Earlier I talked about how most startups are more valuable on day 0 than on day 100. Now I want to talk about how capital, and access to capital, becomes cheaper as a startup grows. You see, through the concept and seed stage of a startup, you’re most likely bootstrapping, investors outside of Silicon Valley aren’t likely to invest, and banks won’t lend without hard assets. Once you hit the early stage ($1M+ run rate) and growth stage ($5M+ run rate) capital starts getting cheaper and cheaper.
Capital starts getting cheaper and cheaper because risk in the business is removed as revenues become more and more substantial. The risk of a market not being present is changed to more of an execution risk. Execution risk is much more understood than is-there-a-business risk. With revenues in the millions banks will do more substantial lines of credit based on receivables as well as recurring revenue. Investors, especially venture capital and private equity, is plentiful for fast growing, profitable startups with millions in revenue. Capital is cheaper and more accessible as a startup grows.
What else? What other reasons is capital cheaper as a startup grows?