Why and when startups should look to diverse sources of capital

Venture capital is a popular source of capital for early-stage startups, but it’s definitely not the only one. Debt is an increasingly popular alternative, as is non-dilutive, revenue-based financing.

So, we invited Accel Partner Arun Mathew, Clearco co-founder and president Michele Romanow, and Pipe co-founder and co-CEO Harry Hurst to TechCrunch Disrupt 2021 last week to discuss the various ways companies can raise capital and which might be the best avenue for startups. (Hurst unfortunately had a power outage so was not available for the entirety of the panel).

Both Clearco and Pipe offer revenue-based financing and both have raised large sums of venture capital themselves, some might say ironically. But Romanow and Hurst were emphatic in their belief that venture funding and other forms of capital don’t have to be “mutually exclusive.”

“I actually think the biggest companies in our portfolio are broadly using multiple, different pools of capital,” Romanow said. “I would encourage you to do your research on what type of capital is good for which particular stage of the company you’re in, and which particular purpose you’re using it for. And if you do that, I think you’ll find that you’ll end up being a lot less diluted at the end of the day. And you’ll actually find more leverage over time that will allow you to scale a lot faster.”

Mathew argued that the majority of startups are actually not a great fit for venture investment. “Venture investment is expensive, and depending on who you raise from, it comes associated with certain expectations,” he said.

Romanow pointed out that whether or not a founder should opt for venture capital or other types of financing largely depends on what they are planning to use the money for. For example, if a startup were looking for capital to spend on inventory and advertising, then venture dollars wouldn’t be the best fit. “It really doesn’t make sense to give up valuable equity at an early stage to do something that’s a repeatable and scalable expense with a fixed return,” Romanow said.

Credit belongs to : www.techcrunch.com

You May Also Like

Top highlights from Xpeng’s 2021 Tech Day

Chinese smart electric vehicle startup Xpeng has announced a series of innovations that direct the company towards crafting the mobility ecosystem of the future.  “Our exploration of more efficient, safer, carbon-neutral mobility solutions goes far beyond just smart EVs, and is the cornerstone of our long-term competitive advantages,” said He Xiaopeng, chairman and CEO of […]

The return of text is inevitable

Welcome to Startups Weekly, a fresh human-first take on this week’s startup news and trends. To get this in your inbox, subscribe here. On Equity this week, we discussed the value of the written word. You can imagine that the resulting argument is inherently biased, considering we are three journalists who have bet our livelihoods […]
error: Content is protected !!