Venture capital is a popular source for capital for startups in the early stages, but it's not the only source. Non-dilutive revenue-based financing is also becoming more popular.
We invited Accel Partner Arun Matthewew, Clearco cofounder and president Michele Romanow, as well as Pipe cofounder and coCEO Harry Hurst, to TechCrunch Disrupt 2121 last week. They discussed the different ways companies can raise capital, and which avenue might be best for startups. Unfortunately, Hurst was unable to attend the entire panel due to a power outage.
Clearco and Pipe both offer revenue-based financing. Both have raised large amounts of venture capital, some might even say ironically. Romanow and Hurst believed that venture capital and other forms are not mutually exclusive.
Romanow stated that the largest companies in our portfolio use multiple pools of capital. It is important to research which type of capital is best for the stage you are at and what purpose it is being used for. You'll be less diluted at end of day if that is what you do. You will also find more leverage that will enable you to scale up much faster.
Mathew stated that most startups are not suitable for venture investment. Venture investment can be expensive and, depending on the source of your funding, comes with some expectations.
Romanow said that whether a founder should choose venture capital or another type of financing depends on the purpose for which they intend to use the money. Venture dollars would not be the best choice if a startup was looking to invest in inventory or advertising capital. Romanow stated that it is not a good idea to sacrifice valuable equity in an early stage for a predictable and scalable expense with a fixed rate of return.
