How much growth does this capital enable?
As a brand leader, your most important job in weighing capital options is to answer that question.
What I normally hear is a focus on cost. ‘What’s the APR? What’s the rate?’ The cost or price of the capital, to be more precise, is an important consideration, but it’s far from the most important.
All capital comes with structure. No one besides your parents just gives you money without any terms attached. And it’s the terms of taking that money that really matter.
‘Here’s $100K, but I need it back plus $10K tomorrow.’
‘Here’s $100K dollars, but I need it back plus 15% monthly interest in a year.’
‘Here’s $100K, but I need $106K back and starting tomorrow I take 10% of your sales every day until I get it back.’
Yes, these all carry different prices (which you should be judging by IRR, not APR). But the prices alone don’t tell you how the repayments work.
The structure matters!
It’s understanding how that structure fits with your business that lets you answer the big question, ‘how much growth does this capital enable?’
When you strip a brand to its core, you have two core activities:
- You buy or make inventory at a low price and you sell it at a much higher price
- You acquire customers who you hope will buy from you again
Both of these have knowable cycles.
You run ads; you convert someone to a purchase; they come back to buy again. That is CAC:LTV. You deepen your understanding of those cycles through cohort analyses, detailed unit economics and segmentation.
You pay your supplier for inventory; the inventory arrives 60 days later in your warehouse; you sell the inventory to customers over a period of months. That’s your inventory cycle. You deepen your insights by understanding the fit between customers, your products and pricing.
Imagine these cycles as prediction markets. You are placing a bet today with the expectation of receiving a series of cash flows in the future. Based on your history and data, you have an informed view of the size and timing of those forward cash flows.
Now, imagine you are using someone else’s money to make those bets. That money comes with structure. You can get X amount and you must repay it in this way.
The best option ensures you always have enough cash to place your new bets and lets you repay as the cashflows from your bet come in. This will naturally increase your cash. Cash comes in when you need it. Cash goes out as you get it.
This is exactly what we have done to create Elephant Herd Capital Inventory Finance. We call it Cycle-Matched Funding. It’s not for everyone. But if you are a brand with strong repeat purchase dynamics, sales between $5 million and $25 million and good financial systems in place, it will likely be the best source of capital you will find. Check out www.elephantherdcapital.com or email partnerships@elephantherdcapital.com to set up time to learn more.