David Cummings recently wrote about re-evaluating the current methods of startup funding and proposed a structural change more conducive for funds to keep flowing for Startup investments. His solution is revenue financing – which is like a high (but adjustable) interest loan both in terms of interest and period that provides the much necessary cash to fund the initial stages without the Angles or investors loosing it all.
So light revenue financing such that investors get 1.2x their money back in 5 years ( essentially 20% return on investment + principal amount) would help angels continue to fund new ideas. This alongside traditional equity (read VC) funding could be one answer.
Rand Fishkin did a radical new structure, raising a small round (he could have potentially raised 10x) from individuals amounting to $1.25mn form 35 individuals (an average of $35K/investor) in an LLC structure with the ability of investors to get back their investment (minus any dividend that were distributed) or share of sale according to % holding, which ever is more.
A small raise with focus on revenue as the other key source could be the solution. What other structures are you thinking about?
Where I learnt it #231
Revenue Financing + Traditional Equity as the Future of Startup Funding
SparkToro Raised a Very Unusual Round of Funding & We’re Open-Sourcing Our Docs