How does my growth rate determine my funding options?

today we're talking about fundraising quadrants what are they how do they impact you and ultimately where are you as a Founder trying to raise Capital whether that's debt or equity and exploring what your actual options are given where you are in these quadrants so before we dive in this is a highlight on where you might end up being and we're going to give you specific criteria as to which quadrant you qualify for and then what are the capital options available to you based on the quadrant that you are in so why am I qualified to talk about fundraising well my background buil and sold multiple companies I've had four exits I sold a technology company to Walmart called liquid Sky I've raised over 145 million as a Founder operator advisor investor I now help Founders navigate their Capital options it's what I do every day work with countless amount of clients helping them navigate where their Capital can come from how to get it and then introducing them to the right Capital Partners so let's go ahead and dive in talk about how difficult it is to get fresh Capital Founders often think of Venture as their first and primary option um but in reality there's a lot of options so let's talk about what you actually can do to Source Capital that's right for you and your business so where do we start well we start with figuring out what your North Star is so sounds a little cliche but be with me here you don't know how to get somewhere unless you know where you're actually wanting to go and this is a question I spent a lot of time on with Founders is like what do they actually want to achieve with the business let's kind of go over some whatat what those Norse thrower potential options are and you can kind of best identify maybe where you fall uh in this uh category some Founders are all about getting Acquired and that could be in a wide range of options from acquire to Big nine figure exits to getting acquired from strategic maybe to be a part of something bigger a lot of reasons to get acquired of course money is also a good reason so Founders just want to generate free cash flow maybe they just want to you have a good business you love the business and you just want to be profitable and pay yourself more sometimes you have a massive ego and you want to go IPO nothing wrong with that that's obviously why a lot of venture uh Capital firms back certain Founders because they want to go big and IPO is the only way to create any kind of liquidity event when you get too big and then sometimes Founders just are burnt out and they want to replace themselves but retain the business so you want to still be a business owner just not business operator and some unfortunately just want to survive you know maybe you're still very early in your days you haven't figured out product Market fit and you wanted maybe want one of all these attractive options but right now you're just focused on Surviving so H and of course last but not least some people just want a lifestyle business you you want to make a good enough amount of income could be six figures could be seven figures whatever it is Meaningful to you uh sometimes you going to ask yourself you maybe you don't want to have oversight uh from investors or board and you just want to be able to make the choices that are appropriate to your personal choice uh personal life so ask yourself which one of these do you most align with because that really dictates what type of capital you should be sourcing from various different partners whether that's Venture private Equity or debt uh there's a lot of options out there but you know if you're trying to grow to IPO private Equity is probably not that practical venture capital is GNA be more practical if you want lifestyle business steer clear a venture so now you know where you want to go okay so where are you starting from okay so that's where we come in with the cash flow quadrants as I was alluding to before so basically we have some basic criteria and it's not 100% catchall you know criteria but it should give you a good idea of kind of where you're at so let's first start with where most people want to be uh you know early stage Founders hopeing for early growth where they're growing 10% month of month or more uh they have round or a little bit below a million ARR and they're showing strong potential growth rate okay so that's the early growth category then there's a stablish growth that means you're doing over a million ARR and you are uh growing at over 10% month over month and you're continuing to you know show strong prospects of continued growth then they're strong but slow and what I mean by that that is you got a real business you're making real money but maybe not growing rapidly month over month maybe year over year you're growing 10 to 50% which is awesome great business but that attracts a different type of Capital Partner than say uh you established growth early growth and then last but not least the struggling companies now struggling companies may not be you know if you're under a millionaire are definitely struggling uh maybe you're over a millionaire are but you're declining uh but we're not really covering that category today um but if you're the stru category your options are obviously going to be a little bit limited so I want you to reflect on these quadrants here and think about which quadrant you might fall in okay and retain that information for as we go through all the different options based on which fundraising quadrant you are in so what paths are available to you so you know where your Northstar is you know where you're starting from but you know which path is actually appropriate for you so let's explore the options based on the different