How fintech Uncapped is disrupting venture capital by lending to fellow startups at a flat 6% fee
- London-based fintech startup Uncapped offers capital to other startup businesses, but without taking an equity share.
- Unlike most traditional debt, the financing is iterated quickly into a company's finances and accounting platforms and payments are made in accordance with revenue.
- "Founders need to find the right capital solution," cofounder and CEO Asher Ismail told Business Insider. "Founders are conscious of a growth at all costs model, especially when you look at the high cost of capital associated with equity fundraising."
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Most ambitious startups assume they will turn to venture capital to fund their early growth - or else slog it out bootstrapping.
But alternatives to VC funding are starting to spring up, as founders balk at the prospect of giving up a share of their company in exchange for capital.
Asher Ismail is the cofounder and CEO of Uncapped, a London-based startup which offers up to £1 million ($1.27 million) in funding to companies at a flat 6% fee.
"Founders need to find the right capital solution," cofounder and CEO Asher Ismail told Business Insider. "Founders are conscious of a growth-at-all-costs model, especially when you look at the high cost of capital associated with equity fundraising."
For some companies, it's preferable to have quicker, more affordable capital to help with ad-spend or buying inventory. It can be less efficient to swap funding for equity, and loans can be accessed faster and be cheaper than VC cash.
Reshma Sohoni, one of Uncapped's venture capital backers, emphasized that Uncapped's loans made more sense for startups who need capital for activities like marketing.
"Something like 40 cents on every VC- invested dollar goes to marketing spend," she said. "Giving that much equity away for VC marketing money seems illogical. Whereas with Uncapped it's much cheaper to have the working capital to make that kind of spend. And also incredible flexibility to increase or decrease your spend based on performance. Versus equity funding which is spot funding in one moment in time."
Ismail is a serial founder who worked at Skype during its acquisition by Microsoft in 2011 and previously founded Make It Matter in his native Canada and was also CEO at the now non-existent company MiDrive.
He claims that some companies don't fit the venture capital model and should have different options available to grow without it. Uncapped works, he says, because it plugs into a company's back office so that it pays back the funding at different rates dependent on whether its revenues are positive or not, unlike a traditional loan. The company's clients are predominantly startups, alongside other small businesses, with a diverse set of capital requirements and some form of established sales revenue.
"VCs are looking for unicorns that can grow 10x and not all companies fit that mould," Ismail added. "It's about shifting the power balance away from purely VC funding."
The company's main clients include e-commerce, software, and app-based businesses which are often bootstrapped by the requirements of VC funding.
Uncapped itself is backed by VC funds following a $12.7 million seed round in December last year from White Star Capital, Seedcamp, and Global Founders Fund.
Products like Uncapped seem to be an increasingly common prospect for startups. Other companies like Clearbanc and Just Capital offer similar capital funding propositions which could help tilt the dynamic for founders. It's a popular change too, Ismail says, with Uncapped having 400 requests on its first day of operations post raise.