The Basics of Tech Startup Funding

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Silicon Valley knows that raising capital, in the beginning, is the most challenging stage of a startup for many tech company founders. They are aware of a pain point in the technology market or have an incredible new product to sell, yet initial funds inhibit them.

The world of technology is the fastest growing industry, and it shows no signs of slowing down. It is more important than ever to obtain cash at the beginning of your company’s journey so you can explode with the growth you project.

However, ample startup funds never have to deter you from launching your tech business. There are different tech startup funding options available, so you can generate the company growth you desire right from the start.

There are two basic categories of funding options: funding through debt financing and offering equity in exchange for funding. All of the various ways to raise capital fall under one of these two categories.

Debt Funding

Securing capital through debt that you must repay with interest is a financial choice that most people are familiar with, whether from personal or business experience. Debt funding for your tech startup is the same. Securing a bank loan with collateral or using credit cards to fund your finances is a quick way to get your company up and running.

However, there are higher interest rates for new tech startups because banks know the risks involved. Debt funding can have negative consequences if your company cannot pay back the money in a short time. This is because you may quickly find yourself in more debt than intended and saddled with debt for years to come.

Equity Funding

Seeking venture capital by exchanging equity for funds is a popular form of raising capital for tech startups. With this experience, investors produce funding in exchange for a percentage of ownership in the company. Equity funding is typically secured in early-stage Series A funding when there is still significant equity available.

Venture investors, including angel investors, are in the business of funding startups to earn a percentage of the profits. This option is excellent for entrepreneurs who do not wish to take on debt, but they run the risk of losing company control with every venture capitalist that comes on board. If your company gives away more than 50% in equity, you no longer own the most significant stake in your company, which can be detrimental when making decisions or selling the company.

Funding with RevTek Capital

Debt funding and equity funding have pros and cons that define them as different finance options for your tech startup company. If you have the next fantastic product for the technology industry, but cash is a problem, these solutions may be the catalyst you need for significant initial company growth.

Funding with RevTek Capital falls under the debt funding category but without the same amount of risk as with most debt options. We provide what we call Revenue Based Financing, which is an excellent finance option for tech startups already producing recurring monthly revenue but need a boost in capital to reach the next growth benchmark.

If you have any questions about the difference between debt funding and equity funding and would like to discuss the best path forward for your tech startup, we would be honored to help. Give us a call to our office at (480) 332-0399, and a finance specialist will get back to you on how to get you the cash your company needs for massive growth.

SaaS Company Valuation: Multiples and More

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For any Software as a Service (SaaS) company, finding effective financing solutions can prove difficult. Because SaaS is a fairly new business model, many SaaS owners do not know how to accurately value their companies, as there is not a one-size-fits-all equation or standard.

These figures are not only important for long-term selling plans but also for the present as you try to grow your business. Without a correct SaaS valuation, you will severely limit the financing options that are available for your business. We want to help you understand SaaS company valuations and the impact they have on your financing options.

How to Determine the Value of a SaaS Company?

Determining the valuation of your company can be a difficult process that involves the input of outside investors. However, the valuation of SaaS companies on public markets differ from those of private markets, pure-play, and B2B SaaS companies.

For fast-growing public SaaS companies, this valuation number is easily determined. The most common formula for SaaS companies on the public market is Enterprise Value (EV) divided by annual revenue. The Enterprise Value is determined by adding up equity and debt and subtracting all cash on the balance sheet.

Determining the value of high-growth private SaaS companies is much more difficult, however.  One of the best multiple-based formulas for determining the value of your private SaaS company goes something like this: Annualized Recurring Revenue (ARR) x multiple = Company Value.

Factors that Affect the Valuation of a SaaS Company

Multiples

The difficulty with SaaS is that there is not an exact science for determining the SaaS revenue multiple. A multiple is an agreed determined number that will be multiplied against the revenue to determine the value number. To develop this number, anything that affects future monthly revenue, cash flow, gross margins, or the growth rate will be a determining factor.

Thomas Smale, CEO of FE International, says in an article about SaaS valuation that “hundreds of different data points” impact the multiple. For him, “these boil down to the transferability, scalability, and sustainability of the enterprise,” and include factors such as financials, traffic, operations, niche, management teams, and customer base. Deciding which multiples to use for your valuation will largely impact the outcome.

Revenue Growth

Another factor that can influence the value of your SaaS business is revenue. The revenue retention and growth of your company over the last 12 months to 24 months can give great insights as to how your company will continue to grow. A study conducted by SaaS Capital Insights found that “for every 1 percentage point increase in revenue retention, a SaaS company’s value increases by 12% after five years.”

Retaining revenue is of particular importance to your company’s valuation because it impacts many other factors, such as your actual revenue, your addressable market, and growth rate.

Churn

Conversely, churn, which is the loss of expected ARR due to loss of customers or subscriptions, can lead to negative valuation. Some churn is always expected, but if churn is increasing year over year, your company will not be valued at a rate of high profitability.

What Impact Does This Valuation Have on Financing Options?

