ImpactAlpha, Aug. 15 – Less than 2% of entrepreneurs ever raise venture capital, the high-risk, equity-based funding that carries high expectations for returns. That leaves opportunities to back a lot of growing businesses for investors that can provide more appropriate types of financing.
Viewing the world through the VC lens “limits the range of opportunities investors can access for returns,” write Village Capital’s Rob Tashima and Zebras Unite’s Astrid Scholz.
Investors have developed a range of alternative term sheets. VilCap Investments (Village Capital’s investment arm), Candide Group, Indie.vc, Lighter Capital and Earnest Capital all provide upfront financing in return for a share of future revenues (often capped).
Mexico’s Adobe Capital closed a $30 million second fund that uses “quasi-equity convertible loans.”
In his own post, Candide Group’s Aner Ben Ami argues, “We need many more funds to think this way if we’re going to enable the creation of more independent, diverse, mission-driven and sustainable companies,” and explores the pros and cons of alternative models.
- Different strokes. Alternative capital providers are targeting different sectors and stages, and offering founders different terms. Betaworks’ Matt Hartman’s details many of the offerings in a useful Twitter thread (psst… the replies are just as good).
- Common language. Village Capital and Zebras Unite have developed a prototype taxonomy of alternative capital structures and are seeking to mobilize investors and entrepreneurs to make sense of the movement.
- On the agenda. Alternative (and inclusive) capital is part of the program at Village Capital’s Pathways to Capital event in Philadelphia next month. For a recap of last year’s dedicated Alternative Capital Summit, see, “Re-plumbing business financing with alternative capital structures.”