Capital Becomes Cheaper as a Startup Grows

Apple's headquarters are at 1 Infinite Loop in...
Image via Wikipedia

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?

One thought on “Capital Becomes Cheaper as a Startup Grows

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.