Regardless of what type of financing options you are seeking, the value of your company will influence the terms of your SaaS financing. For Venture Capital and other types of equity financing, the higher the value, the less ownership you will have to give away.

While higher valuation generally helps you keep more equity, you shouldn’t always choose the investor that values your SaaS company the highest. More influential firms may offer lower valuations but are able to bring expertise and relationships that will ultimately increase the value of the company over time.

In terms of debt financing, valuation can also impact what types of interest rates, terms, and collateral requirements are included. As the chart below shows, there are a variety of debt and hybrid funding options that SaaS companies can choose from depending on their needs and expectations.

From https://www.saastr.com/saas-companies-can-maximize-value-debt/

SaaS Company Valuation

Further down the road, the valuation of your company will have a significant impact on your profits when you try to sell your business. While choosing a lower valuation may allow you to obtain ideal financing options earlier, it also can limit your profits. Therefore it is wise to weigh the cost against your plans for the future.

How does RevTek Finance SaaS Companies?

Here at RevTek, our goal is to give you the best possible financing model that will increase the valuation of your SaaS business. Our model is simple: we provide you with growth capital that you need to expand your operations (and therefore, the value) of your business in exchange for manageable monthly payments based on your monthly, recurring revenue.

We don’t take equity, we don’t need a seat on your board, and our terms and execution are simple. To be eligible, you needn’t be profitable, but you should have a predictable recurring revenue.

To begin a conversation about how to use your SaaS company valuation to gain financing in order to grow to the next level, contact us at (480) 332-0399 to schedule an appointment.

How to Start a SaaS Company

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So you want to start a SaaS business? If you are willing to put in the time, research, effort and practice patience, there is no better time than the present to jump into the software as a service industry. With many businesses moving to the digital world and finding new ways to streamline services and communication, there are unlimited ideas in the market to help people do business better.

It is not only expert software developers, techies, or investors that succeed in starting a SaaS business. Anyone with a good idea, determination, and willingness can be successful at running a SaaS startup.

Outlined below are the basic steps to starting a SaaS Company to help get the gears of your mind turning and a stepping block to start from.

Determine Your SaaS Product

It goes without saying, but before you can begin building a program, seeking investors, or filing paperwork, you need a solid Software as a Service idea. Since you are still reading, the odds are pretty high that you may already have an idea or are at least familiar with the industry and know what part of the market you might fit into.

The key with determining what product you will market is finding something that people want or need that you know enough about or are willing to learn enough about to spend the next several years of your life dedicated to. Starting a company simply for the money with no personal interest is often not a recipe for success.

For When You Have an Idea:

If you already have a service idea in mind, great! You are a step ahead of the game. The key now is to make sure that your idea is needed and make sure that the market is open. For instance, trying to develop a ride-share app to compete with giants in the SaaS industry such as Lyft or Uber is not your best bet.

If your idea is geared toward fixing a pain point that you know is experienced and you can’t find a fix for it, you are on the right track!

For When You Need an Idea:

The best ideas are developed when you personally have dealt with a pain point or issue in an industry and know that a new app or add-on would be a welcome help. For instance, developing an app that is geared towards a particular industry such as food service tabs or office communication. When you know that the addition of a SaaS application would enhance the lives of it’s users and isn’t already available, you are ready to begin.

Assemble Your Team

You may be a superhero able to take on starting and running a business all on your own, but many are not. This is when having a co-founder comes in handy. This does not mean asking a friend who you get along with to help run a company, but finding a business partner who you can work well with that will bring different skills to the table. If you are more creative, finding a co-founder who is more analytical and business oriented may benefit you, and vice versa. 

You will also need to assemble a team of experts to do the work. Even if you are tech savvy or involved in the software business, no man is an island and can be everywhere at once. Having a team composed of developers, designers, project managers, content marketers and more will ensure that every base is covered and nothing falls through the cracks. Assembling a team that is trustworthy, dependable, and dedicated can make all the difference in your companies’ success.

Build Your Design

It seems counterintuitive, but it is not important to have every aspect of the product worked out and in perfect condition before developing or launching the service. In many cases, it is after a launch that errors or gaps are found and tweaks need to be made periodically, it is likely that your service will never be perfectly complete.

Even if you think you’ve developed the perfect product, new information can change things quickly therefore it is better to launch a prototype to ensure that your time and efforts will be welcomed and pay off.

A prototype or minimum viable product is essentially a draft. This includes creating a landing page for your brand with the basic functions necessary to begin use of your service. This is a helpful tool when seeking investors because it allows for them to see a clear picture of what you are pitching, rather than complicated or technical jargon.

The first users or early adopters of this product will help give feedback by testing the product and allowing you to assess the overall user experience and how they interact with specific aspects of your service. Employing a prototype or MVP helps you to publicly and officially launch an already tested and efficient product.

Market Strategy

Once you have a product to work with, it is time to develop your Go-To-Market Strategy. Before advertising your product, it is wise to conduct plenty of market research to find out where you fit in and who your target audience is. You must decide what size of business will be your target market, how high the relationship touchpoint between your staff and potential customers will be, what type of plans you offer, and what advertising resources you will use.

