How some founders are raising capital outside of the VC world


disrupt vc feature
Image Credits: TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today, we’re exploring fundraising from outside the venture world.

Founders looking to raise capital to power their growing companies have more options than ever. Traditional bank loans are an option, of course. As is venture capital. But between the two exists a growing world of firms and funds looking to put capital to work in young companies that have growing revenues and predictable economics.

Firms like Clearbanc are rising to meet demand for capital with more risk appetite than a traditional bank looking for collateral, but less than an early-stage venture firm. Clearbanc offers growth-focused capital to ecommerce and consumer SaaS companies for a flat fee, repaid out of future revenues. Such revenue-based financing is becoming increasingly popular; you could say the category has roots in the sort of venture debt that groups like Silicon Valley Bank have lent for decades, but there’s more of it than ever and in different flavors.

While revenue-based financing, speaking generally, is attractive to SaaS and ecommerce companies, other types of startups can benefit from alt-capital sources as well. And, some firms that disburse money to growing companies without an explicit equity stake are finding a way to connect capital to them.

Today, let’s take a quick peek at three firms that have found interesting takes on providing alternative startup financing: Earnest Capital with its innovative SEAL agreement, RevUp Capital, which offers services along with non-equity capital, and Capital, which both invests and loans using its own proprietary rubric.

After all, selling equity in your company to fund sales and marketing costs might not be the most efficient way to finance growth; if you know you are going to get $3 out from $1 in spend, why sell forever shares to do so?

Your options

Before we dig in, there are many players in what we might call the alt-VC space. Lighter Capital came up again and again in emails from founders. Indie.vc has its own model that is pretty neat as well. In honor of starting somewhere, however, we’re kicking off with Earnest, RevUp and Capital. We’ll dive into more players in time. (As always, email me if you have something to share.)

How startups fill the gap between revenue and investment

RevUp Capital

Providence-based RevUp Capital offers “cash and capacity,” according to its own Melissa Withers. The group is looking for “B2B and B2C companies that are moving fast up a revenue-fueled growth curve.” As with other revenue-based financing firms, RevUp portfolio companies “return investment through revenue royalty agreements, as a small percentage of revenue over time.”

RevUp puts money to work in companies that are doing $500,000 or more in revenue, and, per Withers, “want to 10X in 3-5 years.”

All this should feel somewhat somewhat standard to anyone who has looked into revenue-based financing. However, RevUp has a twist to it that makes it fun: the group offers human talent to help invested companies accelerate. Withers described that in an email, saying that “in addition to the cash component of the investment ($100-$250K) investees receive 12-months of dedicated sales and marketing support from the fund’s in-house growth team.”

Everyone knows by now that venture capital firms are offering more services, both as a way to compete for top-end dealflow and to help their portfolio companies have a higher chance of success. Seeing an alt-VC company dig into the same domain was pretty interesting. It’s a little less surprising than you might think, however, as Withers and other members of RevUp “started as equity investors” according to the group, investing in a total of “89 companies between 2009 [to] 2014.” So, they have the same experience set as equity investors also layering services atop their capital.

Finally on RevUp, its notes on equity financing itself are worth sharing. Withers told TechCrunch two things that stood out. First that during the half-decade starting in 2009, there was “an almost myopic obsession with raising equity” financing in the startup market. In her view, that “obsession with equity was pretty toxic and cost a generation of founders a lot of pain trying to twist themselves into matching a single model of success.”

Capping off that take, Withers offered a comment that underscores precisely why non-equity capital appears to be enjoying rising popularity in the growth era:

For most businesses, equity is an expensive–and unreliable– way to fund sales and marketing, especially if you are in between rounds, building a company outside of a top-tier capital market, or you are a woman or person of color. Equity is good for a lot of things, but the thought that you would capitalize a company with only one financial tool is total farce.

Earnest Capital

Earnest Capital, founded in 2018, is an interesting funding group. It provides early-stage capital to founders who have at least, paraphrasing its own words, some product, some revenue, and some growth. Earnest notes on its website that it can put capital into companies with as little as $2,000 monthly recurring revenue (MRR), and as much as $1 million in “annual revenue.”

