Equity
Flow Capital’s alternative financing structure, revenue-based financing, is a perpetual investment that involves monthly payments based on a percentage of monthly revenue. As opposed to traditional debt financing, RBF has no due date, amortization, PGs and/or financial covenants. Founders choose when to buy out the investment, which can happen at any point in time.
As opposed to the cost of capital of equity if a company grows quickly, RBF is a much cheaper financing option, which is why this financing structure is best suited for post-revenue and high-growth companies that are close to or at profitability.
For more information on revenue-based financing, read our Founder’s Guide to Revenue-Based Financing.