Many of these decisions will be determined by the number of users you acquire and may change as your business grows. Most mistakes or failures in the SaaS world are due to lack of forethought and research so it is always smart to be a step ahead and thorough in your marketing plans.

Pricing Models

It’s obvious that your pricing model is important to the success of your company but the process involves much more thought than picking a number and running with it. You must first decide what type of model you will launch with and then reassess and adjust as necessary.

A few Pricing Models and Strategies to choose from are: Flat Rate, Tiered, Per Feature, Free with Ads, or Free Trials. The option you choose will depend on the type of service you offer and amount of users you wish to support.

Financing

The timing of this step is actually very subjective depending on your situation. If you are investing into the company yourself or bankrolling the first few phases you may be able to postpone searching for investors and financing. But if all you have is an idea and shallow pockets, you may need to seek out investors before making any real moves like hiring a team of developers.

There are many different approaches to financing your business, each with it’s pros and cons. Because every scenario is different, we recommend familiarizing yourself with the options and seeking out professionals to help guide you. 

At RevTek Capital, we specialize in Revenue Based Financing that allows you to retain complete ownership and control of your company at low monthly costs. Contact us at (480) 332-0399 to discuss if a partnership with RevTek Capital is the best way for you to gain financing for Starting a SaaS Business.

Capital Budgeting for SaaS Companies

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The capital budgeting steps for Software as a Service (SaaS) businesses are different from traditional capital budgeting decisions. The reason for this is the value of SaaS is its high internal rate of return (IRR) and low operating cost.

With many companies, investments are often made into fixed assets or developing new products, more efficient production processes, and other physical aspects. However, there isn’t a physical product being offered in a SaaS business. Because of this, capital budgeting projects must evaluate the potential in other areas of business that will bring the highest rate of return each year.

Capital Budgeting Process Steps

Below are the steps to consider when Capital Budgeting for SaaS:

  1. Create Goals

The process of capital budgets does involve a high degree of numbers and figures. Still, the board that will accept or reject the budgeting plan does not need merely to see numbers. They need to hear goals. 

What defines long term success? What steps will be taken this year towards that goal? Planning each step of the big picture by year will ensure that you are on target long term. These short term goals should be flexible and adjustable to each investment project. 

A capital budgeting plan should lead to goals and direction before getting into the details of the budget.

  1. Collaboration

The best way to ensure that your SaaS business sees success in the upcoming year is to collaborate between departments towards a shared vision and goals. Each department should be transparent in financial planning. Companies have a higher success rate when competition between departments is expressed in the open rather than closed-fisted about sharing information. 

It is helpful to know how many departments might benefit from the project before determining the net present value (NPV). This knowledge will aid in the decision making and allocation process.

  1. Estimating

This step is where the numbers of capital budgeting come into play. The ultimate deciding factor of investment is deciding which present value of cash will lead to higher future cash flows. When deciding which projects to fund, one key is determining the time value of each potential investment’s money. 

Which project estimates a higher return if invested now vs. later in the future? Essentially, which investments are more time-sensitive? These projections for your potential investments are the most significant determining factor in which direction to set your budgeting decisions.

  1. Tracking

Once it is determined which projects will be most beneficial to this budgeting cycle, it is essential to implement tracking procedures to measure success. Recording costs and benefits along each project will help determine if a course correction is needed or if a project needs a significant adjustment. 

Having detailed tracking will also help in subsequent years of budgeting to determine future project success and give board members or capital investors presentation materials.

  1. Securing Capital

This step is undoubtedly the most crucial for capital budgeting. It is not the last step in the budgeting process but should be considered throughout each stage along the way. Many SaaS businesses are working with existing capital when developing a budgeting plan. They often conclude that they need to seek new investment opportunities to grow to the next step.

Likewise, start-up SaaS companies need to have these previous steps in place before seeking investment capital. Knowing your goals, estimations, and business procedures before seeking capital will ensure a more efficient process. It is also essential to consider your capital investments and payback periods in the capital budgeting process.

Your Partner for the Capital Budgeting Process

At RevTek Capital, it is our goal to assist you in securing capital for your SaaS business. Whether you are an established brand seeking the next step in growth or a relatively new start-up, our expert staff of experienced entrepreneurs can assist. We not only assist in your capital needs but are available to answer questions about the capital budgeting process and can help set your business up for success long term.

Contact us at (480) 332-0399 to schedule an appointment and consider partnering with us for your capital budgeting needs.

Seed Funding: How to Raise Capital Without Giving Up Equity

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Starting a business requires capital. One of the most significant decisions made in the early stage of business development is raising the money needed. There are many ways to finance business.

Many founders use short-term sources such as friends and family or bootstrapping (self-funding) to get businesses off the ground in the beginning stages. But they soon find that these measures are not sustainable in the long term, as they only provide a minimal amount of cash flow. Alternatively, some businesses find themselves with rapid growth rates and in need of large sums of money to continue to scale at high speed. They then turn to equity investors such as Venture Capital options, which typically make equity investments in the million-dollar range.

