What’s the right capital raising strategy for your business – Venture Capital? Revenue-based financing? Bank loans? At Lighter Capital, we spend lots of time talking to growing technology companies about what funding options and overall funding strategies make the most sense for them. So we decided to put together a comprehensive guide to help you think more strategically about the fundraising process.
Figuring out the right funding strategy for you business
The kind of capital you raise, and when you raise it, will fundamentally impact and shape the future trajectory of your business and it will determine how much value you can extract in the long term. So it's important to have a thorough understanding of the trade-offs, risks and pay-offs that come with different funding options. In our guide we lay out three different funding paths, and when they make the most sense based on a particular company’s expected growth trajectory:
The VC-backed path is for companies targeting large $1billion plus markets, requiring large infusions of capital and seeking to exit via sale or IPO with at a minimum 10 times return.
The Non VC-backed path is for companies generating growing, predictable revenues and strong margins. It’s for those requiring smaller capital amounts periodically to boost growth seeking to retain total control over their business.
The Blended Path is for those who can get to scale on their own in the hopes of boosting growth or market share which in turn may get them a better valuation from equity investors.
Once you decide which is the funding path that best suits your your business growth strategy, our guide offers up 6 important questions you should answer when deciding which specific funding option will give you both the financial and personal outcomes you are looking for. They are:
1. How much capital do you need?
2. How much equity are you willing to give up?
3. What are you willing to risk to fund your business?
4. How do you want to repay the money?
5. Do you want guidance in growing your business?
6. How long can you spend raising funds?
No one can predict exactly how a company will grow and what twists and turns will impact its future trajectory. But what you can do is start with a funding strategy that makes most sense to you based on a thorough understanding the different funding options.