When it comes to raising capital, entrepreneurs have two options: dilute their ownership stake via equity investors or face fixed, secured interest payments through the bank.
Neither option is ideal for software-as-a-service startups, however. Which is why GreenAngel is relaunching as TIMIA Capital and redirecting its focus to revenue financing, a hybrid form of funding that blends equity and debt.
There’s nothing new about revenue financing. Pharmaceutical and oil and gas companies have long benefited from this type of flexible low-friction financing, for example. But TIMIA Capital has torqued the RBF method to meet the specific needs of the tech knowledge sector.
“Business models have changed,” explains Mike Walkinshaw, CEO. “SaaS companies generate revenue that’s recurring in nature and boast high gross margin product offerings. This aligns perfectly with TIMIA’s metric driven process and allows for more innovative financial solutions that were previously unavailable to entrepreneurs.”
As with equity, investees get a capital injection. But like debt, instead of giving up a proportion of company shares, entrepreneurs repay the initial capital through a percentage of ongoing revenue.
“Another advantage is ‘dequity’ reduces the overall cost of capital,” added Walkinshaw. “Equity is very expensive; there’s transactional costs, legal fees, etc. Revenue financing is less complex.”
Greg Smith, the recently announced Chief Investment Officer, is joining the TIMIA team because of the opportunity to match the needs of growing knowledge-based companies and the public capital markets.
“There is a lot of interest and promise around ‘crowdfunding of startups,’” says Smith, who hails from Espresso Capital. “With TIMIA, I see the opportunity to deliver ‘managed crowdfunding.’ For the TIMIA investor, we are building a compelling portfolio to generate steady stream of monthly income from a managed portfolio.”
TIMIA is only focusing on companies that already enjoy a rapid growth rate, though, so why would said companies need funding?
“Growing companies, especially fast-growing companies, need access to capital,” says Smith. “Not all startups grow up to be Unicorns, but there’s still a lot of great companies out there that are accelerating revenue by scaling the sales process and those are the companies we want to talk to.”