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Revenue-Based Financing – New Kid on the Block

Tech Rise Ventures, how did that start? 

Having played a very active role in the Dutch Startup Ecosystem for approx. 10 years, I have seen that Tech startups have two pressing needs; financial capital and human capital. However, there is a gap between the way financial capital providers, and human capital providers, operate. For investors, the (founding) team is the most important criteria in deciding on an investment. At the same time, the investors add little value in helping a team find potential missing talent to complete it. On top of that, the investors find it hard to be of continuous added value to their startups and founders and recognise that startups need more than just capital and guidance. Often, the biggest need of startups, after they have found funding for their company, is talent. With Tech Rise we support startups and scale-ups with both of these needs and try to be a one-stop-shop partner. 

techrise.venture team

Sound great, but what do you do? 

Tech Rise is a hybrid company that bridges the gap between financial- and human capital; we provide the two most pressing needs of Tech start- and scale-ups. On the one hand we offer recruitment services for Tech scale-ups, and on the other hand we invest in Tech startups. What sets us apart is that we speak the language of investors, and thus know what gaps there are in the investment profile and how to build the perfect team. We support start-ups with either our own capital, or via introductions to fitting Angels and VCs. 

What challenges do you face? 

We need to be as efficient and effective as possible. Therefore, we embrace various types of Growth Hacking-, Machine Learning-, and Artificial Intelligence tools in our recruitment and investment processes. It does not matter whether it is recruitment-related or investment-related, scalability is key to achieve long-term success.

As a thriving company, we find it challenging to decide where to place our focus and determine what actions align with our big-picture strategy, knowing that various techniques are still new and embracing them is complex. Yet, these challenges are part of entrepreneurship. 

Revenue Based Financing sounds interesting, can you explain how you do that? 

Revenue Based Financing is a funding methodology where startups receive capital that they repay by sharing a percentage of their future revenues. The investment requires no collateral and is non-dilutive. Founders remain in full control of their venture and receive capital to validate their product-market fit.

 

What is the first response from the market?

Entrepreneurs are excited by the idea that they receive capital without losing control from the get-go.

There is a funding ‘Valley of Death’ in between the “family and friends” funding (often convertible loans) and the professional, time-consuming, VC funding.

VCs have a very detailed list of criteria and often demand a minimum of 50K Monthly Recurring Revenues.  Startups usually do have revenues but need extra funding to get their revenue to these higher MRR levels, in order to spike real interest from VCs. That is where RBF fits perfectly. RBF lengthens the startups runway and generates extra time to validate their product-market fit and team-building efforts. 

Who is this interesting for?

We focus on Saas and subscription-based startups with a minimum of 10K MRR, and up to 50K MRR. We do not require stellar revenue growth plans, but do add added value to a dedicated team that is fully aligned and committed long term.

 

You’ve been around for a while, what kind of developments do you see in the SaaS industry? 

There has never been more capital available to back SaaS startups than now. However, at the same time, VCs are more critical as well with their lists of criteria, resulting in a small percentage of startups receiving a big share of all available funding. Early-stage companies with decent MRRs get relatively high valuations, and the sizes of investment rounds are growing. At the same time, the war on tech talent is only getting fiercer, and as the decade progresses, the salaries keep on increasing, at an increasingly faster rate. Combining these trends, the best-funded companies can attract the best talent with attractive packages. I hope the techies remain excited about startup life and that they retain some form of altruism, as big tech companies offer wages that make it difficult for startups that are at the beginning of their exciting journey. 

Techrise ventures Amsterdam

Finally: 3 tips for starting SaaS entrepreneurs who are looking for VC.

  • Start building a relationship before you need funding. It is a people’s business. Listen, learn, adapt and present progress. 
  • Challenge yourself to quantify your results. Understand what CAC and LTV mean and why they are important, how to calculate them properly, and show them.
  • Tell a story and make clear why your team is perfectly suited for the venture’s mission. It is all about the team.  
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