As a new business owner, an entrepreneur never dreams small – ambitions are always larger than life! To quash the competition, build up a large customer base, and eventually announce your IPO. However, a startup’s growth trajectory is rarely linear and, in most cases, is more complex. While a self-funded business can definitely stand out in the market and even gain a foothold, rapid growth almost always requires market entry financing.
Start-ups have traditionally looked to venture capitalists (VCs) for the required capital; however, in today’s technology-supported marketplace, the funding story may have more than one narrative. There are now several non-dilutive financing methods available to supplement or replace the traditional investment route that can greatly benefit startups by accelerating their growth process.
One such new-age non-dilutive financing option is subscription-based financing. Particularly suitable for businesses with recurring revenue, subscription financing options are fast, technological and a win-win solution for investors and start-ups alike. Throughout this article, let’s take a deep dive into subscriptions as a lucrative asset class and one of the best bets for recurring income businesses seeking financing without diluting their capital.
Subscriptions as a new asset class
As the startup landscape matures, more companies are implementing a subscription-based revenue model. For brands with a new approach to revenue, there must also be a new approach to financing beyond debt and equity venture capital.
As a result, subscription-based financing emerged and gained popularity over the past year as an alternative or additional source of financing. This method allows startups with recurring revenue to raise capital up front by trading subscription revenue.
How does this work? It’s pretty simple. A business with a certain amount of ARR (Annual Recurring Revenue) can sign up for a trading platform that offers subscription-based financing. The platform reviews the startup’s revenue and accounting data to zero in on a business boundary. Once this cap is set, the startup owner can trade futures contracts to instantly raise funds.
In addition to ease of use, there are other benefits of subscription-based financing. As your recurring revenue grows, so does your business limit, ensuring funding amounts grow along with the brand. Since alternative funding platforms are built on state-of-the-art technology, raising funds is as easy as clicking a few buttons.
Known as the most founder-friendly alternative method of raising capital, subscription-based financing ensures that the founder does not lose capital or take on restrictive debt.
Subscription-based financing is also very beneficial for investors. How? For them, the relative stability and maturity of recurring income makes it similar to a fixed income yield asset profile. Once they choose the right company to partner with, there are simply no downsides to this investment format. In fact, it’s a win-win situation.
Choosing the Right Platform: The Benefits of Subscription Funding Through Trading Platforms
The first step in securing funding through subscription trading is finding the right platform. With new-age and future platforms promising non-traditional funding, startups can reap a number of upfront and long-term benefits. These technology platforms generate fast, flexible, and hassle-free capital that founders can secure in no time.
Operating as collaborative trading platforms that can be accessed by any ARR-compliant start-up, these companies bridge the gap between founders and institutional investors, creating new synergies and paving the way for promising start-up success. In addition, they offer maximum flexibility, with a capital line that grows with the start-up.
Founders can use such platforms in addition to or instead of their existing funding streams. It is collateral-free and completely non-dilutive, entirely based on contracted income streams. In the simplest terms – It’s like all your monthly, quarterly and semi-annual customers pay you upfront, instantly.
And what is more? It’s free to sign up for these platforms and secure a trading cap, so even a relatively new start-up can jump on the subscription-based funding bandwagon and tap into the true potential of their recurring revenue.
And finally, through these forward-thinking platforms, founders can keep funding their startup as many times as they want. This flexibility ensures founders have access to capital and can use it as they please. Keep getting new contracts and keep raising funds to support your dream company and scale your business.
India is currently home to around 61,400 startups as of January 2022. Most of them are likely to seek financing to grow and sustain growth. However, the bitter truth is that 94% of new businesses fail within the first year. Given these hard statistics, founders need to identify the best method to raise funds and constantly unlock new avenues to raise capital in addition to the traditional routes. With subscription-based financing, founders have access to a reliable source of capital that is fast, flexible, hassle-free, and will lead to immediate growth. Founders can scale their startups to new heights while maintaining control of their most prized possession: their capital.
The opinions expressed above are those of the author.
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