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Alternative source of non-dilutive and debt-free expansion capital you’re probably not aware of.💡

For this example, we’ll use a $5M company with a $2.5M expansion capital goal to develop, market, and sell a new product. 

Development: $1,000,000

Sales: $750,000

Marketing: $500,000

Technical Debt: $250,000 

TOTAL Expansion Capital: $2,500,000

Their average Annual Contract Value (ACV) is $50,000 with a 3-year contract term, giving them a Total Contract Value (TCV) of $150,000.

They sell 5 new contracts each month for a 50% growth rate after factoring churn. Overall, this is a fast-growing solid business. 

If they used financing to offer customers the option to pay monthly at a 20% premium instead of $50,000 annually, they would receive the full $150,000 TCV upfront on any financed contracts.

Of the 5 new customers each month, let’s assume that only 50% choose to finance because of the 20% pricing premium. At their current growth rate, it would take them 7 months to reach their expansion capital goal of $2.5M by financing a total of 17 new contracts.How could they shorten that timeline? 

💡By financing renewals. These customers are actually the company's low-hanging fruit because they’re already using the product, are happy with it, and wouldn’t mind a longer contract with better payment terms. 

Let’s say that this company was able to find 10 current customers to finance their renewals with monthly payments. That’s an additional $1.5M paid upfront, reducing their timeline from 7 months to 3 months. 

But, how could they shorten the timeline even more?

💡By sweetening their financing option to increase the % of customers that finance. Instead of passing the financing cost along to the customer at a 20% premium for monthly payments, they could offer them 0% interest monthly payments and absorb a flat 18% discount on the backend. The company would receive 82% of TCV on each contract. 

By offering 0% interest monthly payments, the company could increase the number of customers that finance by 35%. Now, they would reach their expansion capital target within 2 months by financing 10 renewals and 85% of their new monthly contracts. 

Expansion Capital In 2 Months: $2,500,000

Debt: $0

Dilution: 0%


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