Navigating Alternative Financing for Growth

4 August, 2023 | insight

In the ever-evolving world of a business growth, traditional funding source of venture capital is no longer the outright lead provider of capital that it once was. As the funding landscape shifts, entrepreneurs are turning to alternative strategies like growth-debt, government-sponsored funding, and accelerator programs to fuel their ambitions. Let’s take a closer look at the current funding environment and the innovative pathways that are increasingly driving capital models and avenues for growth.

The funding scene in North America has experienced some stagnation across all stages, with later-stage startups and tech-focused companies taking the hardest hit. Since the first quarter of 2023, investments in these sectors have notably decreased by 33%. The root cause can be traced back to a broader market decline affecting technology and life science companies generally, leading to lower valuations and delayed pre-IPO rounds for startups.

Nearer to Axial’s HQ in the UK and Europe, a similar situation is unfolding. External factors such as the war in Ukraine and a struggling global economy have contributed to surging inflation and increased interest rates. These economic challenges starkly contrast with the record-breaking cash inflows that high-growth businesses enjoyed 18 months ago. As a result, startups in Europe are facing familiar territory in the cultural expectation that they should establish robust market positioning and demonstrate growth in topline income before funding might flow more freely.

In response to these shifting dynamics, founders and operators are exploring various avenues to sustain and grow their businesses. M&A has increasingly offered a mechanism to bolster market share (and ideally a stronger combined balance sheet) with businesses consolidating their funding via strategic partnerships – and at Axial we are leading on transactions on this basis both for accelerated growth and for more urgent defensive strategies. The realities for founders is this often requires a considerable amount of time and may even lead to valuation down-rounds.

Financing driven by forward revenues is another funding model that we build into our support for growth-companies. In this approach, a company receives an upfront sum of capital and future recuring earnings serve as both the rationale for for the financing and for repayment. This model aligns the interests of investors with those of the startup, promoting sustainable growth without the burden of traditional debt.

Corporate partnerships and sponsorships are also proving to be lifelines for businesses looking for growth. Larger companies are investing in startups, often in exchange for access to innovative products or supply chain advantages, and cross-border partnerships can be a pivotal catalyst for accelerating new business. These strategic partnerships can provide startups with the resources and expertise they need to thrive – whether in a new market or a challenging market – and with our offices operating across the US, Europe, UK and Canada, Axial’s team takes this approach with many of our portfolio clients.

Despite the challenging funding landscape, entrepreneurs are natural risk-takers and innovators, and the current funding dynamic is likely to drive even more creativity and open up unique opportunities for those who can adapt and pivot effectively.

The road ahead for ambitious business operators may be unchartered in many cases, but there’s nothing like a challenge to truly define the entrepreneurial journey. By embracing alternative funding avenues, strategic partnerships, and a resilient mindset, startups and growth-driven SMEs can weather the storm and re-shape the future of their industries. The entrepreneurial journey is ever-evolving, and those who navigate the changing tides with creativity and determination will undoubtedly find success in the new landscape.