Forward Partners, the early-stage venture fund and startup studio, has long offered something a little different to the U.K’s tech startup ecosystem, and today the VC is continuing that trend with the launch of “Forward Advances,” a revenue-based finance solution for startups that need to bolster marketing.
Aimed at “fast-growing” e-commerce, marketplace and B2C SaaS businesses, Forward Advances will provide growth capital to startups in return for a 6% flat fee, with repayments taken as a small percentage of monthly revenue.
“Unlike traditional venture capital or standard bank loans, a Forward Advance unlocks a novel way for founders to finance their marketing spend without giving up equity, or having to commit to personal warranties,” explains Forward.
Crucially, this sees repayments structured as a percentage of revenues, meaning that companies won’t be required to make large repayments during tough economic times i.e. slower months mean smaller payments.
In addition to the loan, Forward Partners says founders will have access its startup studio team, comprising product and growth specialists that can offer hands-on expertise and help accelerate their growth. The idea is that alongside capital, Forward Advances will provide insight into how the marketing cash is best deployed to make the most difference.
Forward Partners’ Luke Smith is leading Forward Advances, and says that customer research carried out by the VC revealed that raising capital to invest in marketing is often difficult. “Founders find it lengthy, costly, dilutive, stressful or a combination of all four,” he says. One way to remedy this is by combining “flexible funding” with in-house growth specialists, which is exactly what Forward Partners is doing.
Which brings us to the current Coronavirus pandemic and resulting slowdown and certainty, leading me to ask if there could be a worse time to launch a revenue-based finance product?
“This is definitely a hard time for a lot of e-commerce and marketplace companies, particularly those in sectors that have been hit hard by COVID-19 disruption such as travel or events, and we’ve sadly had to turn down some companies in those spaces,” says Smith.
“However, we’ve seen that a number of sectors such as household goods, gaming or edtech are showing strong growth. We will focus on sectors that are positively impacted or unaffected by the disruption for the next few months and then broaden our sector focus as the market improves. With VC funding expected to pull back, we expect that a lot of companies with strong fundamentals will need cash to fund growth.”
More broadly, Smith underlines that Forward Advances is focusing on companies with “strong fundamentals.” This sees the VC look at cash flow as part of the decision making process and will only make advances to companies that it believes will be able to repay the loan. “That said, the loans are unsecured, so we can’t be sure we will get our money back and if companies revenues fall to zero we don’t get repaid,” he explains.
Asked why more VCs don’t offer this kind of product, Smith says that despite making lots of risky investments, the VC industry is generally “very conservative” when it comes to its own business model. “Forward Partners has always been a little different, first by building our studio team that offers a level of support to our portfolio not seen at other VC funds, and now by launching Forward Advances,” he adds. “We see ourselves as a service provider to entrepreneurs and plan to keep broadening the range of services that we offer.”