But what about the growth between these two stages of securing capital? Some companies find themselves needing more than what friends and family can supply. However, they do not intend to trade equity or give up full control of their business, or they simply require smaller investments. In this case, there are several non-dilutive alternative funding sources available.

Starting a business requires capital. One of the most significant decisions made in the early stage of business development is raising the money needed. There are many ways to finance business.

Many founders use short-term sources such as friends and family or bootstrapping (self-funding) to get businesses off the ground in the beginning stages. But they soon find that these measures are not sustainable in the long term, as they only provide a minimal amount of cash flow. Alternatively, some businesses find themselves with rapid growth rates and in need of large sums of money to continue to scale at high speed. They then turn to equity investors such as Venture Capital options, which typically make equity investments in the million-dollar range.

But what about the growth between these two stages of securing capital? Some companies find themselves needing more than what friends and family can supply. However, they do not intend to trade equity or give up full control of their business, or they simply require smaller investments. In this case, there are several non-dilutive alternative funding sources available.

Grants

Grants are a way to receive funding without having to repay anything in return. Applying for a grant is a great way to connect with seed investors who desire to partner with a specific business type, such as women or minority-owned businesses.

Micro-Patronage

This method is a way to raise money through smaller donations from multiple investors, otherwise known as crowdfunding. These individuals do not receive equity in the company or a return on investment. They typically choose to invest to receive a bonus such as an extra exclusive product or first access to availability.

Contests

Arguably the most creative of options, contests allow founders to receive funding based on pitching their vision or business plan. Pitching contests can involve cash prizes, advice, or opportunities for business partnerships. This funding source is not the most reliable. Still, it is an excellent opportunity to network and meet potential investors, specify the business plan, and practice giving a pitch.

Small Business Loans

Though many traditional banks are unwilling to open a line of credit for a startup company without a proven history of growth, it is possible to find specific lenders who specialize in funding small business startups.

Local credit unions may also be willing to take a risk with a startup when well-known corporate banks may not. This method of funding may require more research or legwork than simply sending in an application. However, it is an option worth considering since small business loans do not require that a founder give up any equity.

Revenue Based Financing

Of all the options to secure seed funding without equity involvement, Revenue Based Financing is the most reliable and widely available. It does require some history of monthly recurring revenue (MRR). Still, for a business that is doing well after funding from these mid-sources and needs an extra boost in business, RBF is the natural next step.

It is relatively easy to secure after submitting the right paperwork, unlike seeking and convincing an angel investor in silicon valley. And RBF does not require that any equity is given up, like in VC financing.

At RevTek Capital, we seek to help you raise capital without giving up equity. This is achieved by growing and funding your business through the lowest cost of capital available. We provide quick solutions for funding early-stage growth, as well as advice and guidance from knowledgeable entrepreneurs to help reach your business goals.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

The Pros and Cons of Revenue Based Financing

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Most startup tech companies come to a point in growth where an influx of capital is needed to take the business to the next level. The most common financing options are either debt or equity-based through resources such as venture capital, traditional bank loans, or angel investors. There is another option that is considered to be a combination of debt and equity financing: Revenue-Based Financing (RBF).

Here we have laid out RBF’s pros and cons to help decide if it is the right funding option for you.

Pros:

Retain Control

Revenue-based financing is similar to equity financing in that funding is secured through investors or firms such as Venture Capitalists (VC). They differ, though, in that VC financing requires a share of the company or a seat on the board. Revenue Based funding does not require any control of the investment company. It leaves decisions and ownership entirely to the founder.

No Personal Collateral

Revenue-based financing is similar to debt financing, such as a traditional bank loan, because repayments are made monthly based on a percentage of future revenue. The main difference is that RBF requires no personal guarantee as collateral against the loan, such as in a traditional business loan. Meaning, you do not have to risk any of your personal assets.

Payments Reflect Revenue

RBF is the most flexible option in investor financing because, as stated above, the repayment schedule is based on a percentage of monthly revenue. Therefore, if business is light, the payment is light. There will never be a month where the debt payment is more than the monthly income.

Quick Capital

Revenue Based Funding is approved on a much more flexible standard than traditional bank loans. Approval is based on the company’s monthly recurring revenue (MRR), and payment is set at the original loan amount plus repayment cap, traditionally somewhere between 1.3-3x.

RBF has lenient requirements, such as no specific personal credit score or business experience. Because of this, it is an excellent option for small startups such as subscription-based services and software as a service companies.

Mutual Incentive

Unlike with VC funding, RBF investors have a mutual incentive for companies to produce revenue early in the investment. VC investors invest large sums of cash upfront but do not see a return until the back end. For RBF investors, the incentive lies in the fact that the higher the monthly revenue, the higher their monthly percentage.

