How revenue-based financing can help close the pre-seed gap

How Revenue-Based Financing Can Help Close the Pre-Seed Gap

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In the first half of 2021, VC funding in Europe reached an unprecedented $59 billion.


Limited Partners from governments, pension funds and corporations have put a larger share of capital into the market – and this has only increased as a result of the Covid pandemic.


This is great news, but there’s more than meets the eye. 


A gap is appearing in the pre-seed funding stage, and it’s creating a new trajectory for the European funding landscape. 


Let’s look at this a little closer, and then discuss how revenue-based financing could actually be a solution to help close this gap in the years to come.


Record funding doesn’t mean it’s easier for everyone.


The number of late-stage VC deals have tripled in the last five years in Europe. Amidst the fanfare of this explosive growth, there are a few realities to consider about where this funding is being directed:


Second-time founders have an easier time raising funds.


General Partners have a strong eye for investing in experienced teams. For many founders who receive funding in Europe, it’s not their first rodeo. An average product might garner more VC attention if its creator has the right drive and existing connections. 


This is why angel investors are so important. And that brings us to the next issue that’s plaguing the European funding landscape. 


There are fewer angel investors to pump in money in the pre-seed stage.


More money from Limited Partners means that there’s plenty of opportunities for angel investors to invest as General Partners in a fund. It’s a more attractive deal for them, after all: they don’t have to invest out of their own pocket, and they can actually get paid to invest in potentially exponential returns. 


Unfortunately, this means that there are fewer investors who are choosing to back companies as angels. How will this affect the European ecosystem down the line? Will certain groups be increasingly overlooked, despite our best efforts to be more inclusive? 


We’re not seeing much of an increase in accessible funding for minority founders. 


Having fewer pre-seed funding opportunities means that underrepresented founders – as well as those who aren’t heavily involved participants in the classic startup ecosystems – are still struggling to access venture capital. That’s not to mention the biased nature of raising VC funds. 


Atomico’s State of European Tech Survey shows that just 9% of European funding went to teams with at least one woman on it, and 61% of Black/African/Caribbean tech workers believe their background and/or identity makes it harder to succeed in the European tech industry. 


Revenue-based financing can help fill the pre-seed gap.


E-commerce, subscription models, marketplaces and SaaS companies make up a huge part of the European startup ecosystem, and all of them can benefit from revenue-based financing (RBF) – especially when it comes to boosting digital marketing efforts and inventory expansion.


In fact, up to 50% of every euro of equity raised by these types of companies during a traditional VC round goes towards funding Google and Facebook campaigns. Companies who spend money in these areas often do so while giving up equity – perhaps unnecessarily. They don’t even need to be seeking a pre-seed round. 


Moreover, RBF is a data-driven operation. It effectively eliminates the bias against first-time founders or underrepresented minorities. If a company is able to demonstrate a solid monthly recurring revenue and business plan for growth, RBF offers an incredible opportunity to access working capital to scale.


Looking for early-stage funding to grow your business, or know someone who could benefit from revenue-based financing? Let us help. Drop us a line at [email protected].

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At Valerian, building and nurturing are intrinsic to our philosophy. Our Intelligence-Based Financing (IBF) model, supported by generative AI, offers you more than capital – it provides a customized growth roadmap. Are you ready to transcend conventional boundaries and embark on a journey of sustainable growth?


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