Just in time capital for founders: a more efficient, less stressful fundraising strategy

For decades, how start-up and scale-up founders have accessed and allocated capital has been extremely costly and inefficient. But they’ve had no other choice. However now, that’s changing. As the ‘just in time’ concept from inventory management is being adopted in finance, capital options for founders are dramatically improving….

Why the traditional method of fundraising is inefficient, costly and stressful

Founders have a habit of raising a big whack of equity capital through discrete fundraising rounds, roughly every 18-24 months. The size of these rounds is largely based on the revenue and expenses they predict over that period, combined with how much investor interest – and therefore the valuation – they can chalk up.

Leaving only 3-6 months of runway before kicking off the next round, they often end up in dire straits, where their cash gets nearly or completely exhausted. This prickly and stressful pattern is demonstrated below…

Despite how common it is, it’s a strategy that’s costly. With more capital taken on than is needed at the time, it’s paid for either in interest or with equity, without generating a return. What’s more, founders often run out of runway while fundraising. This is not only stressful, but puts the business in a position of vulnerability, impacting employee morale while reducing the chances of finding the right investor and the best valuation.

But founders are smart people. So why are they putting themselves in such a position? Why not raise in smaller amounts more frequently, through things like ‘top-ups’ or ‘bridging rounds’?

In short…

Raising equity capital is a nuanced process and takes a lot of time.

Unfortunately, quick ‘top-ups’ or ‘bridging rounds’ are rarely available, particularly in economic conditions like these (mid 2022).And navigating the variables of an equity round is exhausting. Founders have to anticipate and adjust to questions like: do existing investors have the capacity and appetite to reinvest; who is right investment partner; what should the terms be and how much dilution is too much; what story should the pitch deck tell and how should we tell it?

Ultimately, the process often takes 3-6 months of founders’ time. As such, raising less than ~18 months of capital becomes counterproductive, as the opportunity cost of founders’ focus and energy is simply too high.

The solution, and what is ‘just in time’ capital?

Assuming this blog isn’t just an outlet for our own stress, what’s the solution?

Enter, ‘just in time’ capital.

‘Just in time’ capital is capital that can be accessed with short notice on an ‘as needed’ basis.

Born out of inventory management, the concept of ‘just in time' aims to only access a resource right before it’s needed – thereby minimising the time a resource is paid for without it being productive. As a result, the return on an investment is maximised through capital efficiency and reduced cost.

With just in time capital, additional funds are only accessed right before they’re put to work. As a result, capital is subject to less downtime, avoiding unnecessary costs, like interest, fees, equity and inflation. 

But the ‘just in time’ method relies on suppliers being able to deliver quickly after a resource is requested. And, as mentioned above, with fundraising traditionally being human-driven and taking months to close, it’s not been possible. 

So, it could be argued, just in time capital suppliers are anew kind of breed. They flip the manual and human-centred fundraising process we know today, to one powered by data and technology. Using APIs and algorithms, such suppliers can connect with businesses’ financial systems – like those for banking, accounting and payments – to drive mostly automated analysis and approval processes in short periods of time.

They make it possible for founders to access batches of capital as the need arises, often with turnarounds – from applying for the funds to cash in account – in just a few days. 

What are the benefits of just in time capital?

Just in time capital is empowering founders to be much more efficient with their fundraising, cost and allocation of capital, and stress…

·     Less time fundraising – powered by system integrations, the data does the pitching instead of founders. Often, only one30 minute meeting is required, so founders can spend less time pitching and on due diligence, and more time running their business. And, with these integrations monitoring the business’ performance over time, it continually updates the capital available to avoid founders having to reapply for more as their business (and capital need) grows.

·     Lower cost of capital and better valuations– as access is so quick and easy, there’s no longer a need to over-raise in big lump sums at a higher cost of capital. Accessing smaller batches of funds defers (or eliminates) the need for bigger rounds, giving founders the chance to extend their runway, grow the company in the meantime and get an improved valuation by the next equity round.

·     More efficient capital allocation –instead of relying on two-year-out forecasts and top-down budgets, capital can be accessed and allocated when the need arises. This helps direct funds to the initiatives that make sense at the time – whether that’s large expenses or unexpected opportunities – with just a few days’ notice.

·     Reduced stress – with applications turned around in days, founders know what’s available to them quickly, instead of waiting, hoping and stressing over months. By getting an answer so promptly, founders can adjust their strategy accordingly and save the sweat for another problem.

Where to get just in time capital

So, where can I get just in time capital?

Kashcade is a provider of just in time recurring revenue finance. This is a non-dilutive form of capital, allowing founders of tech start-ups and scale-ups with recurring revenue streams (like SaaS companies) to exchange their future revenues for cash today, without giving up equity.

With only a 30 minute meeting and quick connection to financial systems, founders get a response in 48hrs, and can access funds in as little as a few business days if approved. 

With a funding limit that bears no cost or commitment, they’re able to draw on the funds they want, when they actually need them. This way, they only pay for what they need and use.

It’s incredibly easy to apply, and there are no strings attached, so if it interests you and you want to find out more, contact us today.

Disclosure

This article is for informational purposes only, is general in nature and does not consider your specific situation. It is not, and should not be relied upon for, financial, tax, legal or investment advice.

‍