quadrants that we reviewed so early growth usually falls in the category of early stage Venture so call it your preed or seed round or Angel round or kind of friends and family um where it's still appropriate to raise maybe under a million or a couple million dollars it is established growth so you have a lot of options this is where everyone wants to throw money at you you built a growing sustainable business a lot of people want action so then it's really about it you know going back to the Northstar which is the appropriate Capital option for you being that you'll have plenty of options so if you're strong let's slow um you know usually debt private Equity or strategic m&a are often the the most applicable choices for for a Founder at this stage and then last but not least struggling there's ways to optimize your business for an aqua hire or to turn it around and start generating cash flow stop focusing on growth and start focusing on you know just milking the profits uh or bringing in a turnaround uh organization or CEO or whatever it might be to to turn things around all right so let's just say you know you've identified which quadrant you're in now you know what kind of the high level uh Capital options that are available to you now let's actually break down all these different options so you have a little bit more granularity in terms of these Capital options so attracting Venture so what does it take to attract Venture Capital either in the early growth quadrant or the established growth consent so first and foremost growth if you don't have any kind of level of growth it's going to be hard to you know have a VC jump in and get excited about you now we'll talk about growth in two different categories one is traction so you built a business it's growing things are looking good great there's also growth in a market and sometimes VCS will bet on companies that have no traction you haven't built anything yet and you know that early stage uh idea that you all hear about like oh they bet on an idea well they're usually betting on a high potential potential growth market and usually backing you as the potential horse to win that market or uh to win that race so that's how you should think about growth if you have an awesome Market you're going into that's got a lot of future potential and or you have a great business that's already growing you know at least 10% month of mon are you in a shiny market so going back to the market Point like don't be in a legacy market and something that a lot of Founders don't realize is that have to pay attention to is you maybe you are in a former shiny Market that got previously a lot of venture capital and a lot of money went into it maybe 3 four years ago but maybe not anymore and so that's something to kind of think about where's the money going today so obviously 2025 AI this AI that you know you get the you get the picture uh so how can you develop something into a shiny Market to make sure you're going to attract Venture Capital if venture capital is the right path for you traction and validation so we talked about that just picking up traction identifying growth channels things that you could put more money into that had you already proen and can continue to grow the business having a rockstar team ultimately lot founder or BCS will back the team less so much the business or uh the ideas so it's important to stack your team with the best possible people and then last but not least how can you generate fomo at the end of the day so one wise strategy for fundraising is to build relationship with a relevant group of VCS over a period of time and then ultimately you're actually ready to run your fundraise process making sure there's plenty of parties involved that already know who you are before you start the process so that you're likely to generate a bunch of term sheets create a little bit of bombo so that people accelerate the process and don't just sit around and kick the tire all right SS Venture let's talk about debt so if you're in that more established growth or you're in that uh quadrant for uh strong but slow these are the things that matter so when you want to acquire debt you're going to need assets so sometimes you could be the the business uh the value of the you know Enterprise value of the business that's been validated by external investors um or you have manufacturing equipment or IP things of that sort things that they could collateralize and protect their downside because with Venture it's all about upside growth and they don't really care too much about the downside but they do but more portfolio construction whereas debt they don't like to lose money and so that you need something that that potentially can collateralize you having de pocket investors so having Venture investors already behind you or Equity investors behind you um because that means that they'll be less likely to let you fail and they'll have more money to back you in case you run into a tough spot so again protecting the downside for dead investors recurring revenues they love recurring Revenue because it's predictable in terms of cash flow coming in to be able to pay down the debt again protecting the downside and understanding that there's enough business coming in to where whatever they underwrite you for in terms of the debt they'll be able you'll be able to pay back Financial history so unfortunately it's very hard to get debt if you're brand new you're just getting started um ultimately having a couple years of financial history opens up a lot more options so being a little bit more on that stable established growth or strong uh but slow category is going to be more likely a fit for for Deb partners because you'll have a little bit more history been around a little