ImpactAlpha, Mar. 5 – Seven-time entrepreneur-turned-investor Kim Folsom is seeking to bridge a massive gap: financing for the millions of U.S. businesses that don’t meet banks’ collateral requirements or venture capitalists’ demands for exponential growth.
Most such businesses are far from coastal tech hubs; many are led by women, military veterans and founders of color. Folsom’s financing is revenue-based, letting founders repay with a portion of revenues up to a predetermined cap. Revenue-based financing requires enterprises to have customers, rather than collateral, and lets founders retain ownership and build wealth.
“The business owner and the investor of revenue-based investment are aligned,” Folsom told ImpactAlpha in an earlier interview. Folsom this week raised $9 million to expand from San Diego, Dallas, Austin and Chicago to other diverse cities. The equity capital will help Folsom deploy the $100 million credit facility she secured from Community Investment Management in 2019.
“Revenue-based financing is here to stay, and growing,” says CIM’s Jacob Haar.
That proposition was tested this week with news of the shuttering of Indie.vc, an early and visible proponent of the such alternative capital structures, after institutional investors accustomed to VC business-as-usual declined to participate.
In contrast, Folsom has lined up debt and equity investors that recognize an opportunity to provide the right kind of capital for often overlooked founders.
Founders First gives businesses pre-funding support through a nonprofit accelerator, as well as post-funding advisory services. The playbook of most tech accelerators is aimed at raising venture funding; Founders First helps founders land contracts and build recurring revenues.
The approach has the potential to demonstrate an asset class to meet the pervasive challenge of capital access, says Thomas Belazis of Rockefeller Foundation, which led Founders First’s raise. And do so in a way that generates wealth and jobs in communities of color across the country.