October 28, 2021

How start-ups could be managing cash flow more efficiently

There should be better financial products available to founders so they can put their surplus VC cash to work for them.

A new financing option has emerged for founders: non-dilutive capital, which has grown in popularity.

Some start-ups have embraced non-dilutive financing products, even while being cash-rich. These start-ups take on non-dilutive, growth capital and use their credit line for initiatives that have immediate ROI, protecting their massive raise from being spent too quickly.

That’s fine, but many start-ups reliant on VC funding can end up with more cash than they need instead of excess debt. And this VC cash is often used inefficiently − for example, on marketing expenses, because alternatives are overlooked; ‘debt’ is still a dirty word and businesses are hesitant to tap into credit lines. 

VC funding isn’t a universal financing solution for start-ups. It leads to a dilution of ownership of a company in which the founders may give away more control than they are comfortable with.

The result is that cash is costing start-ups millions in dilution. Founders are raising money and not spending it for the next 12-24 months.

We have years of experience helping SaaS start-ups scale from pre-revenue to millions in ARR. We know first-hand the pain of debt and worry of a new venture: the ineffective financing, the austerity of bootstrapping, and the dilution dilemma every founder faces.

Don’t get me wrong, we’re not against VCs, or VCs funding start-ups. We’re VC backed ourselves, and believe that founders having more choices in the funding ecosystem is a good thing.

If only there was a way to combine these two states of the world - why should a cash-rich customer pay fees on growth capital when they have such a massive pot they are sitting on?

At Capchase we’re striving to solve this problem: we're finding ways to combine these two concepts - a person should be able to take their cash and convert it into a reusable, non-dilutive line of credit.

Capchase is working on a way to allow startup capital to stretch further than anywhere else in the industry. The founder can essentially use their line of credit over, and over, and over again, extending their runway at a negligible cost.

There must be a better way for financing start-ups, beyond the binary choice of VC funding or bank loans/debt. This way should include getting decent returns on surplus cash and accessing capital quickly and easily when it’s needed.