Founders First Capital Partners, an accelerator and investment firm that provides revenue-based financing to businesses led by "underrepresented entrepreneurs" operating in underserved markets, has received a $100 million commitment to expand its operations.
The San Diego-based investor raised the debt financing from Community Investment Management, a large debt-focused impact investment fund.
The revenue-based financing model is a new one that several startups are beginning to explore as a way to take non-dilutive capital for early-stage businesses that might not qualify for traditional bank loans.
Companies like the new media startup The Prepared, which offers tips on disaster preparedness, used revenue financing as a way to get its own business off the ground. And other companies are turning to the financing method too, according to investors from Lighter Capital.
At Founders First Capital Partners, the new financing will expand its lending operations to companies that are already generating between $1 million and $5 million in annual revenue.
The new program is set to launch in January 2020, expanding the firm's footprint as a financial services firm for minority and other underrepresented founders, the company said in a statement.
The firm focuses on businesses led by people of color, women and military veterans, and concentrates on entrepreneurs whose businesses operate in low and middle-income communities outside of the traditional funding networks of Silicon Valley and New York, the company said.
It also operates an accelerator program for entrepreneurs that meet the same criteria.
“Founders First is very pleased to have secured such significant funding that allows us to expand our efforts to businesses that are led by underrepresented founders or those that serve underrepresented communities,” said Kim Folsom, co-founder and chief executive of Founders First, in a statement.
Revenue-based financing can in some cases be a better option for service-based, social-impact companies, according to Jacob Haar, a managing partner with CIM, who previously worked at Minlam Investment Management, a hedge fund working in the micro-finance space.
Both microfinance and revenue-based financing come with risks -- particularly around the rates that these lenders can charge for their financing.
But it is a unique opportunity to open up founders to additional types of financing models.
“CIM is excited to partner with Founders First to expand revenue-based financing to support underserved and underrepresented small business founders, including people of color, women, LGBTQ, and military veterans as well as small businesses located in low to moderate income areas," Haar said in a statement. "We have found revenue-based financing to be a compelling alternative to venture capital and fixed payment loans as a forward-looking and structurally flexible investment to support business growth. We believe that Founders First’s unique advisory and revenue-based investment platform enables underrepresented small businesses to overcome systematic bias and achieve their potential.”