As a CFO or CEO of an influencer agency, you understand the importance of maintaining financial stability and exploring growth opportunities. In the competitive landscape of the influencer industry, securing the necessary funds to expand operations and capitalise on emerging trends can be challenging. This article aims to provide valuable insights into venture debt and alternative financing options, including MONET's embedded finance products, to help you make informed decisions about your agency's financial strategy.
In the early days of running your business, you typically raised cash from:
- making new sales and landing bigger and bigger customers
- asking friends and family for money
- begging VCs and angels for money
In the last two options, you give up chunks of equity in the business and get some working capital cash in return. But now your company is killing it. Growth and profit are the new words. So what next? Well, giving up equity is very expensive in the long-term and some smart person whispers the words "venture debt" in your ears.
What is Venture Debt and Is It for You?
Venture debt is a type of debt financing specifically designed for high-growth startups and companies that have solid cash-flows. Unlike traditional bank loans, venture debt provides flexible capital that complements equity financing. It can be an attractive option for influencer agencies and platforms looking to fuel their growth while minimising equity dilution. Meaning you can finally forget about those annoying VCs.
There are several reasons why you may be attracted to venture debt, including:
- Extend your runway: Venture debt allows you to secure additional funding beyond your equity rounds, providing a financial runway to support your agency's expansion plans or bridge you between equity rounds.
- Avoid equity dilution: By utilising debt instead of equity financing, you can preserve ownership and control over your agency while still accessing the necessary capital to fuel growth.
- Grow faster: Maybe you just raised equity, and you want to increase your burn to capitalise on a growth opportunity. Accessing venture debt allows you to take on that expansion without changing the dynamics of your business ownership.
- Buy another company or asset: well, we've all been tempted by this. Venture debt can provide the anchor to financing the purchase of that strong revenues company you really want as part of your group.
- Solve working capital issues: Maybe you run on negative cashflow, like a lot of agencies. Paying our your suppliers and staff before you get paid by your tier-1 brand customers. Venture debt has been used to buffer working capital needs in situations like this.
- Flexibility in Repayment: Venture debt typically offers more flexible repayment terms compared to traditional loans, giving you breathing room to align with your agency's revenue cycle and growth trajectory.
However, venture debt might not be suitable for every agency. It's important to carefully evaluate your agency's financial goals, growth plans, and risk appetite before considering this option. Assessing your agency's cash flow projections, debt service capacity, and future funding needs is essential to determine if venture debt aligns with your overall financial strategy.
So what are some of the downfalls of venture debt?
- High interest rates
- Fixed repayments
- Financial covenants and other warrants
- Operational covenants
- Balance sheet heavy
- Can force bankruptcy
- Deter future equity funding or exit
Alternatives to Venture Debt:
While venture debt can be a viable option for some agencies, it's crucial to explore alternative financing avenues to make an informed decision. Here are a few alternatives worth considering outside of venture debt and VC equity rounds:
- Revenue-Based Financing: This model allows you to secure capital based on a percentage of your agency's future revenue. Repayment is tied to your revenue stream, making it a flexible option that aligns with your agency's financial performance, but often expensive and low in funding volume.
- Strategic Partnerships and Joint Ventures: Collaborating with strategic partners or engaging in joint ventures can provide access to capital, industry expertise, and shared resources, enabling mutual growth and expansion, however it can be tricky and murky waters to play in.
- Advance Subscription / SAFE equity raise: In the US, this is often referred to as a SAFE, and in the UK we call it an ASA (advance subscription agreement). Allowing you to take investment now, based on a valuation in the future - typically in 6-12 months. There is usually a floor valuation and a cap. The cap is the maximum value the investment today will convert at. Additionally, you almost always see a discount on the future share price in return for investing today, and sometimes you will see interest rates, which are called convertible notes.
- Crowdfunding: Engaging with your agency's community and leveraging crowdfunding platforms can be an effective way to raise capital while building a loyal fan base and increasing brand visibility.
- Embedded invoice finance: an off-balance sheet alternative to bridging financial needs from your existing receivables, creating a sustainable pathway to growth. More on this below.
MONET's Embedded Finance Products
MONET offers embedded invoice finance products designed specifically for agencies and platforms in the influencer industry and similar networks. By partnering with MONET, you gain access to a suite of innovative solutions to optimise your cash flow and fuel growth, whilst you can offer them as features to your communities of talent and suppliers:
- Embedded Invoice Financing: MONET's EarlyPay product is a tech-enabled invoice finance solution that allows you to unlock the value of your outstanding invoices, providing immediate access to working capital.
The best part is that by using our embedded technology, you can then offer instant payouts to your talent and other suppliers, charging them for the service by passing on interest fees. Making MONET cost-free for you. There is an additional option for you to add-on your own fees, making EarlyPay a powerful new revenue stream for your agency.
- Global payments: Streamline your payment processes with MONET's integrated payment solutions, ensuring faster and more efficient transactions with your clients and influencers.
In the dynamic and rapidly evolving influencer industry, securing the right financing is vital for sustainable growth and success. While venture debt can be an attractive option for some agencies and platforms, it's important to consider alternative financing avenues that align with your agency's specific needs and goals. MONET's embedded finance products offer a range of solutions tailored to the influencer industry, providing you with the tools to optimise cash flow, streamline payment processes, access up to £3m in working capital and turn it into a highly demanded feature for your talent.
By partnering with MONET, you can confidently navigate the very tricky financial landscape and position your agency for strong growth and fast cash-flow.
If you’re looking for an experienced financing provider that understands creative industries and offers funding as well as growth support, consider MONET. We’re helping innovative agencies and platforms grow confidently without any unwanted conditions.
To check how our funding solutions can help you and your talent, contact our partnerships team.