Architect Capital Launches $100M Fund for Early-Stage Companies

Alternative Capital for Early-Stage Companies: Architect Capital Launches $100M Fund

A growing number of early-stage startups are actively seeking funding avenues beyond traditional venture capital or debt financing.

Recently, several new companies have been established to offer these alternative options. Pipe serves as a prime example of this emerging trend.

Introducing Architect Capital

San Francisco-based Architect Capital is entering this space with the launch of a new fund exceeding $100 million. The firm will function as an “asset-based lender” specifically targeting “high-growth” tech companies in their early stages.

The firm intends to deliver financing solutions that are either non-dilutive or less dilutive, focusing on asset-rich businesses within the fintech, e-commerce, and SaaS sectors in both the U.S. and Latin America. A particular emphasis will be placed on Latin America, where Architect Capital believes access to institutional financing secured against assets is limited.

Founder and CEO James Sagan stresses that the firm doesn’t aim to supplant venture capital or venture debt, but rather to provide complementary, asset-based financial products.

Sagan’s Background and Vision

James Sagan brings significant experience to this venture, having previously co-founded and served as managing partner of Arc Labs, an early-stage credit fund specializing in lending to technology-enabled businesses.

He has been investing in Latin America for several years and identified a need for innovative financing methods to support “novel and underappreciated assets.”

Sagan also asserts that the region is currently home to “the most prominent fintech ecosystem globally.”

While acknowledging the importance of traditional equity and debt financing for areas like team expansion, Sagan believes these methods aren’t optimally designed to support the growth of a company’s core financial products.

“Venture capital is inherently dilutive and should be allocated to activities with high returns, such as hiring engineers and building strong teams,” Sagan explained to TechCrunch. “Utilizing equity to fund assets is costly. Loan books should not be funded with equity; we will provide that funding.”

Focus on Tailored Funding

Architect Capital’s primary objective is to offer “tailored and less dilutive funding,” particularly to companies generating consistent, recurring revenue, like those in the SaaS and subscription models.

Sagan’s approach originated in 2015 while working with a multifamily office that provided loans secured by traditional assets.

He recalls a colleague needing asset-specific financing for the receivables his business was generating. This colleague was providing loans to small businesses and required financing specifically against those receivables.

Differentiating from Venture Debt

Sagan believes venture debt isn’t well-suited for receivables-based lending, as venture debt firms typically focus on assessing the quality of a company’s investors rather than the assets themselves.

“We specifically tailor our underwriting to the assets, which can include unsecured consumer receivables, secured small business receivables, and real estate,” he stated to TechCrunch. “We provide an additional financial instrument for asset-heavy businesses, enabling them to scale in ways venture debt cannot.”

Fund Structure and Investments

Architect Capital’s limited partners (LPs) are primarily large institutions, rather than individual high-net-worth investors. The firm’s average investment size is projected to be around $10 million to $15 million.

“Our portfolio allocation is generally more concentrated,” Sagan noted. “We anticipate substantial growth in our assets under management (AUM).”

Since its inception, Architect Capital has invested in six companies, including PayJoy, which provides consumer financing and smartphone technology in emerging markets; Forum Brands, a U.S.-based e-commerce marketplace aggregator; and ADDI, a fintech company aiming to provide fair and affordable credit to Colombian consumers through point-of-sale financing, having recently secured $65 million in funding.