Amid the rout in the industry, Arc Technologies CEO Don Muir believes he has a revolutionary service for tech startups.
“Startups can seamlessly convert their future revenue into upfront capital [with Arc Advance],” Muir said on Yahoo Finance Live. “We’ll help you manage and spend that capital to drive more efficient growth.”
According to the company, there is an extensive process for startups to receive funding, and these funds are often dilutive, costly, and restrictive. Arc is hoping to change that with its funding mechanism for software as a service (SaaS) companies.
Arc offers startup founders an alternative form of investment. “Again, we’re converting future revenue streams into upfront capital, so it’s technically non-debt,” Muir said, an approach that he thinks can help startups reach higher valuations when the market rebounds.
For profit, Arc takes a small rate depending on the risk profile of the company.
“We’ll take anywhere from a 5% to 10% take rate to convert the revenue streams into upfront capital to invest in growth,” Muir said.
With more than $150 million in available capital, Arc works with 100+ startups with their financing, which has been challenging for tech this year. Crunchbase reported that venture capital (VC) funding in May 2022 declined to $39 billion, a 14% decline from the previous month. Active investors are becoming more selective with investments and cutting rounds because of market volatility.
The current economic landscape is what makes Arc lucrative, according to Muir. “As equity becomes more expensive, driven by lower valuations in the venture markets, [startups are] looking for non-diluted sources of capital,” he said.
Muir is not wrong about declining valuations. A Pitchbook Q2 analyst note stated that repricing is occurring because of soaring inflation and interest rate hikes. The Fed raising rates “is not favorable for companies that rely on cash flows far into the future to justify their current market capitalization,” the note said.
Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22