Financing as means to an end

You are not fundraising to fundraise, you do not need capital to have capital – but rather financing is a means to an end. So start with the end – what is your vision for the company, what is the mission or goal you want to fulfil or reach with your company? And what will you use the investment for, what is the mission/goal you want to achieve with the money? For example, your goal may be to become profitable and able to cover your development costs independently. Alternatively, it could be about reaching a key milestone – such as developing a product or entering a market, generating initial revenues, or forming strategic partnerships – that sets the stage for your next financing round. Thinking about your milestones and goals also involves the questions of how quickly and in what manner you want to grow and how large you want to become? Do you want to become a market leader or a smaller but sustainable mid-sized business? Global or local? 

For your growth, you can look at different growth scenarios:

• Blitzscaling – exponential growth to fuel the next raise: Blitzscaling is the growth model used by companies like Airbnb, PayPal and many more, where you get traction, prove that you can grow and raise funding to continue growing (increase market share / underprice competitors). With this, you gain traction on your next growth strategy and repeat the pattern. In that sense, driving fast growth is your priority; there is less focus on profitability, and you channel all resources into growth. 

• Curve Jumping – fundraise to reach the next level of stability: In the curve jumping model, you gain traction and prove a repeatable way to get revenue/ profits for which you fundraise. Reaching your next milestone (e.g. revenue/ profitability/ product launch) allows the company to stabilize itself. You could then stay at this point or fundraise more to reach the next level of stability (e.g. further product launch, new market, etc.). Having reached a hurdle of stability, the risk level for investors as well as the metrics you look at for the next financing round changes. If your business model allows for it, this could also be done through bootstrapping (financing yourself until you reach the next milestone, gather some strength and continue).

While blitzscaling is theoretically possible within steward-ownership-aligned financing, it is important to consider the implications of this growth strategy. In such cases, investment redemption – often across multiple refinancing rounds – needs to remain achievable without selling the company or relinquishing control. If the plan is to become very large very quickly and do so by pumping a lot of capital into the company, this means a lot of negative cash flow for a long time. At some point, however, the investment (plus upside) must be repaid, which – if the company grew very large very quickly – requires substantial amounts of capital in a relatively short amount of time. This is why in a conventional blitzscaling scenario, liquidity is usually generated through a traditional exit, such as selling shares or pursuing an IPO. Since traditional exits are incompatible with steward-ownership-aligned financing, this approach to growth might be more challenging within this framework – or at least should be appropriately taken into account.

However, especially for technology-driven companies in fast-moving, competitive markets, achieving rapid scale can be essential to reaching a critical market size. This urgency usually comes along with a need for substantial capital, which can create challenges when financed in a steward-ownership-aligned way. Given its often quicker access to a substantial amount of capital, traditional venture capital may, in some cases, support this rapid scaling more easily than steward-ownership-aligned financing – at least under current market maturity ( -> learn more about the market of steward-ownership-aligned financing here). On the other hand, for business models in such market environments where groundbreaking innovation can carry significant societal implications – such as recent developments in AI or the far-reaching influence of platforms like Facebook or X – it can become all the more critical to safeguard a company’s mission as it scales. In these cases, steward-ownership-aligned financing can offer an advantage by ensuring that growth does not come at the expense of foundational values.

Ideally – in general and particularly with steward-ownership-aligned financing – you manage to reach milestones with the capital from your fundraising round that either allow you to continue without further fundraising or that make a further financing round less risky – and therefore less expensive.

Depending on your business model and how far along you are on your journey, another point to consider is that if you have the option to already generate revenue or even profits, the cheapest capital, in terms of capital costs, is in fact revenue. At the same time, trying to generate cash flow too quickly can also limit the potential of research and development phases. So a question to discuss here is: What is your path to and how close are you to generating revenues and/or profitability without jeopardising the purpose of your business? 

There are steward-owned companies that have a very linear low-growth potential without high risks – and at the same time there are steward-owned companies that are closer to typical VC investment cases. There is room for both types of companies within steward-ownership and aligned financing, but this still affects which types of financing scenarios are relevant for you.

So to conclude: The question you need to answer is not: “how do I get a few million as quickly as possible” but rather: Where do I want to go, how quickly do I want to get there, what milestones lie on my path, and how much money do I need to reach them.