November 3, 2022

How does recurring revenue financing support sustainable growth for your business?

How does recurring revenue financing support sustainable growth for your business?

To build a successful start-up and stay competitive in the market, business growth is of paramount importance. However, it calls for continuous investment in the game. While building on a company’s profits may sound like the safest idea, the rapidly changing market dynamics, with new players joining every day, don’t allow founders the privilege of time to follow the "generate and scale" model. To top that the market is gripped with the fear of increased volatility and an impending recession. Interest rates are rising due to inflation, and the VC and debt funds are running dry. In these times and beyond, Recurring Revenue Financing (RRF) is a founder-friendly way of raising capital that would help provide sustainable growth for your startup.

What is RRF?

With the start-up landscape evolving rapidly, there is a growing need for a founder-friendly alternative method of raising capital beyond the options of traditional debt and equity dilution. Several fintech start-ups have recognised this gap and have come up with a solution in the form of Recurring Revenue Financing. The motive is simple - secure funding while allowing the authority to run a firm to remain in the hands of founders.

 
This new-age non-dilutive financing option provides an environment that doesn’t force the founders to relinquish their valuable stake and relegate their position to get the capital required for business growth. To them, the purpose is to democratise how capital is raised.

 
Proprietary algorithms of companies such as Recur Club enable eligible businesses to raise capital in a fair and just manner and eliminate the need for influential contacts to get funding. This new model arranges a level playing field for all founders.

Recurring Revenue financing options are quick, convenient, tech-led, and a high-probability solution for founders. The founders can secure and receive funding within days instead of waiting 3–12 months to see the cash with equity fundraisers. The swift fundraising process enables the founders to scale their businesses rapidly or take advantage of a relevant opportunity that may arise for a short window of time.

 
The unique mechanism of the Recurring Revenue financing model helps businesses convert their recurring revenue streams into upfront capital. They enable founders to get the lifetime value of their customers upfront, which helps founders to match their cash inflows with their CAC outflows. It is a flexible and accelerated way for the business to get a quick cash flow boost through non-dilutive funding. The best part of the deal is that the firm gets funding without charge creation, personal guarantees, or other restrictive financial covenants like traditional debt.

 

Modus Operandi

These financing platforms integrate with the accounting and invoicing software (like Zoho, QuickBooks, etc.) to automate the data collection process. The facilitator platform then examines the company’s financials and accounting data to determine a trading limit. Once this limit is set, the founder can trade futures contracts to raise funds instantly.

Since these alternative funding platforms are built using cutting-edge technology, founders have the luxury of withdrawing cash at the click of a button. Besides, founders get the liberty to choose the quantum of capital depending upon the kind of cash flow their company requires during the transaction.

This ‘ease of doing business' on alternative financing platforms comes with other merits as well. As the recurring revenue of the firms rises, so does their trading limit, ensuring that the funding amounts grow alongside the brand.

The goal is to help asset-light companies with recurring revenue streams by providing them with a flexible financing option. This gives them the space and liberty to grow on their own terms.

 

Conclusion

Till January 2022, over 61,000 start-ups were active in the market. Most of them are likely to raise capital for their business growth. Unfortunately, statistics show that 94 percent of new businesses fail within a year of their launch. The scenario implores the start-up founders to look for new avenues of raising capital apart from traditional routes, which are reliable, fast, flexible, hassle-free and would lead to growth that is immediate and sustainable. This earnest search could stop at the Recurring Revenue Financing model.