Alternative Financing Routes for Startups

Not all startups pursue venture capital when seeking funding. Alternative options, such as debt and credit facilities, are increasingly being utilized.

Boast.ai Secures $100 Million Credit Facility

Boast.ai, a firm specializing in automated R&D tax break identification through integration with existing business systems, recently announced a $100 million credit facility agreement with Brevet Capital. This funding will be used to expedite R&D incentive advancements.

States Title Obtains $150 Million in Debt Financing

Proptech company States Title has successfully closed a $150 million debt financing round led by HSCM Bermuda, a previous investor in the company.

States Title’s proprietary, machine learning-driven technology significantly reduces title processing times – from a standard five days to potentially just one minute. Furthermore, the entire mortgage closing process can be shortened from over 40 days to as few as six days.

Why Choose Debt Over Equity?

A key question arises: why did these companies opt for debt/credit instead of raising venture capital?

For Boast.ai, which operated on a bootstrapped model until a $23 million Series A funding round last December and currently maintains profitability, the decision was primarily financial.

“Equity financing carries a significant cost,” explained Lloyed Lobo, co-founder and president of Boast.ai, in an email to TechCrunch. “It also introduces a network of stakeholders requiring accountability. Raising capital necessitates a return on investment regardless of its application. A credit facility provides $100 million for deployment, with the potential to expand to $500 million.”

The company aims to automate access to substantial R&D tax credits and innovation incentives, empowering businesses to grow without relinquishing equity or navigating complex bureaucratic processes.

Boast.ai’s Operational Model

Securing R&D tax credits from the U.S. and Canadian governments typically involves a lengthy and complex documentation process. Boast.ai’s platform integrates with a company’s existing tools to automatically calculate R&D expenditures, and then provides upfront funding for these incentives. The company generates revenue by charging a fee based on the credit amount received by the client.

States Title’s Strategic Decision

States Title, having previously raised $123 million in a Series C round last March, found debt financing to be a more attractive alternative to further equity dilution.

The surge in refinancing and home purchases spurred by the COVID-19 pandemic and associated low interest rates increased demand for States Title’s services, as noted by CEO Max Simkoff.

“Initially, we considered raising equity, but ultimately, more favorable debt options became available,” Simkoff stated to TechCrunch.

The company is experiencing growth exceeding initial projections and continues to invest heavily in its product development roadmap.

“This rapid growth provided the confidence to secure the debt facility,” he added.

The Benefits of Finite Debt

Simkoff emphasized that debt is a finite obligation, which is advantageous for States Title.

“A common reason companies avoid debt financing is concern about their ability to achieve profitability within the debt repayment timeframe,” he explained. “Equity extends the timeline for finding profitability, but also necessitates surrendering a larger share of potential future gains.”

States Title’s Plans for the Funding

States Title intends to utilize the funds to accelerate product roadmap execution, expand into new markets, enhance customer acquisition and support, and optimize its capital structure.

The company plans to increase its hiring efforts and repay existing obligations to Lennar Corp., which provided funding for State Title’s 2019 acquisition of North American Title Company (NATC) and North American Title Insurance Company (NATIC).

A Growing Trend

These two startups exemplify a broader trend: while venture capital remains readily available, not all companies are prioritizing its acquisition.