The biggest problem with this idea is that it doesn't really have a good market space. If your company revenue is too small, your subscription backed debt is just an inferior financial product compared to equity, which handles risk much better. If your company revenue is large enough, you have plenty of financial tools to keep your company fiscally healthy. The only time I can see it being useful is if you want to trick rich non-investors to give you money by pretending that your startup has value when it doesn't (similar to an ICO).
Let's say you had a subscription user base and the retention / LTV data to convince finance people to treat it as a security. That usually is the sign of a successful startup, and you'd also likely have access to venture capital as well.
As a founder, is it worth your time to come up with a new financial product and convince people to buy it? In my opinion, you're probably better off doing a round because it will close much quicker and you'll know what to expect, and you can focus on growing your business instead of convincing everyone of your non-standardized, not well understood financial product offering. Good luck closing a group of institutional investors with that.
Now, why do finance people create new financial products? One reason is to investment larger amounts of money all at once - so create asset classes and then buy them in bulk because you have a $5b dollar fund and can only afford to look at $500m deals or more.
This is probably the only reason why you'd want to create a subscription backed debt - collect them up and allow people to participate in returns on startups without becoming a VC. But this is much more likely to be a repeat of the mortgage crisis rather than being actually beneficial to the economy.
I have the opposite perspective. Doing a round means convincing investors you have a great long term plan to return their money via an exit. That’s a lot of hard work.
If you have revenue, convincing a revenue loan provider is a simple diligence process whereby they analyze your SaaS metrics. The future doesn’t factor into things much. They just want to know that things have been solid for a decent while, suggesting continued smooth sailing.
I read it the other way around. If BigCash, co. advertises “we securitize your growth - get free money to grow based on your business metrics!’, and you’re a startup founder - would you be interested, or would you say “nah, I think I’ll just do another round”?
Good point - there are a ton of SMBs that have good business metrics, usually as a result of being around for a long time. I would think that these companies would be the primary audience for this - they would use the flexibility that a securitized revenue stream allows them to smooth out any cash flow problems they had.
The majority of startups use investment to get to profitability / stability. This is why I think debt is a poor choice in general for the startup and tech market. I'd hope BigCash, co. models out default rates, not just SaaS metrics, and the adage, 9 out of 10 startups fail, while a bit harsh on revenue generating startups, doesn't bode well.
If offered, I can see a very well positioned startup who has access to VC preferring to raise debt to avoid the hyper growth push of VCs and grow at their own pace.
But also if offered, I can see a lot of high default risk companies use it to get cash because other options are not available, and the riskiness is why I didn't even think of an institution offering it in the first place - or just a repeat of the mortgage crisis.
A repeat of the mortgage crisis is possible - even likely - if such an instrument is successful. But you need to have some level of success first (for both sides). We're not there yet.
If you had a really clear plan on how the creditor could take over your top traunch of revenue in the event of default it could work. But even in that case you should still be in good shape to negotiate acceptable equity arrangements with VCs if you need cash
Let's say you had a subscription user base and the retention / LTV data to convince finance people to treat it as a security. That usually is the sign of a successful startup, and you'd also likely have access to venture capital as well.
As a founder, is it worth your time to come up with a new financial product and convince people to buy it? In my opinion, you're probably better off doing a round because it will close much quicker and you'll know what to expect, and you can focus on growing your business instead of convincing everyone of your non-standardized, not well understood financial product offering. Good luck closing a group of institutional investors with that.
Now, why do finance people create new financial products? One reason is to investment larger amounts of money all at once - so create asset classes and then buy them in bulk because you have a $5b dollar fund and can only afford to look at $500m deals or more.
This is probably the only reason why you'd want to create a subscription backed debt - collect them up and allow people to participate in returns on startups without becoming a VC. But this is much more likely to be a repeat of the mortgage crisis rather than being actually beneficial to the economy.