Are you a startup considering Recurring Revenue Financing (RRF)? We understand that selecting the right funding option can be quite the process, especially when weighing the pros and cons of RRF, Venture Debt and Venture Capital. This process often includes convincing your own board to use RRF.
That’s why our team at re:cap sat down with our clients to answer the most common questions asked by VCs when startups are looking to use RRF. Here are some of the questions and answers we discussed:
1. Why would startups need additional capital when they are already sufficiently financed?
It's shortsighted to only think of financing as a means of providing runway. Of course, having sufficient funds is crucial for a startup that is operating at a loss to stay afloat. re:cap can be of assistance in this area, for instance to finance a journey to profitability. re:cap's debt financing can also be utilized to finance short-term investments.
Everyone running a startup knows that each measure and investment has a unique risk and reward profile. That's why a one-size-fits-all solution isn't ideal. Some financing options are better suited to certain measures than others.
In the early stages of product development, for instance, risk is high and ROI is difficult to calculate. Equity financing is the best choice here.
Later on, when more concrete measures with more calculable ROIs are involved, such as sales and marketing initiatives, investments in new technology, or other equipment, debt financing from re:cap can help optimize cash flow and reduce the cost of capital.
2. Is the amount of funding possible with re:cap sufficient to make an impact?
A financing with re:cap does not replace a VC financing round, but it is well-suited for the above mentioned measures and investments. In addition, the financing limit of each company is flexible and can change based on a company's annual recurring revenue.
If the company grows, the financing limit grows with it.
3. Doesn't the possibility that the financing terms could change during a partnership between re:cap and a startup mean a disadvantage?
The terms for the financing costs change depending on the risk profile of the startup, which re:cap determines with the help of a detailed underwriting process. These costs range from 2 to 15 percent of the capital disbursed.
Startups, which develop positively, reap the benefits of the flexible re:cap conditions, which are much more accommodating than other forms of financing. In addition, re:cap is very transparent about how long those conditions will remain in place, allowing startups to plan accordingly and adjust to any changes.
4. RRF may make sense in principle, but is now the right time to make use of it?
The tech startup sector has been in a state of flux since 2022, with funding increasingly needing to be used with utmost efficiency. VCs are asking startups to reach profitability in a timely manner, which requires cutting costs and accelerating growth – both of which can be achieved with RRF.
This is an ideal moment to strategically optimize capital structure, investing in measures that are set to bring tangible success and profitability.
5. What information do VCs want to see?
VCs want to see what exactly startups want to achieve with the funding. We recommend preparing documents that can be used in board meetings to clearly outline these goals.
re:cap has experience with such documents and can support startups in their preparation if needed.
Get re:cap funding: This is how easy it is
Startups get easy and fast access to re:cap financing. Within minutes, they can create a customer account and obtain a financing offer. Once this is confirmed, financing is possible, and as many as desired, as long as the amount of financing is within the financing limit. Repayments are made in monthly installments.
If you have any questions about onboarding and using the re:cap platform, the re:cap team is available and happy to help.
