Keeping funding flowing amid the drought

By Henrik Grim, General Manager for Europe at alternative finance provider www.capchase.com

VC funding may be drying up and the recession may be looming, but that is not to say all is lost for the startup community. There are still many other ways to secure capital and keep on track to becoming a serious market contender. Here, Henrik Grim at Capchase explores some of the key benefits of alternative finance.

We’ve all seen the headlines. That tech is bracing itself for an uncertain future. News of hiring freezes and layoffs have become commonplace even amongst big tech. From gaming to green tech, fledging startups to billion-dollar global businesses – it would appear that no tech industry is impervious as the world prepares for a possible recession.

But that is not to say all is lost. For the first part, it’s important to remember that this isn’t the first-time tech has weathered such a storm. Moreover, many successful tech startups were born in times of crisis. For example, Uber and Airbnb were founded during the 2008 financial crash.

Crucially too, today Europe’s tech industry is in a much stronger position than in 2008. As the digital-first mandate has taken over, tech is now intertwined into the fabric of our everyday lives. Nearly every sector – from travel and hospitality through to insurance, logistics and finance – relies on some form of tech. There are thousands more startups, tens of thousands more tech workers and many billions more in capitalisation.

So business leaders must focus less on fearing uncertainty and more on what they can control. For example, new developments in alternative finance offer a viable route for well-run startups who may need a cash injection as venture capital dries up.

Alternative finance, being designed for the needs of founders, offers many benefits for tech startups including:

It’s fast: faster than any funding round

Fundraising can take a lot of time. The never-ending meetings and pitches. The complex cost-benefit analysis of each deal and the expense of legal and other compliance work. Funding rounds can take months to close. In contrast, the alt-finance process, from start to finish, can take just a few business days. This can free up a lot of extra time enabling founders to get on with the job in hand – an even more important consideration during the current climate.

It’s incredibly flexible

From £3,000 to £300,000, the beauty of alt-financing is that you get the exact amount you need – nothing more and nothing less. As we all know, funding rounds can often be as much about the reputational value as the immediate business need. This can make it all too easy for businesses to get swept up in the hype and appeal of seeking a bigger round than needed. Alt finance enables you to secure exactly the amount of capital you need. It can be a targeted amount to support a new office opening, onboarding a major client or recruitment. It’s also worth remembering, with inflation set to soar, having a large pile of capital you don’t need sitting in your bank account isn’t the best option: it’s only going to lose value.

You stay in control

This is the most obvious advantage of non-dilutive funding: you don’t give up any equity in exchange for capital. Having investors on board can be great. In many cases their advice is invaluable. However, it can be tricky if their views conflict with your own. For example, they may be taking a more short term approach to growth and profitability to ensure a quick return on their investment, which is at odds with your long term ambitions. This can be particularly apparent in a recession: conventional thinking says to cut staffing, whereas you may prefer to grow your way out of trouble.

It’s about your business, not the wider economy

In the 2008 tech crash, funding dried up to such an extent that hundreds of entirely viable startups were taken down. It won’t happen this time. Most alt finance solutions base their assessment on your actual business fundamentals. This is in contrast to more traditional funding routes, which can be swayed by hype, competition and wider economic sentiment. In good times, if you operate in a ‘hot’ sector, this may mean a lot of capital with great terms. But in trickier times, or if you work in a less ‘exciting’ space – it can mean your startup gets pretty unattractive funding offers. Alt finance takes the bias out of the equation. If you are well run and profitable, there will be capital on hand for your startup.

You have more options

We’ve already touched upon some of the difficulties equity funding presents. There are similar issues with traditional financing. Banks can be slow. They also struggle to understand tech startups, which can make them reluctant to lend. Alt finance has been built around tech companies. Rates are often lower than anything available from banks, and repayment terms are often easy to adjust. This flexibility can be invaluable.