bit longer and then having some bigname clients sometimes uh one of the uh debt products is it's called AR Factory account receivable Factory we talk about in a second more but getting paid by big clients that means the lender can underwrite the client instead of you to make sure that you're going to get paid by that client so that's another way for them to kind of collateralize and reduce their downside risk and of course inventory so if you're a e-commerce business or you're selling physical Goods uh they can collateralize that inventory in a variety of different ways uh to make it possible to give you access to working capital for your business right and then equipment similar going back to Machinery or assets things of that sort what can they collect Alize uh with the business all right so these are all the different types of debt I'm not going to go into granular detail about all of them because there's plenty of information you can get from chat gbt on all these different paths but you need to kind of know the terms and so I encourage you to take a screenshot of this it's also on our website if you want to click go to thunder. VC click raise debt we have this exact graphic on there so you can dive in a little bit deeper in terms of what the options might be um but just remember you kind of have to be in the established growth or strong but slow quadrants to to attract the right amount of debt options uh debts just not readily available at any notable scale or accessibility if you're in the other two quadrants so again it's really important knowing what quadrant you're in to know which path you should be pursuing all right so let's talk about private Equity okay so private Equity if you're not familiar you should know you should be watching these videos with me if you don't already know what private Equity is but effectively a firm or sponsor that's going to buy M most likely a majority interest in your company in some case it can also be a minority interest um but it's more for stable businesses whereas Venture they're buying minority investments in a company for high Enterprise Value incre high probability of Enterprise Value increasing over time where private Equity they have lower expectations in terms of return but they have higher expectations in terms of reducing the downside risk so they look for evid positive you need to be profitable you need to be printing cash flow for private Equity to take you seriously and to have plenty of private Equity options so again either unestablished growth or strong but slow category ultimately most private Equity Partners want to see a path to 3 to 5x their position from three to five years after making their initial Investments um that could either be by selling the company to another private Equity Firm it could be refinancing them out with that having a predictable business and predictable Revenue this is very very important for private Equity Underwriters to come in and see like okay you have predictable Revenue we know that over the next several years you're going to grow by X and therefore hit our bench marks of what kind of return potential you have as a business uh so that's something important to have they want to have less work they want to back a a team that already is working or have assets or revenues that are already predictable and working so that they're taking less risk on the business and then how can they potentially add instant value is another way to attract private equity could they connect you to one of their existing portfolio companies to do a partnership and increase revenue or cross sell could they bring you on to what is an add-on uh purchase where they're going to acquire you to add-on a both on to an existing entity to cross sell or improve their cost efficiency or increase profitability so how could they potentially add instant value to your business so I mentioned bolon creative deal structuring what's fun about private Equity they can get very creative you can it's not just like a they come and buy you for $10 million cash and that's it they could potentially pay you a a l some up front they can do earn outs they can have give you upside into the the new entity uh there's to leverage your debt they can bring into the picture so there's just all kinds of ways to get a deal done so maybe you don't see the vision but by talking to a couple private Equity investors they could potentially propose ideas for growth or or profitability that maybe you're not aware of because that's what they do all day so it's always worth having a couple conversations with private equity and you're thinking about either m&a or Capital deal um because they tend to be a lot more creative than say venture capitalist or um you know debt providers so talk about planning the exit or you pursuing any kind of m&a so if you're in the established growth or you one of the um you know strong but slow category quadrant think about strategic value you can add in an acquisition so thinking about m&a whether you're maybe it's an aqua hire maybe you're struggling like how could you add strategic value with your team to an acquirer to add immediate value you know fun fact Engineers you know most cases Engineers can add A1 to2 millionar to your purchase price based on their seniority so stacking your team with in-house Engineers uh could dramatically increase your acquisition price something to always think about when it comes to acquire goes to aalon acquisition point and then there's product expansion how do you bolt on to someone else how do you add more value to their existing customer base by expanding their product offering post exit are cross sell or upsell opportunities to their customers uh do they us have similar customers or could you introduce new