Funding a Scale up for Technology Companies
by Jeff Bardos, CEO Speritas Capital Partners
Updated on July 17, 2020 – Connecticut
Call or Text Jeff: 203-247-4358
I recently had the privilege of being a panelist at a Connecticut Technology Council event focused on scale ups. The discussion concentrated on capital strategies for scaling a business.
Growing revenue from $2-3MM to $30MM can be more dangerous for entrepreneurs than the start-up phase. You have more personal wealth at stake, more investors and more staff counting on the company succeeding. You need to be educated, prepared and flexible.
So how do you prepare for scale up financing in tech? I recommend 5 key strategies:
1. Make sure your business and financing plans are in sync.
I’ve seen many tech companies that focus solely on their business strategy and expect the financing strategy to somehow fall in line. Equity, debt, cash flow loans and asset-backed lending each pair best with specific business strategies and balance sheet structures. At a minimum, businesses should review their business and financing strategies on an annual basis. Financing strategies should be reviewed whenever a new product or service is being developed and whenever rapid expansion is expected.
In the tech space, purchase order finance can be a useful financing approach for fulfilling large orders which require either resold goods or goods which need to be assembled. Contract financing related to monthly recurring revenues could also be an option for the scale-up stage.
2. Assess all your financing options.
Don’t focus entirely on dilutive equity or mezzanine/venture debt. These capital sources can be the right option, but consider whether you can stretch your equity and postpone or avoid dilution by using asset-backed finance. Tech entrepreneurs tend to focus on equity rounds and venture debt but fail to look more broadly.
Keep in mind that your financing options change as your business evolves so options you may have discounted earlier could become relevant later on.
3. Invest in cash management.
Investors and lenders need comfort that you know where your cash is and that you maintain a detailed cash forecast as part of your financial reporting process. You should know who owes you money, who’s late and what terms you’ve agreed with each customer and with each vendor, and be able to produce reports upon request.
Like most entrepreneurs, tech founders focus on product development, marketing and distribution. They underinvest in the finance functions, assuming they can grow into those functions. But when they turn to the debt markets they have problems supporting their historical numbers and their projections.
4. Hire the right staff at the right time.
The balance between minimizing your burn rate and staffing up to meet increasing demands is one of the toughest balancing acts around. Make sure you have the right product, operational and financial talent and a hiring plan that supports your business plan.
5. Seek out state and local tech support resources.
Most states and many cities have operational and financial support programs focused on the tech space. These programs are designed to encourage employment and come in the form of grants, low-interest loans, free consulting and peer-to-peer networking groups.
At Speritas Capital, we focus on #1 and #2 and look for #3 and #4. We help clients assess their financing options at every stage of growth. We take the time to understand our client’s business operations and goals. We are very comfortable with complicated situations and structures.
Our approach, based on our years of experience, is consultative and strategic. Once we determine your financing requirements, we identify potential lenders, help tell your story and package your business for the application. The result is a smooth application and closing process.
Connecticut-based Speritas Capital Partners specializes in difficult credit, collateral and cash flow situations.