Business
Alternative Financing And Why Equity Financing Has Lost Its Luste
Hybrid Equity Financing:
Lastly, there’s the malleable “equity derivative” financing instrument. Hybrid equity offerings are a direct response to a fallacy that has pervaded media coverage of the startup ecosystem, and this incessant propaganda has transformed said fallacy into an absolute truth to many an aspiring entrepreneur. It’s a combination of two romantic ideas that find their roots in religion, prophecy, and zealous idealism: the Holy Grail and the Manifest Destiny. Put simply, the current manufactured truth of the startup ecosystem is that raising truckloads of venture capital will inevitably lead one down the gilded path towards unicorn status, resulting in immeasurable bounty for all involved.
Unfortunately, as Erin Griffiths deftly conveys, successfully reaching this startup Nirvana is an extremely rare achievement. This realization, despite being discouraging to high-achieving founders, has led to some net positive effects in the form of creative financing instruments that offer most of the benefits of equity financing, but without the potential drag of handing over an ownership stake. Capital providers like Indie.vc have a simple, yet empowering thesis: “We believe deeply that there are hundreds, even thousands, of businesses that could be thriving, at scale, if they focused on revenue growth over raising another round of funding.”
Their approach to financing includes a typical convertible note offering with a very atypical redemption clause. If the startup choses to raise a follow on round or sell, the note will convert into a preferred equity stake with pro rata rights to maintain % ownership. However, if the startup opts out of a future fundraise due to ample runway and/or profitable growth, indie will begin incrementally returning their equity option to the founders in exchange for a fixed monthly percentage of gross revenues via a revenue share clause. Indie will return up to 90% of their equity option which can be achieved once indie has collected 3x the original purchase amount.
Others, like Earnest Capital and Purpose Ventures employ similar hybrid equity/rev-share offerings focused on the same thesis of helping keep founders focused on scaling their businesses, not getting consumed by the often perpetual process of raising more capital. While there’s not yet enough data to validate if this hybrid approach can fuel sustainable growth without the need for follow-on fundraising, this creative financing instrument is certainly compelling for founder’s attempting to avoid multiple rounds of dilution.
Conclusion: All Capital is Not Created Equal – Choose Relevance over Ego
While statistically there’s been no noticeable shift away from equity fundraising–almost the opposite, as US VC activity hit just under $100 Billion in 2018, it’s highest total since the dot com boom–the number of deals this gargantuan pool of capital was allocated to hit its lowest level in 6 years. The era of mega-rounds is alive and well, fueling the aforementioned sexy notion that excessive capital will undoubtedly fuel longevity and outsized returns. In reality, the data point that more resources are flowing into less deals highlights how, even in this time of financial abundance, where easy money is being shoveled into the insatiable furnace of Facebook’s ad machine, there’s a dearth of seats at the table for hungry founders in need of capital. Ironically, this funding environment is a perfect example of a Veblen good at scale;
Demand to take part in pricey venture rounds is frenzied, thus inadvertently bidding up prices ever higher due to an appearance of exclusivity. In case anyone forgot, the typical way to profit from a long investment is to buy low, sell high, yet sometimes the outlandish price tag of a good just makes it that much more alluring!
Fear not though; alternative financing, though not quite as sexy, has quickly found its place as a reliable and often times more relevant source of working capital for founders wont to hunker down and simply finish what they set out to do – grow revenues and generate value for stakeholders.
This article originally appeared on ValueWalk. Follow ValueWalk on Twitter, Instagram and Facebook.
Yes, you read that right.
If there’s anything the pandemic taught us, it’s that the paradigm of “office” and “workspace” has been shaken to its CORE.
Universities are teaching via Zoom, court dates are done virtually, FULLY REMOTE businesses are valued at $1B+, and legitimate Inc. 5000 startups are run from…wherever. 📲
This is my office for the day…
I am actually running our business from the beach, typing this from here.
It’s 4:28 pm CET, which means it’s 10:28 am EST and I am CRUSHING my to-do list.
(And the team will continue to crush it while I’m asleep. That’s the 🗝)
So how did we get here?
We launched NYCE and our mission to create 100,000 millionaires in March, 2020…just as the global COVID-19 lockdown happened. 😳
As a result, we shut down our main office and set EVERYTHING up to run remotely…
SMOOTHLY! And a system that allows us to outperform competition by 200%. (You can build this system, too. More on this in a second.)
Here’s what we were able to do since then:
- Gained 6M+ followers across all platforms 📈
- Add 1500+ new apartments to the portfolio 🤑
- Grow to $300M in real estate 🚀
- 105% investor returns 🎉
- 700K+ community members 🤝
And here’s the best part…
Having team members in all the main time zones gives us a 24-hour work cycle vs. 9-5/eight-hour on-the-clock performance.
This means we get 3x the productivity of a similar company. 🔥
Let me repeat that…3x PRODUCTIVITY vs. our competitors.
Meanwhile our project management software grants us 24-hour TEAM-WIDE connectivity that tracks all tasks and lets us know if productivity dips even a little bit.
There is ALWAYS someone senior awake. It could be Martin in Barcelona…Nat in New York…Vineet & Arif in New Delhi.
All the while giving YOU GUYS wealth hacks and daily content. 🔥
OK, so how can you do it?!
Well, the first step is to have an actual side hustle you’re launching. Not just an idea, a validated business.
MAJOR KEY: Do NOT spend money until you’ve made your FIRST DOLLAR! 🗝🗝🗝🗝
(You can catch a replay Business Launch masterclass here and see TRIBE member Nessa launched her business on the spot and got her first $45K client shortly after.)
One of the easiest ways to start is with Airbnb—you can start that in 10 minutes. Literally. (Here’s a guide if you need it.)
Once you have your business, you build a virtual infrastructure (you really just need two softwares, which are FREE), manage the team accordingly and run the business from there.
I’m gonna put together a step-by-step video breakdown this weekend inside the new TRIBE U on the FIVE key things you need to do this for YOURSELF. 💵 💎
From what software to use, how to build a team, how to keep.
In the meantime, drop a comment if you’re ready to build some wealth and any questions if you want more…
Let’s get to work. 🙌
PS: If you can’t be bothered with video and just wanna get to work, we’re hosting a TRIBE U workshop that will help you get this process started on the spot. It’s $479 $49. 🔥
Investor and popular Instagram influencer Philip Michael says new fintechs need to take greater responsibility for their younger traders.
“Promoting financial literacy is a must, but encouraging risky gambling is reckless,” Philip Michael, NYCE CEO, says.
In 2020, a 20-year-old Robinhood trader killed himself after engaging in risky options trading and seeing his balance $730,000 in the red, leading to a wrongful death lawsuit against the investment app.
“The main apps onboard as many new users as humanly possible, but there’s really no educational process,” Michael says, “and these first-time investors are left to figure things out on their own.”
NYCE—a fintech focused on creating wealth for minorities—wants to create 100,000 millionaires through real estate investments and wealth education.
Through its app, investors can own shares in apartment complexes for as little as $100.
Since launching, NYCE has set records for most new first-time BIPOC real estate owners, buying over 1500 apartments in the pandemic and splitting ownership with its investor crowd.
Once investors are in, NYCE automatically enrolls investors in an online wealth academy (TRIBE) that teaches basic wealth principles, responsible investing and how to spot irregular fads like altcoins and meme stocks.
“Becoming a millionaire is a function of time and habit, not luck and one-time scores,” Michael says. “The micro-investments are really just the gateway drug to that wealth mindset.”
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