customers to them that they could potentially buy from so what what are the Strategic values that you have to bring outside of just your traditional cash flow and epida which are you know pretty s explanatory do you have IP that's complimentary to them you know can they add to their top line or bottom line with the purchase so when you think about doing any kind of exit think about what is in it for them you know a lot of Founders they just you know continue to run their business but if you're ultimately want to drive a process and you're in one of those quadrants or you're pursuing m&a as a potential path for what you want as your Northstar then really think about Okay who wants the bias and why now if you're profitable printing cash that's always a good reason but you'll often not get the best price if you're selling based on just cash flow and EIT multiples alone you want to think about how you can add strategic value and sometimes it's consolidation you know adding the ability for firms to consolidate a market uh maybe you're the platform of the first acquisition into a market that they're going to try to consolidate that's a lot of strategic value both pre-acquisition and postacquisition so really think about how you can plan the exit so now you know that was a lot of different options to to reflect on so reviewing back on the quadrants that we talked about you know we have early growth established growth struggling and strong but slow really think about which one are you in which is the appropriate quadrant to place yourself in and think about your North Star where you want to go and then as we kind of reviewed some of those options at a very high level which of course if you want to dive deeper you want to talk to my team or anything like that reach out to us at thunder. VC um or create a free profile on our account we could be in touch but ultimately it's important to have these conversations either with board advisors your board your investors uh of discussing kind of which quadrant you're in where you want to go in your Northstar And discussing what are the possible paths that you really want to pursue with your business so hopefully this was helpful to you as a quick recap the very binary question to ask yourself is should you be using other people's money or should you stay bootstrapping and hopefully the content that I provided to you today and the quadrants and the definition of the quadrants will help you answer this question of you know you stay down heads down focused on building and bootstrapping or do you start seeking other people's money if you're not familiar with thunder just a quick recap on who we are and what we do we are a tech enabled Investment Bank for Founders by Founders helping founder-led organizations navigate their Capital strategy companies that have used our free tools that we make available on our website for free um have on to raise over 1.2 billion in transactions um we personally have been involved in over 200 million in transactions over the last few years and we have a massive network of companies and funds and investors that have used our tools or are part of our network uh that I help enrich the data to help better identify uh relevant parties that you should be talking to based on which capital strategy is right for you uh you're welcome to use our free VC finder Tool uh you're able to find our debt financing uh tool where it helps you identify which debt is appropriate for you so these quadrants who kind of maap this stuff out already using technology to help route you into the right direction uh we also have our podcast and newsletter that we publish every two weeks which you're listening to here um and of course our services in terms of what we do for clients which this is just the SYM the iceberg but really helping Founders navigate Capital strategy so debt Equity or the pursuit of m& that's where we come in and help provide a lot of clarity for Founders even for them that you know maybe you think you want to go down a certain path you got it in your head but maybe you got to convince your board you got to convince your investors you can call us in and we can put together the report that helps defend whatever strategy is most appropriate for your business so that's a little bit about us of course we have our community um so make sure to subscribe uh just go to this QR code or you know subscribe at thunder. BC tell us a little bit about yourself and we'll see if we can help you navigate your Capital options all the links and details of everything I mentioned are down below if you want access to this presentation just leave a comment and we'll be sure to reach out to you with the link to this presentation in case you want to review it on your own time thank you for joining us and don't forget to like And subscribe thank you for watching today's episode as a reminder I'm your host Jason Kirby I have built and sold multiple companies with over 135 million in transactions as either a Founder operator investor across multiple Industries I'm currently the managing Direct director and founder of thunder. BC where we help companies and Founders at all stages navigate what capital to raise and who to raise it from and help improve company odds of raising Capital if you need help reach out to us at help. under. BC if you like Today's Show please share with your friends give us a like or a comment down below and as a reminder this show is published weekly and to get notified new episodes and our newsletter be sure to go to our website at join. thunder. BC and if you sign up today I'll send you a few freebies on how to negotiate a term sheet how to get a free list of relevant VCS and much more that's it no more Shameless plugs thank you and see you next week