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Creating a global firm without raising equity is rare but possible and an important route with many advantages for certain types of business. which many young entrepreneurs are relatively unfamiliar with. Ben Richmond founder and CEO of RegTech CUBE certainly knows this path intimately and shares with us his insiders experiences having built CUBE from inception in 2011 to today a global business with offices around the world, clients using their products in 150 countries, some 250 staff and seven-figure monthly revenues based on that most oldskool of concepts organic cashflow alongside debt.

Richmond.jpg">Richmond-150x150.jpg" alt="" width="150" height="150">It is a topic we have touched on in prior episodes. In LFP189 we heard about the non-dilutive (ie non-equity) sources of finance via govt grants and tax credits and bridging finance while one awaits those. Back in LFP071 with Faisal Husain founder of former LFP brand-partners Synechron we heard his amazing story about how he founded and grew a company to “7,000 employees in 18 countries in 16 years” without any external capital or debt showing that organic growth can be amazingly powerful for the right businesses.

And just to finish off with prior references another key episode was  LFP163 with Alex Baluta CEO of Flowcap who took us on a deep dive into Venture Debt.

What business characteristics are required to go that route? What the pros and cons of raising equity? What are the pros and cons of debt financing? What does one need to be wary of? All these topics and more are discussed in this episode:

• standing desks and venture debt
• standing up and sitting down and the importance of the transition between them
• the use of context-dependent behaviour for habit installation
• Ben’s path to founding a regtech
• farming regulation
• the conventional raising route
• the chief pros of equity raising
  • comfort factor
  • speed
  • credibility of when selling to customers
• the chief cons of equity raising
  • you may not be able to see through on your vision if you get the push from your own creation
  • pressed to reach short-term goals at the expense of longer=term goals
  • the intense distraction of managing your equity partner(s)
  • complexity of the whole raise
• historically there wasn’t this clear distinction between equity and debt per se and how at one level today this still obtains – raise either and there will be a “tit for tat”
• the chief pros of debt
  • greater control of the Board and the company direction
  • can be phenomenally powerful
  • you’ve agreed up front what will happen in all circs so everyone knows more precisely where they are and what will happen over what time horizon one way or another – so much simpler and less distracting
  • debt provider just wants to know what is happening rather than getting involved in normal circs
  • reduces dilution – altho’ NB potential use of warrants (albeit tends to lead to minimal dilution)
  • take money when you need it rather than load of the balance sheet up-front – more focus on bottom-line and the burn as the cost of money is clearer
  • ease of a raise – its a transaction based on a subset of the business parameters vs with equity raises having to consider absolutely everything
• the chief cons of debt
  • security – property or personal guarantees and complications therein for the business as well as the individual
  • potential to bring the business down around your ears if things don’t turn out well – more extreme-case downside than with equity
• hybrids between debt and equity
• super-important where you get the debt from
• comparison of banks versus specialist lenders – early stage venture debt or later growth debt and then more cashflow lending
• very important to do a lot of due-diligence on your lender to know how they have acted in the past in “good weather and in “bad”
• you will pay a premium but may be cheaper in the long run
• experience of raising debt for the management team and focus therein
• importance of focusing on what you have to support a raise
• debt lenders not speculative – looking to get a transaction to work (unless bad-faith firm)
• what lenders look for
• subscription-based business models as very suitable to debt-raises
• importance of not being purist – Ben would take and equity raise right now given the high rate of growth and global opportunities
• “you just have to be pragmatic about these things, its not that debts great and equity’s not or vice versa, it’s ‘right time right place’ “
• how CUBE bootstrapped into debt raises to leverage initial success
• CUBE’s business and focus in regulation
• the ever-expanding future of regulation – “regulatory intelligence”

And much much more

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