The Exponential Podcast

Alternative Sources of Capital: Revenue-Based Financing

On the Exponential podcast, we are always on the hunt for alternative sources of capital to talk about and discuss and expose to our audience because only a tiny fraction of startups – 1%– secure the two most talked about sources of funding – Venture and Angel Capital. And in this podcast, we are discussing Revenue Financing a source of funding that is gaining visibility in the tech startup community and one under the right conditions that offers a sustainable alternative to venture capital funding. Revenue financing — also known as revenue-based financing or RBF — is a type of financial capital provided to a start-up in exchange for a percentage of future revenue. The idea actually dates back to mining companies getting financed to dig for oil, natural gas, and minerals. And Unlike traditional debt, revenue financing doesn’t restrict operational flexibility. And unlike angel investment or venture capital, the investors don’t take any equity in the business. Instead, the capital loan payments are tied to monthly revenue, increasing in strong revenue months, and decreasing in low revenue months until the initial capital amount, plus a multiple, or cap, is repaid. Revenue financing places the focus back on business fundamentals — customer acquisition costs, cash conversion cycles, customer payback — and away from the ego-driven hype around new funding round press releases and pitch events. It focuses on a more sustainable standard and one that has broader application for the great and good SaaS companies and is a capital resource that can help ensure there are more winners than losers overall in the start-up ecosystem.   The white paper that launched Lighter Capital: https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1518&context=ulj [https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1518&context=ulj] Early Pioneer: Arthur Fox Article: MIT Entrepreneurship Review | Revenue Capital & Disruptive Models: Venture Funding Tools for Developing Nations (archive.org) [https://web.archive.org/web/20120818153808/http:/miter.mit.edu/article/revenue-capital-disruptive-models-venture-funding-tools-developing-nations]

Alternative Source of Capital - A discussion with Pat Dillon about The SBIR and STTR programs

In the newest Exponential Podcast, we discuss an alternative source of capital with Pat Dillion who is responsible for the strategic direction and leadership of MNSBIR and its services to startups and small businesses in Minnesota. MNSBIR provides mentoring and coaching; training and education; to technology-based entrepreneurs and innovators looking to access SBIR/STTR funding. SBIR/STTR funding offers non-dilutive funding for game-changing, disruptive, cutting edge science and technology that has the potential for commercialization.

A Framework for Identifying a First Market to Attack for Pre and Early Revenue Companies

As an entrepreneur and startup founder, you have to start selling your offering somewhere! For many, unless they pick the right market and the right people to engage with, they won't be able to generate the traction needed to either attract outside capital or produce it on their own to finance their startup's growth. Hence, selecting the first market to attack is critical and how the entrepreneur approaches the selection of this market will determine whether their startup gets off the ground or crashes and burns before it even gets started. In today's Exponential Podcast, we will address what makes a good first market to attack with Troy Thibodeau a highly experienced tech CMO as we talk through MESA's (www.mesagroup.org [http://www.mesagroup.org])  newest Framework for startups. Identifying a First Market Segment to Attack for Pre-revenue and Early Revenue Companies. The framework is a set of seven precepts developed by the MESA organization along with the Exponential Group (www.exponentialgrp.com) to help startup founders better identify which market to go after first. This podcast is produced by the Exponential Group  www.exponentialgrp.com [http://www.exponentialgrp.com] in association with the MESA Group. Associated blog post: A Framework for startups: Identifying a First Market Segment to Attack for Pre-revenue and Early Revenue Companies [https://www.exponentialgrp.com/knowledge-base/framework-for-identifying-a-first-market-segment-to-attack-for-pre-revenue-and-early-revenue-companies] Key framework points: 1. Identify a segment which will be quickest to embrace your offering. 2. Understand that this process is about identifying a market segment not about conquering the broad market. 3. Find a problem that needs solving now and understand the need deeply from the customer's perspective. 4. The decision-makers must be easy to identify and reach, have the authority to make the decision now, and have the money to spend now. 5. There must be a significant number of entities within the identified segment. 6. Find market segments where there is crosstalk between buyers as these buyers can be your least expensive and best "salespeople." 7. Don't let price be a barrier. Be flexible on pricing.

Alternative sources of capital - the patent as a funding resource

As important a resource as VC and angel investors are, …this type of startup financing is accessible to a very small population of entrepreneurs. Only about 0.05% of startups raise venture money or .91% of young companies raise angel money. Or putting it another way, ONLY 1 out of 100 startups get funded by either VC’s or Angel Investors. This stat is important for any aspiring entrepreneur to keep in mind as they attempt to fund their entrepreneurial pursuits. It highlights the fact that if you are the average startup founder, you need to look at and plan to leverage multiple funding sources other than VC and Angel investors as the likelihood of you getting VC or Angel funding is infinitesimally small. It is why from time to time the Exponential Podcast explores and discusses alternative sources of capital. And in this podcast, we are exploring one of them – a more esoteric financing method, but one that has interesting ramifications if you can utilize it. Today we talk with Russ Krajec author, investor, and financer of all things related to patents. Russ is the CEO of BlueIron [https://blueironip.com/] (https://blueironip.com/ [https://blueironip.com/] they finance, insure, and loan money using patents as collateral. Russ’s book “Investing in Patents, Everything Startup Investors need to know about Patents” [https://www.amazon.com/Investing-Patents-Everything-Startup-Investors-ebook/dp/B01EJYSZZ4] looks at patents from an investor’s perspective and analyzes the value an Investment grade patent that is the value an investment-grade patent can bring to the right startup organization.   Key takeaways from the podcast and the exploration of patents as a financing resource 1. Most patents issued are worthless and only Investment grade patents matter. 2. An investment-grade patent has a defined scope that can be analyzed and valued 3. There are investors that will fund the patent process if they think the patent is investment grade, and once you have an investment-grade patent you have a fundable asset. 4. Startups can get an incredible amount of value from an issued investment grade patent in that many can be leveraged to do all sorts of deals 5. Startups can get a lot of value out of a patent that is issued quickly 6. If you have an investment-grade patent don’t forget to look at patent insurance to protect your IP – and give leverage in the market   For more about Patents from Russ Krajec – listen to the Podcast Patent Myths - https://patentmyths.com/ [https://patentmyths.com/]

The MESA Growth Story

What does it take to startup and build a company designed to help startups? In this edition of the Exponential Podcast, we’ll hear that story, the growth story of the MESA Group, a firm founded in the middle of the great recession to help nurture and grow software startups in Minnesota and do so at a time when the Minnesota software industry was losing its vibrancy as well as its impact on the national stage. Joining us to tell that story are two talented business pros and long-time startup mentors, Jim Moar and Kevin Spanbauer two of the founding members of the Minnesota emerging software advisory group, or Mesa for short. MESA ( www.mesagroup.org [http://www.mesagroup.org] )is a non-profit startup accelerator and mentoring organization PROVIDING PRO-BONO MENTORING SERVICES TO THE MINNESOTA SOFTWARE COMMUNITY and has mentored and helped accelerate the growth of 60 companies in the last 10 years. Produced by the Exponential Group www.exponentialgrp.com [http://www.exponentialgrp.com]