ImpactAlpha, January 15 – Revenues over rounds. That’s the ethos of a growing movement of entrepreneurs, investors and advocates who are rejecting the high-flying venture capital model in favor of financing that allows them to pursue real revenues, operate ethically and growth organically.
“A new set of investors are working with companies to craft financing and ‘stakeholder’ structures that work for more entrepreneurs and share economic gains with the community and employees as well,” we wrote in ImpactAlpha’s year-end roundup of the “the opportunity alpha”.
The movement gained attention with reporter Erin Griffith’s feature in The New York Times last week highlighting groups familiar to ImpactAlpha readers, including Zebras Unite, Village Capital and Indie.vc. “The tool of venture capital is so specific to a tiny, tiny fraction of companies,” Mara Zepeda of Zebras Unite told Griffith. “We can’t let ourselves be fooled into thinking that’s the story of the future of American entrepreneurship.” The search for alternatives is leading entrepreneurs to the kind of models impact investors have been incubating.
- Buying out investors. Software companies Wistia and Buffer are using debt and profits, respectively, to buy out their VC backers in order to pursue sustainable, profitable growth. “The VC path forces you into this binary outcome of acquisition or IPO, or pretty much bust,” Buffer’s Joel Gascoigne told the Times. “People are starting to question that.”
- Right to succeed. Black & Brown Founders’ Aniyia Williams, a co-founder of Zebras Unite, says the venture-funded system is particularly unfair to black, latinx and women founders who “are rarely afforded the opportunity to fail, period.”
- Right-fit capital. Earnest Capital offers equity investments that companies can repay as a percentage of profits. Lighter Capital, Purpose Ventures, TinySeed, Village Capital, Sheeo, XXcelerate Fund and Indie.vc all offer variations of revenue- or profit-based financing.
- Reality check. Such models represent a tiny percentage of the broader start-up funding market.
- Join the conversation. Zebras Unite is hosting a ‘Zebracast’ today at 5pm ET to share what’s next. Save your spot.