Alternative Funding: Beyond Traditional VC

Venture capital isn't the only way to fund growth. Here are alternatives that might be better for your business.

Revenue-Based Financing

How It Works:

• Borrow $X
• Repay as % of monthly revenue
• Until you've paid back X × multiple (typically 1.3-1.8x)
• No equity dilution
• No board seats

Example:

• Borrow: $500K
• Repayment: 8% of monthly revenue
• Multiple: 1.5x
• Total repayment: $750K
• Time to repay: 18-36 months (depending on revenue)

Best For:

• Profitable or near-profitable companies
• Predictable revenue
• Need capital for growth
• Want to avoid dilution

Providers:

• Lighter Capital
• Clearco
• Pipe
• Capchase

Pros:

• No dilution
• Fast approval (weeks not months)
• Flexible repayment
• No board seats

Cons:

• More expensive than equity
• Requires revenue
• Reduces cash flow
• Limited amounts ($100K-$5M)

Venture Debt

How It Works:

• Loan with interest (8-12%)
• Warrants for equity (1-3%)
• 3-4 year term
• Often requires equity round first

Typical Terms:

• Amount: 25-50% of last equity round
• Interest: 8-12% annually
• Warrants: 1-3% coverage
• Covenants: Revenue, cash balance

Best For:

• Recently raised equity
• Need runway extension
• Have clear path to profitability
• Want to minimize dilution

Providers:

• Silicon Valley Bank
• Western Technology Investment
• Hercules Capital
• Trinity Capital

Pros:

• Less dilution than equity
• Extends runway
• Maintains control
• Tax-deductible interest

Cons:

• Must repay regardless of success
• Covenants and restrictions
• Some equity dilution (warrants)
• Requires equity backing

Earnout Financing

How It Works:

• Advance on future earnout payments
• Repay when earnout pays out
• No dilution
• Secured by earnout agreement

Best For:

• Sold company with earnout
• Need cash now
• Confident in earnout achievement
• Want to avoid personal loans

Providers:

• ESO Fund
• Equitybee
• Specialized lenders

Pros:

• Access cash immediately
• No personal guarantee
• Aligned incentives
• Non-recourse

Cons:

• Expensive (20-40% of earnout)
• Only for earnout situations
• Risk if earnout doesn't pay

Strategic Investment

How It Works:

• Investment from strategic partner
• Often includes commercial relationship
• May include board seat
• Typically minority stake

Best For:

• Need distribution channel
• Want technology partnership
• Seeking market validation
• Building ecosystem

Examples:

• Salesforce Ventures
• Google Ventures
• Microsoft M12
• Intel Capital

Pros:

• Capital + partnership
• Market validation
• Distribution access
• Strategic guidance

Cons:

• May limit future options
• Potential conflicts
• Less flexible terms
• Slower process

Crowdfunding

Equity Crowdfunding:

• Raise from many small investors
• Via platforms like Republic, Wefunder
• $1M-$5M typical
• Complex cap table

Best For:

• Consumer brands
• Strong community
• Marketing opportunity
• Traditional VC not interested

Pros:

• Access to capital
• Marketing benefit
• Customer evangelists
• Proof of concept

Cons:

• Complex cap table
• Ongoing communication burden
• Limited follow-on capital
• Regulatory complexity

Reward-Based Crowdfunding:

• Pre-sell product
• Kickstarter, Indiegogo
• No equity given
• Fulfillment obligations

Best For:

• Physical products
• Proven concept
• Marketing opportunity
• Customer validation

Grants and Competitions

Government Grants:

• SBIR/STTR (US)
• Innovate UK
• Horizon Europe
• Non-dilutive capital

Amounts:

• $50K-$2M typical
• Varies by program
• Requires matching funds sometimes

Best For:

• Deep tech
• Research-heavy
• Government customers
• Patient capital

Pros:

• Non-dilutive
• Validation
• No repayment
• Can be substantial

Cons:

• Competitive
• Slow process
• Reporting requirements
• Restricted use

Startup Competitions:

• Win cash prizes
• $10K-$1M
• Plus exposure and connections

Bootstrapping Strategies

Customer-Funded Growth:

• Charge upfront
• Annual contracts
• Professional services
• Consulting revenue

Asset-Light Model:

• Outsource everything
• Use contractors
• Cloud infrastructure
• Minimal overhead

Partnerships:

• Revenue sharing
• White label
• Affiliate programs
• Distribution deals

Choosing the Right Path

Consider:

Stage:

• Pre-revenue: Limited options, likely need equity
• Early revenue: RBF or venture debt possible
• Profitable: Many options available

Growth Rate:

• High growth: VC makes sense
• Moderate growth: Alternative funding works
• Slow growth: Bootstrap or debt

Goals:

• Build to sell: VC might make sense
• Build for cash flow: Avoid VC
• Build for impact: Consider grants

Control:

• Want to maintain control: Avoid VC
• Need guidance: VC can help
• Have experience: Less need for VC

Mixing Funding Sources

Common Combinations:

Equity + Debt:

• Raise equity for growth
• Add debt to extend runway
• Minimize dilution

RBF + Equity:

• Use RBF for working capital
• Save equity for major milestones
• Optimize cap table

Grants + Equity:

• Use grants for R&D
• Equity for commercialization
• Reduce burn rate

The Reality

There's no one right answer. The best funding strategy depends on:

• Your business model
• Growth trajectory
• Goals and timeline
• Market conditions
• Personal preferences

Don't assume VC is the only or best path. Explore alternatives and choose what's right for your specific situation.

I've used different approaches for different companies:

• Company 1: Bootstrapped to profitability
• Company 2: VC-backed
• Company 3: RBF + small equity round
• Company 4: Strategic investment + VC

Each was right for that specific business and situation.