Having RBF investors interested in the company’s success early on allows founders to receive genuine help and advice from investors. These investors desire to see paced and steady growth lasting from month to month, versus unsustainable growth from a cash influx.

Additionally, because RBF investors do not gain from the sale of a company, there is no pressure to sell. This means founders can keep their companies as long as they desire.

Cons:

Limited Availability

Though the approval requirements are less strict than standard funding options, it does not mean that anyone can qualify. Because RBF uses the MRR to screen for eligibility, any company wishing to use it must already have a history of bringing in steady revenue from month to month. Therefore, RBF is not a great option for brand new businesses that are not yet selling products.

Lighter Capital

Revenue-Based Financing is an excellent option for giving a company a boost. Still, it will not save a sinking ship or allow for drastic changes in business structure. This is because the amounts secured through RBF are traditionally much smaller in size than Venture Capital financing. However, receiving lighter capital allows for shorter repayment times, ensuring that the company will not pay more in interest rates.

Monthly Payments

A monthly repayment plan is an excellent option for companies who already see steady monthly revenue. Still, it leaves out those who have not yet jumped into selling products or services. It also does not help companies who are looking to get out of operating at a deficit.

When considering RBF, companies need to keep in mind that the monthly gross margin will also be affected. This is due to a monthly repayment for the RBF that is now included in the equation.

New to Financing

Lastly, but worth mentioning is that Revenue-Based Financing is relatively new to the world of Financing. Innovation is great, but this also means that there is not a lot of regulation involved yet. This aspect has the potential to lead to predatory offers and higher scam rates. Although this fact should not necessarily be a deterrent on its own, extensive research should be done when deciding on a Revenue-Based Financing company.

RBF with RevTek

Revtek Capital has a proven track record of providing the lowest cost available and being the quickest solution to funding early-stage growth.

To inquire more about how to accelerate your company’s growth through Revenue-Based Financing, contact us at (480) 332-0399 to schedule an appointment.

What are the Problems with Venture Capital?

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Venture Capital funding is a billion-dollar industry based out of silicon valley that most technology and software companies turn to at some point in the start-up or growth stages. They believe this will help them get a boost in funding to take their company to the next level.

There are advantages and disadvantages of venture capital, as with most avenues for raising money. Still, many small tech businesses are turning away from venture investors and seeking alternatives. Why is that?

Pressure to Grow

When venture capitalists invest, they intend to see growth. Of course, the founders also want to see their company grow. But investors' added pressure and input might influence owners to make big decisions at an early stage that they would not otherwise make.

It is also challenging to measure growth outside of numbers, such as revenue, staff size, and business scale. But many factors that play into making a company successful are not measurable by a number, such as drive, intelligence, business sense, etc. The key is to remember that just because something is big does not always make it better.

Grow Fast at All Cost

One aspect of the VC industry business model is to see an investment reach a return of $100 million by the end of the first year. One misbelief that leads to turning to venture capital investments is that the only thing a start-up lacks is capital. Therefore the belief is that any start-up with a great idea can reach that goal with an influx of cash.

But capital alone cannot ensure that a company has a firm foundation of staff, procedures, product, management, etc. Risky decisions are required to reach the growth metric, including cutting corners, sacrificing quality, and risking burn out to get the intended goal.

Unchecked Issues

Because of this pressure to grow and move quickly, many issues are overlooked or ignored with the mentality that they will "fix it later." When the primary goal is speed, then quality and error correction get overlooked. However, this practice tends to catch up with companies.

For instance, selling a product or service at a high price point may reach an intended profit goal. Still, if the quality is never ensured or evaluated, reputation may decrease. This impact leaves the company with a more significant problem than when they started.

Lack of Long Term Thinking

Many times, decisions made to reach fast growth are not sustainable, such as hiring large amounts of salespersons or experts who do not bring in enough profit to sustain high salaries. The dilemma then becomes decreasing staff, which may hinder growth or contribute to a high staff turnover due to underfunding. This situation is lose-lose for all when the company reaches its breaking point.

Venture Capital firms also tend to convince founders to overestimate their potential to reach the all coveted "unicorn status" as a company. These firms tend to operate in the belief that the founders will receive a massive payout when selling and will have them turn down "lesser" offers. This practice leads to disappointment when a founder finds they must sell at a lower number than an offer they may have previously received.

For a VC firm, selling a company for $100 million does not reach the current measure of "success" in the venture capital industry. But for the owner of a start-up company, that number is hugely successful.

VC Input

The most stressful and potentially detrimental aspect of seeking venture funds is the sacrifice made in ownership and decision making. Most venture capitalists trade funding for a spot on the board or part ownership of the company, which can be beneficial for having expert input and advice from those who have seen success in the past.

Seeking venture funds also increases the potential for a founder to lose control of their company. They may implement strategies that have been "proven" to work for other companies but will not work now. There is a great tendency to copy what other successful companies have done in the VC world rather than replicating the mindset behind what made them successful.

The Venture Capital Industry is one of high risk, high reward. Therefore many VC firms have diversified portfolios of investments, knowing that two-thirds will be written off as failures. They count on the remaining third to make up for the loss and produce a profit.

