Hello friends! Axel from Gilion here.
Welcome to our newsletter. Where the Gilion team will update you on what’s new from us and what we’re seeing in debt financing and the wider tech funding space.
Hacks for financial planning and fundraising
For those of you who do find yourself in financial planning or fundraising.
Look here! We just released our forecasting studio, helping founders simulate bets and metric improvements before placing them.
This is my favorite founder feedback yet.
We also have a lot of founders leveraging our VC mapping to plan their equity raise. Access here
Musings from the market
1. RBF’s denounce RBF’s
In the last month, we’ve seen both Uncapped and Re:cap publicly denounce the product they themselves popularised.
Why?
I would guess because it has garnered a bad reputation among both VCs and founders.
Because they have now seen the long-term effects of a financial product that is marketed very well.
“Get money fast and easy” - is a siren song as old as time. Fast credit processes are, however, high risk and will always be accounted for somewhere down the line.
Like:
‣ 12-month repayment terms. Very low risk in lending money you get back the day after. But what can a SaaS company possibly do with such a loan
‣ “Pay a simple upfront fee”. Another marketing masterpiece. Paying 7% for the whole loan upfront, translates to a very high effective interest rate. So it sounds cheap and shiny - but it’s a cash cow for the revenue based finance players
‣ “Borrow only as much as you like”. Means that you need to re-raise to get full access to the loan. If you’re in a liquidity crunch, they can just deny you access to the loan you raised.
With that said, I think it’s a positive move to erase these products from the market.
Short-term loans simply don’t have a place in tech funding.
Runways continue to get longer
Thought 18-24 months of runway was enough?
Data shows, not anymore.
The space between funding rounds is growing and the average runway now looks like:
Seed to Series A: 25 months (+14% from Q1 2022)
Series A to Series B: 28 months (+7%)
Series B to Series C: 36 months (+57%)
We see this on our side of the fence as well.
The main reason founders approach us, is to get out of the fundraising carousel completely and to bridge towards profitability.
or
To postpone an equity round until valuations are back up, and they’ve had time to hit their valuation milestones.
Here you can read about a typical “debt in between rounds” case.
German founders ask for less than their Nordic peers.
The typical founder we meet in the Nordics are around two years from profitability.
In Germany, that number is down to 6 months for companies with similar product and growth prospects.
It is interesting to muse around the root causes for this.
Are Germans just more cautious at heart,
or
has the German angel and seed echo system placed a larger focus on early profitability?
Being close to profitability is of course a strength, but we have also sensed that a lot of value is left on the table when companies don’t push the growth throttle harder.
This sense is enhanced by the fact that German founders often ask to borrow way less than we’d be happy to lend to them, again in contrast to their Nordic peers.
To some extent, this might be a consequence of conservative German banks and the lack of credit options in Germany leading to less echo system experience with the funding form.
And maybe an overall tendency, that it generally takes longer for the German market to embrace new products than it does in the Nordics.
We’d love to hear your thoughts on this topic!
