One of the key metrics for any new or established business is growth. However, if a business wants to scale, it needs capital, expertise, systems, and partners. For many startups, venture capital (VC) firms are a great way of raising capital and onboarding strategic advisors. Unfortunately, VC firms are known to take aggressive terms and can be inaccessible for startups not located in a region containing an active VC presence.
Thankfully, there are other alternatives for startups. For example, revenue-based startup financing is a great alternative to venture capital funding for e-commerce businesses since it does not involve raising equity. Instead, money is paid back over time based on the incoming revenue. This is often a much better fit for startups who lack capital but have found early product-market fit.
While the number of VC investments under $5 million dropped by 23 percent from 2015 to 2018, revenue-based investing has been gaining popularity. More VC firms are realizing that they can’t simply passively invest in a business without helping it grow strategically. To gain the upper hand in a competitive market, many VC firms are partnering up with marketing and sales agencies and or provide their companies with in-house services.
The Rise Of Growth-Driven, Alternative Investment Firms
DRVE is a growth-driven investment firm that was founded by Oliver Mauss. Just like conventional venture capital firms, DRVE provides capital to grow businesses, but more specifically, their online revenue.
The key difference with a traditional VC firm is that DRVE has set out to offer a combination of flexible capital and market expertise to fund businesses based on their current and projected revenue. DRVE does this by connecting the firm’s bank accounts to a company’s ad accounts. Through this strategy, DRVE can make up to $50,000 per day available to a company’s paid digital marketing budget.
As DRVE Founder and CEO Oliver Mauss explained, “DRVE works as a long-term partner for growth. This means we work with companies that are interested in continuous and scalable online revenue growth and we adapt to the different stages they will face while scaling up. We know not all companies need or can get venture capital. There are a lot of founders that could focus on online revenue growth if they had access to the right combination of paid marketing expertise and capital. And that’s what we offer: know-how, smart capital and a global network of partners.”
With a clear match with consumer goods businesses and e-commerce companies, DRVE has made over 100 investments and is active in 36 markets. Its portfolio companies have an average monthly growth rate of more than 20 percent.
There are two investment programs that DRVE provides: The Velocity Program and the FastForward Program. The Velocity Program is a fully managed program where DRVE manages a company’s strategy on its behalf and funds its paid digital marketing budget. The Velocity Program reduces the risk of investment for the business since it minimizes the strategy and implementation efforts through directly managing ad spend, and offers access to a global network of partners, which helps companies scale globally.
The FastForward Program, on the other hand, offers revenue-based financing. This means DRVE provides capital in exchange for a share of online revenue and a flat fee, while providing expertise on demand for companies that want flexible funding while keeping control of their paid growth execution and strategy.
Traditional VC Firms Vs. VC And Agency Models
If a company chooses to raise funds from a venture capital firm, it will also have to pay and provide a budget to a marketing agency and other service providers. With this approach, neither the agency nor the venture capital firm is directly invested in the advancement of the company’s revenue. That being said, many VC firms have started working with content marketing companies to rectify this.
“Venture capital firms run funds that have a 10-plus year horizon that invest in businesses that grow in valuation to deliver returns upon an exit, while what happens in-between does not necessarily have to be profitable or sustainable,” said Mauss. “This is not to say that this model does not work, as we have seen over the last three decades, but rather that the goals and incentives are quite different to what many other online businesses may need.”
Since a growth-driven investment firm like DRVE provides funds and manages a company’s growth strategy, it is in its best interest to explore the company’s full growth potential. This is further amplified by the fact that DRVE charges a provision that is reinvested to compound long term growth.
What Makes A Company Eligible For DRVE Funding?
The criteria to get DRVE funding depends on which program a company wants to pursue. If a company wants to join the FastForward Program to secure funding and a team of experts to guide it on how to amplify its online sales, it needs to have a sales track record of at least $10,000 per month in online sales over the past six months.
If a company wants to apply to the Velocity Program (where DRVE funds and manages its online marketing strategy to grow the sales revenue), the business needs to earn at least $25,000 per month to be eligible. Besides these numbers, it’s important to keep in mind that DRVE is focused on optimizing online sales growth. If a business also has offline sales, it will need to manage this channel independently. However, many of DRVE’s partners have seen online sales growth translate to offline sales growth.
DRVE expects to see an increase in applications during the upcoming holiday season, which tends to be the busiest period for e-commerce stores. It is also the most challenging as logistics providers are overwhelmed and ad rates skyrocket. In a normal year, retail sales from Prime Day through to Christmas can represent as much as 40% of annual sales for some e-commerce businesses, with those figures being expected to go up this year.