That’s a wide band. Earnest, however, isn’t just another revenue-based financing shop looking to deploy growth-oriented capital into businesses with demonstrated unit economics. Instead, the firm will invest $75,000 and $250,000 using its own method: a Shared Earnings Agreement, or SEAL.

What’s that? It’s not a SAFE. Instead, the SEAL is what Earnest thinks of as a “long-term investment capital for early-stage businesses.” It combines a shares of certain earnings and a long-term, but diminishing, interest in the business that takes on the capital.

The firm has made 13 investments to date.

To understand SEALs (you can read the company’s own words here, for more) we got on the phone with Earnest’s own Tyler Tringas to better understand the setup. From our notes, SEALs are set up to allow Earnest to receive a portion of what it calls “Founder Earnings,” which are a combination of founder salaries (over a cap, ensuring that founders can pay themselves first), dividends and retained earnings.

Earnest gets a portion of those up to a certain cap that is a “multiple of the initial investment,” according to the firm. After that, the company pays Earnest nothing and the investing group is only entitled to a percentage of any sale of the business; while the invested company pays back its initial investment through shared Founder Earnings, the implied equity percentage that Earnest can lay claim to in a sale goes down, though never away altogether. (The group, Tringas told TechCrunch, doesn’t pursue board seats or similar perks.)

To get a better handle on how companies in the market can figure out SEALs, we got in touch with no-code shop Markerpad’s Ben Tossell, who told TechCrunch that thanks to a “dummy spreadsheet” from Earnest that founders can put their own numbers into — and detail what their future might look like with a SEAL — the agreement “was pretty straight-forward” to grok. Tossell did look over the deal with an accountant.

In an email, Tossell told TechCrunch that if he wants to grow at 100% per year, Earnest is fine with that, adding that venture capitalists would “would likely want” a multiple of that figure, and could start “pushing their own agenda” about how to run his business if they chose.

Earnest’s model isn’t traditional equity investing, or what we might now call traditional revenue-based financing. Instead, it’s a blend of the two into something new. Add SEALs to your acronym dictionary, they could catch on.


Akin to the RevUp story, the Capital crew come from a venture background. Blair Silverberg, the CEO of Capital, spent four years at DFJ before embarking on his new mission.

Silverberg is fun to talk to. In our conversation discussing Capital and his view on private finance he managed to intelligently undermine one of my financial pillars (that gross margins are king; he’s more into return on invested capital, or ROIC), and point out that return on ad spend (ROAS) is a “terrible metric.”

All that is to say that when he told TechCrunch that he saw a disconnect between the amount of money that venture investors are putting to work today (well over $100 billion annually) and how “under-levered and unwilling to utilize debt, and other non-equity structures founders” are, it was believable.

Capital puts capital to work through six different structures, focused on non-dilutive investments. But what’s neat about the firm is that it makes investment decisions using a single method that it calls the Capital Report. Across under than a dozen questions, Capital digs into a possible investment’s finances, and quickly makes an investment decision. From there, Capital can send over capital in the millions of dollars pretty rapidly.

Silverberg told TechCrunch that the Capital Report “software system” is “benchmark driven” and “very generalizable.” Companies that are rejected are told why; companies that are selected for capital are told afterwards how the system thinks that they are doing (in the words of the group, they are informed “whether they are creating or destroying value in their business”) after they take aboard the new funds.

After discussing where Capital gets its own capital, I asked Silverberg if his firm was akin to a translation service between companies that might not fit the traditional model of bank lending or normal venture capital investment, and capital pools, allowing the latter groups to put money to work in a way that’s a bit quicker-to-return than being a VC LP, while still providing (presumably) attractive rates of return. He agreed.

Silverberg thinks that normalizing how the market thinks about corporate health would help more companies access more capital, making an analogy to consumer credit scores in a call with TechCrunch. “You might not like your credit score,” he said, “but you know [that] if you have a credit score of x, you can get money at a pretty predictable price.” His firm’s goal, with the Capital Report, is to do something similar, but for corporations.


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