Therefore for small businesses in need of capital, it may be a better choice to partner with a different capital investment type. One that does not see the potential of failure to write off, but as a business whose success is tied to their own.

Alternative Choice

During the dot com bubble of the '90s, Venture Capital rose to extreme heights as the leading way to grow business in the world of technology and the internet. But just as technology is always evolving and growing, capital ventures should be too. Though limited partners, those who invest in VC, are mostly unwilling to risk new strategies, the good news is that new investment opportunities are beginning to emerge.

At Revtek, we desire to see your company grow at the rate and speed that you know is best for you. We offer the lowest cost of capital available and increments that will not force you to make significant and profitable decisions at the expense of quality. We offer experienced expert advice to you but do not require input into how you do business. Our involvement is entirely up to you.

To start a conversation about how RevTek can help your business grow, Contact Us today.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

How Angel Investing Works: Not Your Traditional VC

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When we look at major companies like Mint.com, it’s challenging to imagine them as small start-ups in need of funding. However, in its early stages, Mint received angel investments— funding from high net worth individuals made in exchange for company equity.

The exchange of funding for equity creates quite a bit of overlap between angel investors and Venture Capital (VC) funds, leading some small businesses to wonder which is best for their needs. In the article below, we will uncover the main differences between these investing types in addition to comparable alternatives that might work for you.

What Makes Angels Special

For most Venture Capitalist firms, Banks, and other sources of traditional funding, you need to prove your company is reliably profitable with a trajectory for major growth. This means small, new, or niche businesses are often disqualified from these types of funding due to their high-risk, low-yield nature. On the other hand, angel investors typically invest in early stage small businesses, hoping for growth and profit, but not on the same scale as large investment firms.

The reason for this is because they are rendering funds from their own pocketbook rather than a pooled sum. This gives them the flexibility to set their own expectations and help in business ventures that may otherwise have gone overlooked.

Angel vs. VC

As mentioned before, there is overlap between how the two types of funding structures work. However, the differences as outlined below shed light on the more subtle differences in flexibility and forgiveness that really set the two systems apart.


Angel Investor Traditional VC
FundingWealthy individuals can become accredited investors after reaching the right minimum thresholds. As such, Angels use their own money to fund projects.Here, a variety of investors pool their resources to have a sizable central fund. This fund is then given to investment specialists to manage, much the same way an investor handles another person’s stocks.
Investment Stage While technically found at many different stages of funding, angel investors tend to specialize in the earlier stages of business, such as Pre-seed, Seed, and Series A funding.Because VC firms rely on the success of their investments to remain viable, they often concentrate their funding on larger companies that have some level of establishment, following, and reliability. This makes VC firms more common in series funding but nearly non-existent in seed money stages.
If Your Business FailsUnlike a loan, angel investors normally don’t expect a failed business to reimburse them on funding. This is because Angel investment is not a loan, but a purchase of company equity.When a VC firm assesses your business and sees potential for failure, it decreases your chances of gaining funding exponentially. This is because while a VC won’t force you to pay back their funding, they fully expect your rate of return to be high enough to generate meaningful profit.
Equity Agreements Both Angel investors and venture capital firms fund companies in exchange for equity. This means that your investor will retain the right to involve themselves in your business decisions, something that can become problematic if there is disagreement on the trajectory of the business. Both Angel investors and venture capital firms fund companies in exchange for equity. This means that your investor will retain the right to involve themselves in your business decisions, something that can become problematic if there is disagreement on the trajectory of the business.
Industry KnowledgeCommonly,  angel investors stay within their industry of expertise. This gives you first-hand access to many years of experience from an individual successful in the same industry you’re just starting to break into.VCs often offer a large network, but personalized aid is sometimes challenging to find. This is because VCs work with investors to invest the money of others, making direct industry knowledge more challenging to come by.

Alternative Funding Methods

Angel investment and venture capital are heavy hitters in funding, in part, because of the press they receive. However, these are not the only methods of funding available. In fact, depending on your desired level of control and business type, other methods of funding may even provide a greater value in reaching your goals. Below are three commonly used alternatives.

  1. Traditional Bank Loans
    A bank loan is likely the type of funding you are most familiar with in your daily life. This type of direct financing is how we are able to purchase cars, houses, and other valuables without having all the money on hand.

    While you can take out a traditional loan for your business, there are risks. For one, if you default on payments you will be personally liable, potentially ruining both your credit and personal finances. Similarly, bank loans are notorious for interest rates that may be oppressive for many early-stage entrepreneurs.

    The upside, however, is that you retain full ownership and decision-making capacity within your own company. This means you will never have to consult with health individuals or business people about decisions in the growth and scale of your small business.
  2. Crowdfunding Platforms
    Over the years crowdfunding platforms have grown in popularity, leaving us with big names such as GoFundMe and Kickstarter to help individuals gather donations to get their ideas off the ground. While the pros and cons of crowdfunding could be an article in and of itself, one of the greatest hindrances of this structure is how unreliable and slow money trickles in.

