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Directory of Investor Marketplaces: Are they the next big thing? It’s doubtful.

Investor marketplaces seem to be all the rage nowadays. In fact there are eight of them that we’re currently aware of:

There are also several issues with equity investment marketplaces however. 

First, and most often mentioned among founders and investors alike, is the issue of adverse selection. Strictly speaking, adverse selection is a market situation where buyers and sellers have different information. That itself, in the strictest sense, is common across almost every market — since nearly zero markets actually have perfect information symmetry. However, perhaps even more relevant is an example of adverse selection: George Akerlof’s idea of the Market for Lemons, in which the sellers (founders in this case) are selling both lemons (a terrible car with lots of problems) and peaches (a great car that will require minimal repairs). 

In this scenario, buyers (investors) change the price they are willing to pay to accommodate the risk of buying a lemon. However, that drives peaches out of the market, leaving only lemons, further reducing the price that a buyer is willing to pay, and the feedback loop continues until only lemons are left. 

That is one example of why these marketplaces don’t work, however, I think there are broader issues at play as well. 

1. Most equity investors rely on social proof as a filter for making investments, whereas these marketplaces strip that away from the process (for the most part). 

2. The best investors don’t use these marketplaces. Therefore, we end up with the reverse scenario as described above – where the best founders now avoid these marketplaces because they are aware that the top investors are only found elsewhere. Thus creating a feedback loop that continues to degrade the quality of both deal flow and investors participating. 

3. The obvious: there are eight — count ’em — eight marketplaces listed here. Meaning that even if the other issues were overlooked, both sides of the market are now fragmented further, and they are 87.5% less likely to be matched with their ideal counterpart. 

All of that said, these marketplaces clearly garner participation from both sides of the market — demonstrating that although they may not be perfect, they are serving a need.

This directory is a living document and we work to update it as often as possible. Please contact the team at Bootstrapp if you would like to submit an organization for consideration — you can simply shoot a quick note to [email protected] and we will review your submission. 

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The Best Growth Capital Tools from Around the Web

Growth capital tools are an ideal solution when you want to transform complex masses of information into an easy-to-understand chart, summary, or calculation for your business.

Using these tools can be beneficial since they help you make decisions, but finding the right tools is difficult. To help you get started we’ve selected our pick of the best growth capital tools and apps out there. To give you more choice, we’ve included both free and paid options.

Give these top tools a try and let us know which ones you get on with by sharing your favorites on Twitter.

Cash Flow

Runway: A free, visual tool to help you understand, manage and extend your cash runway. (Free)

Float: Get a real-time view of your cash flow and make more confident decisions about the future of your business. ($49/mo)

Equity

Foundrs: Calculate the proposed equity percentage that each founder ought to receive based on time, money, and resources invested into the company. (Free)

Capshare: Issue stock and manage all your equity in one place without getting bogged down in spreadsheets and paperwork.  (Free)

Accounting

Bench: Get a professional bookkeeper at a price you can afford, and powerful financial reporting with zero learning curve.

Pilot: Pilot takes care of your bookkeeping from start to finish so you can focus 100% on making your business succeed.

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Revenue Based Financing for SaaS Companies

At this point I’ve spoken to nearly every revenue based financier in New York, and one theme continues to rear its head, which is that B2B SaaS are the clear favorites of the RBF industry.

If you’re a B2B SaaS company with a regular income stream, you have a very good shot at obtaining Revenue Based Financing. I’d certainly recommend you check out all of the RBF Options we have available on our site, as I think you’ll find you qualify for quite a few.

The reasons for this are fairly obvious:

  • B2B companies have a higher price point and can typically afford to pay for a service for the foreseeable future.
  • SaaS companies inherently have steady revenue streams – thus making the borrower much more solvent in the long-term.

Have other questions we could answer? Feel free to reach out.

Are there topics you’d like us to write about or features you’d like us to build? Request it here.

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Revenue Based Financing Firms and Companies

I get a lot of questions about revenue based lenders, and you can obviously find all of the growth capital options yourself using our web app which will provide you with customized recommendations. However, to make it even easier for everyone who would like to do their own research please refer to the list below of revenue based financiers that we’re aware of. Do you know of any others? We’d love to hear about them! Please just drop the name of the fund / company here.

