The rise of the recurring revenue business as a standard business model has implications for financiers. Just as it changed how customers made payment so it changes the way funding providers are changing the way they fund startups.
Recurring revenue businesses don’t necessarily need large discrete funding rounds. Today we see funding ongoing throughout the life of the business. As specific business growth needs arise funding steps in to provide the resources. The funding comes in small amounts and when needed. In this model the fundraise round is never closed – it’s always open. Investors should always be monitoring businesses to see who is reaching an inflection point and for opportune moments to invest in the businesses.
I started my company under the name Texas Entrepreneur Networks about ten years ago after launching three angel networks in Austin. I built a network of entrepreneurs and investors now throughout the country using a recurring revenue model instead of a broker model.
Building out the business doesn’t require large fund raise all at one time. It takes some funding to bring on new developers here and provide for a marketing push there.
I see a new method of funding for recurring revenue companies in which the companies continually raise small amounts of funding from investors rather than large rounds periodically. This new model works for our entrepreneurs who find it a great way to raise funding. Rather than spend a tremendous amount of time raising funding for six to twelve months, we’ve turned it into an ongoing program in which the raise is always open but doesn’t take too much of the CEO’s time.
There are some key things you need to do to enable this model:
- At heart, it’s an investor relations program.
- We use email, website, and social media to introduce the deal to the investor and then keep the investor informed of the progress.
- A campaign is how you tell your story and convince investors you are worthy of investment. Investors are looking for a strong team and consistent traction. Your campaign should demonstrate both.
- You need to be consistent and persistent about it. The motto is the “Fundraise is always open.”
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.