    Unfortunately, the crowdfunding success stories we often hear about through social media are the exceptions to the rule— the one in a million case where an individual gains a huge following, exposure, and collects funds to match. For most businesses, this never happens, leading to entrepreneurs wasting their time as they wait for a campaign that ultimately never gains traction.
  3. Revenue Based Financing
    Revenue-based financing is a flexible model that draws from the benefits of many other systems. Here, individuals are given funding in exchange for royalties rather than in exchange for equity.

    This system works by business owners agreeing to pay back their investors a percentage of their revenue, meaning their monthly payments fluctuate in parallel with their business profits. The result is businesses that can still make their own decisions while not having to worry about defaulting on payments should they have a slow month or seasonally variable business.

Entrepreneurs Funding Entrepreneurs

At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it’s most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.

To begin the conversation about how to take your business to the next level, contact us at (480) 332-0399 to schedule an appointment.

How to Finance Your Business: The Starter Guide

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When entrepreneurs are looking for funding options, they are usually not seeking advice such as "crowdfund" or "ask friends and family." While legitimate funding methods, most companies need something more reliable and in greater amounts than these methods generally provide. At this point, a business seeks more serious financing options from banks, external firms, and even non-profits.

However, finding the right funding can be a challenge for your company, especially when considering the various pros and cons of each method. As such, it's important to educate yourself on the types of business financing available to you, and ultimately, select the best financing for your needs.

Understanding Two Common Types of Funding

The first step in financing your business is determining what you are willing to compromise: ownership or financial freedom. For those that are in earlier stages of developing their business, or managing a company that is locally sustained, answering this question is going to be the guiding force between which type of financing options are available to you.

Debt Financing

This is the type of financing with which many are most familiar. Debt financing includes many familiar channels of debt, including bank loans, borrowing from friends and family, and credit cards.

While this method offers quick coverage if your credit score is good, the method poses severe risks to your personal finances. If you are unable to make a payment, it's your personal assets that are on the line. Secondarily, in the process of repaying your debt, you will be responsible for interest payments on your outstanding balance— raising your overall monthly cost.

Examples of Debt Financing

  • SBA Loans
    The unique feature about SBA loans is that they are backed by the federal government. In addition, there are 14 types of SBA loans, meaning those with trouble finding financing usually can find what they are looking for through at least one of these programs.
  • Term loans
    Term loans are among the most familiar though not always the most useful, especially to newer businesses.
    A term loan offers a fixed amount of funding that you acquire for a specific purpose. You then repay that loan over a fixed period of time at a fixed rate of interest. As you can imagine, these plans are rigid and not always a good option for businesses with fluctuating or seasonally impacted revenue.
  • Invoice financing
    This type of financing allows businesses to use their unpaid invoices as collateral for a loan. Most useful for businesses that run off credit or experience long waits between rendering service and payment, using invoices as collateral, is often a good way to improve company cash flow.
  • Business Line of Credit
    This type of financing is incredibly flexible if (and when) you are granted coverage. Essentially, it works similarly to a credit card, offering you a line of credit for using many experiences with few questions asked. Having an increased line of credit can thus help forward costs on expensive equipment or hold out during a time of decreased revenue.

Equity Financing

On a personal scale, there are generally fewer opportunities for equity financing because the practice doesn't apply. In equity financing, you will sell some percentage of your business to another individual or firm. In exchange for this percentage, you will receive funding.

Unfortunately, by selling a percentage of your business, you are also selling some of your decision making powers. After all, if a firm is bankrolling your endeavor, they will want a say in how it grows.

Examples of Equity Financing

  • Venture Capital
    Venture capital funding is the star player in popular investment shows such as Shark Tank. As part of the financial exchange, the venture capitalist, whether a firm or individual, usually provides business guidance and networking to the business through their firm.
  • Angel Investments
    As the name suggests, these are benevolent investors who operate as individuals to give financing to early startups. Apart from operating as individuals in the earliest and riskiest stage of financing, angel investment works similarly to venture capital, with the investor asking for an interest in the business equity in return for their assistance.

A Balancing Act

The main differences between these types of financing is the long term impact on financial freedom and decision making power within the business.

When you borrow money from a financial institution, you are responsible for the repayment of long-term loans. This can sometimes financially handicap your cash flow as the same monthly amount is always due regardless of your income. Should you ever be unable to make payments, your business and personal finances will be at risk.

In the case of equity financing, these problems largely go away. The result, however, is the risk this type of financing poses to your overall business plan. When selling equity in your company, you give decision-making power over to your lenders. The greater percentage they own, the more power they have. This makes it imperative that, if you do go the equity route, you are working with a lender that has similar goals and visions to your own.

A Third Option: Revenue Based Financing 

The best financing options for a business often do not fall into either Equity of Debt Financing. Often, individuals do not have the resources available to foot a small business loan nor can they find an equity firm willing to invest. This puts many smaller-scale entrepreneurs at an unfair disadvantage.