List of companies / funds that offer Revenue Based Financing:

Next we’ll be covering the question of How to Choose a Revenue Based Financing provider. It’s a super complicated question that we’ll simplify for you.

Have anything else you’d like to see us write about or build? Drop your idea here.

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How much does revenue-based financing really cost?

There’s an incredibly counter-intuitive aspect of revenue-based financing, which is this: the more successful you are as a company, the higher the cost of capital associated with your RBF.

This is counter-intuitive for a few reasons:

  • It’s the opposite of how society typically views capital. If you walk into a bank and have a successful business, you’ll get a cheaper rate because you’re a less-risky borrower – not a more expensive one.
  • Most people – myself included – generally equate time with money. (You know, the old saying goes…). For example, if you take out a car loan and then pay it back earlier than expected, you’d pay less interest than if you took the full term to pay it back. This makes sense – the lender has their principal plus the pro rata interest, so now they can go lend it to the next person. And you, the borrower, just saved all of the interest that would have been accrued moving forward – had you kept the loan open.
  • It appears that RBF has a structure that punishes borrower for good behavior. In this case ‘good behavior’ meaning that they run a successful company. When someone is more successful than expected, are they expected to actually pay a higher cost of capital?

However, the kicker that will clarify it all is this: The amount of capital paid back in addition to the principal is set in stone, and time is the variable that can change, which is the inverse of the typical model. Compare this to the car loan example above in #2 – where the total amount of money paid back is flexible dependent on when its paid back, and the interest is fixed – based on a fixed period of time set by the lender. For example, many car loans may be structured for 60 months. Time is set in stone, and how much you pay back depends on your ability to pay that loan back faster (assuming no pre-payment penalties).

 

Let’s simplify and use some real numbers. Scenario A: If you were to take out a traditional car loan of $10,000 and pay it all back 1 day later. You’ll only have to pay interest on that 1 day when you had the capital. If you took out a relatively expensive loan and agreed to pay a 10% APR, that 1 day of borrowing would only cost you .027% in interest.

 

However, let’s run Scenario B, this time using the revenue-based financing model: You take out a loan of $10,000 with a fee of $1,000. Most RBF lenders operate on this fee-based model which gives the borrower flexibility as to when they pay back the loan (i.e. time is the variable that can change). Now, no matter when you pay it back, you have to pay back $11,000. If you were to follow the same payback timeline as scenario A, and pay back the $11,000 the next day – your APR would be 3,650%.

 

Obviously RBF loans aren’t built to be paid back the next day, but the math illustrates an incredibly important point: revenue-based financing can be tricky to leverage, as you may actually be leveraging incredibly expensive capital if you’re more successful than you originally projected. It’s a relatively new model where time is a major factor in the cost of capital you use to grow your business – and adds to the complexity of your decision: which instrument do you choose to finance that growth?

How does revenue based financing work?

Check out a quick video walk-through of the tradeoffs you’ll want to consider:

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Who acquires small businesses? The Official Directory of Bootstrapped-Company Acquirers

Who actually acquires small startups and small businesses? If you’re not a high-growth rocket ship, or perhaps your business doesn’t fit within the corporate strategy of a tech giant like Google, then who out there is truly acquiring normal, healthy businesses that are growing a decent rate?

  • Empire Flippers: We take the friction out of buying and selling online businesses
  • FE International: Sell Your Online Business With a Website Broker You Can Trust
  • Flippa: #1 platform to buy and sell online businesses
  • Investors.club: Investors Club gives you private access to buy proven and growing online businesses that aren’t listed anywhere else.
  • MicroAcquire: Startup acquisition marketplace.
  • Perch: Acquires and operates Amazon FBA businesses
  • Respawn Ventures: Respawn Ventures buys, grows, and sells niche tech companies. Our focus lies within B2B SaaS but if we see a project with an opportunity for global reach, we’ll seriously consider giving it a second life.
  • SureSwift Capital: Dream exits for bootstrapped founders. Sell your SaaS business.
  • Tiny Capital: We start, buy, and invest in wonderful internet businesses.

This directory is a living document and we work to update it as often as possible. Please contact the team at Bootstrapp if you would like to submit an organization for consideration — you can simply shoot a quick note to [email protected] and we will review your submission.