Big VC funding is the most expensive growth capital on the planet when your company has rocket-ride growth that requires rocket-fuel VC funding in exchange for equity.
There are more practical forms of equity funding from angel investors or smaller VCs that invest in capital-efficient software companies.
And there is also non-dilutive funding that doesn’t take equity, board seats, or other forms of control. It is often the least costly way to fuel growth and increase the value of your company quickly.
Vincent Hsieh is a practical founder who has grown and sold two industrial tech companies that offered software and RFID or GPS devices in the solutions.
His second venture, Geoforce, raised a non-dilutive funding round to accelerate global growth before being successfully acquired by private equity investors LLR Partners in 2019.
Their royalty-based funding allowed Geoforce to skip an expensive VC funding round, preserving the founders’ equity and fueling their growth.
Royalty-based funding (RBF) provides practical non-dilutive funding for bootstrapped and capital-efficient SaaS companies that are already up and running.
- RBF is non-dilutive funding, so it’s not like VC funding that takes a chunk of your equity and has a big say in your business.
- Unlike debt, RBF is flexible in how you pay it back, doesn’t have restrictive covenants, and doesn’t require personal guarantees.
Vince describes why the royalty-based funding from Cypress Growth Capital worked so well for the founders at Geoforce:
“Skipping a VC found by using non-dilutive funding made a huge difference to us at Geoforce. the math of royalty-based funding is amazing because from the time of our funding from Cypress to the time we sold to private equity, our equity, our value more than 10x’d. But we didn’t pay back Cypress anything close to 10X.
“Had we raised several million dollars in VC funding with equity, there would have been easily tens of millions of dollars of difference between having done royalty-based funding and equity funding. And that tens of millions of dollars of difference went into our shareholders’ pockets, including the founders and our friends and families who invested earlier.”
Vince Hsieh, Cypress Growth Capital
Vince eventually joined Cypress as a general partner, so now he works with capital-efficient SaaS founders to help them build enterprise value faster while avoiding the control and dilution costs of VC funding.
On the Practical Founders Podcast this week, Vince shares how royalty-based financing (RBF) can be a very practical funding approach in specific situations, including:
- The simple math to see when RBF is most valuable to SaaS founders.
- How royalty-based funding works with flexible payments, no board seats, and no personal guarantees.
- What types of companies and founders should consider RBF.
Check out this interview with Vince Hsieh on the Practical Founders Podcast.