At this point, Revenue Based Financing becomes a reliable option so long as a business owner can prove their company is profitable.

Revenue-based financing is completely different— a company gives you a loan in exchange for a portion of your business revenue. This portion is paid to a predetermined point, normally when 3-5 times the amount of the original loan is paid. However, unlike debt financing, there is no interest associated with these costs and there is no need for fixed payment. This is because the payments ultimately function off a royalty system and thus fluctuate in ratio with your profits.

Through this type of financing, individuals can benefit from the security and network of an equity firm without giving up ownership to part of their business. Without a set dollar amount owed per month, a buffer is created against the devastating financial loss of a slow month in a new company.

Together, this makes for a rare financial buffer. Companies are only responsible for a percentage of royalties paid out, meaning there will never be an unpleasant surprise if they experience a slow month. Similarly, they can start a business in the way they desire as they retain full ownership.

For many, this offers more security and freedom than taking on debt or working with venture capitalists.

Entrepreneurs Funding Entrepreneurs

At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it's most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.

To begin the conversation about how to take your business to the next level, contact us at (480) 332-0399 to schedule an appointment.

How Venture Capital Works

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There is a point in the lifespan of every company where a decision must be made: seek funding or sacrifice growth. For those of us who are looking to stay in the game, sacrificing growth is not an option. It can mean the difference between whether you sink or swim.

This leads many to venture capital financing as a potential solution.

VC is an innovative fied that offers clients so much more than finance alone. Through a VC firm, startup companies and growing corporations alike will receive not only funding, but valuable guidance and networking which is integra to the longer-term health of their brand.

Interested in learning more? See how venture capital works in the article below.

Why VCs Invest

An important aspect of understanding why venture capital funds work is understanding the incentive behind a company whose main business model is lending out money. The answer rests in the symbiotic nature between VCs and the emerging companies they help support.

VCs make their returns by exchanging funding for a percentage of ownership in the company they chose to invest in. This is like buying a new stock at a good price and going it trades higher as time goes on. The better the company performs, the greater profit the VC receives.

VC, when done right, creates an environment where everyone wins.

How VCs Support an Environment for Growth

Venture capital firms look for talent to invest in at every turn. When they find it, they want to make sure their proteges experience the greatest level of success. As their reliance on the client is equal to the client’s reliance on them, this incentivises the VC to help their clients in every way possible. This includes more than funding alone.

Thus, in addition to funding, the purpose of an efficient VC is to build a client network, provide guidance to businesses owners in their field, and even offer small businesses the power of a fully developed management team and market research department. Taken together, these factors can greatly increase the chances of success in a relatively high risk game.

Who VCs Fund

Venture capitalists fund any number of businesses at all different stages of development. These range from silicon valley tech startups all the way to service based corporations such as Lyft or Postmates.

However, just because a VC can fund any type of company does not mean that all VC companies are right for your needs. Finding the right VC for your niche and your company size is just as important as the level of funding you receive.

This is related back to the idea of symbiosis between a VC company and the businesses they support. If you don’t work with an investor who knows your audience, understands your product or service, or understands how to work with your company at the stage it’s at, they will not be able to give you the resources you need for success.

As such, if you are going to the venture funded route, make sure that you and your funding company (or even angel investor) are a good match for one another. Your business and their pocketbook will thank you for it later.

What Stages do VCs Fund

This leaves us with the final element of VC funding: the stage audience they most typically fund.

While it’s unusual for seed stage companies to look at venture capitalist firms, it’s not much further into the early stages of company development that they thought crosses their mind. As such, we wanted to give a quick run-down of the different stages of funding in existence and where you are most likely to see venture capitalists within this hierarchy.

  1. Pre-Seed Funding
    Phase: Startup
    Company Worth: $10-100 Thousand
    Investment Amount: $1 Million or Less
    Common Investors: Angel Investors, Personal Funds, Donations
  2. Seed Funding
    Phase: Product development, skeleton teams
    Company Worth: $3-6 Million
    Investment Amount: $1.7 Million
    Common Investors: Angel Investors, VCs
  3. Series A Funding
    Phase: Boosting Sales
    Company Worth:$10-15 Million
    Investment Amount: $10.5 Million
    Common Investors: “Super” Angels, VCs
  4. Series B Funding
    Phase: Scaling and expansion
    Company Worth: $30-60 Million
    Investment Amount: $25-30 Million
    Common Investors: VCs
  5. Series C+
    Phase: Well established and looking to go public
    Company Worth: $100-120+ Million
    Investment Amount: $50 Million
    Common Investors: Hedge Funds, Investment Banks, Private Equity Funds

While the above is just a bare-bones overview of different business stages, if you are interested in learning more we wrote an article here for further reading.

Working With Funding Experts

As a funding company that writes about funding, we speak from a place of experience. We are a team of entrepreneurs who take all we have learned growing our own businesses and using it to help others grow theirs.

At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it’s most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.

To begin the conversation about how to take your business to the next level, contact us at (480) 332-0399 to schedule an appointment.