Novel Growth Partners, a new Kansas City-based finance fund announced its official launch earlier this month. The fund is taking a unique approach to investing with a revenue-based finance model that focuses on smaller, growing tech companies in an often overlooked region of the country.
Novel formed earlier this year on the premise of providing financing to companies that don’t fit the traditional venture capital model but still have the ability to leverage targeted amounts of capital to drive their growth. Novel works by making traditionally smaller investments in companies using a revenue-based finance model, which operates much like a royalty.
Instead of taking equity and requiring the company to sell at some future point to generate a large return on the original investment, Novel’s investment gets paid at a set monthly percentage of the company’s revenue over time.
“The key difference from our point of view, and the key difference that I think resonates most strongly with entrepreneurs is it’s totally non-dilutive,” said Novel Co-founder and Managing Director Keith Harrington. “We do not take ownership of the company at all. That entrepreneur when she’s four, five, six years down the road, will have a stronger company and some optionality of what type of capital to take on at that point, if indeed she does want to take on capital.”
The idea for Novel came from Harrington and Co-founder and Managing Director Carlos Antequera’s past experiences as co-founders at technology startups who were looking into the investing ecosystem.
“I had a software educational technology company [Netchemia, which sold to Vista Equity Partners in 2015], and as I was scaling and growing the company, I had challenges in finding capital,” said Antequera. “Also, as an angel investor looking at companies in the Midwest, in particular, I saw many companies that were looking for venture capital that did not meet the criteria.”
Antequera said that often times there’s a mismatch between a certain type of company and the type of investment opportunity they’re seeking. Harrington’s experiences as a former Managing Director at Kansas Bioscience Authority and recent Kauffman Fellow graduate echo Antequera’s.
“I spent a lot of time meeting and advising entrepreneurs and discovered that in most cases, they just don’t have access to the kind of capital they need,” said Harrington. “It was through that work that we discovered this was a real opportunity to design a firm that delivers a new kind of capital to this region that can help these entrepreneurs get to the next level with their companies.”
Because they don’t have to focus on things like exit strategies and valuation, Antequera and Harrington can focus on helping companies grow and build revenue, which in turn strengthens Novel’s returns on their investments.
Novel is also providing its portfolio companies with a growth boot camp focused on identifying and executing specific projects meant to accelerate revenue growth.
“We’re on a mission to provide capital to companies that have some revenue and customers, and are focused on improving their business fundamentals, but in addition to capital, need improved sales systems, processes and talent to grow,” said Antequera.
Novel is placing their focus primarily on enterprise software since that’s where Antequera and Harrington’s expertise lies and what aligns best with Novel’s business model. The co-founders are expecting to make their initial investments in the next few months, but they’re not rushing the process.
“Ultimately, we’re building a brand and brands are built on the initial success of those early customers,” said Antequera. “We want to make sure that the initial investments we make are successful for the entrepreneurs and that those entrepreneurs will continue to help us out to promote [Novel] in the region.”
The co-founders said they’re going to focus primarily on building the capital ecosystem in Midwestern states.
“We’re spending some time in ecosystems to get familiar with the entrepreneurs,” said Harrington. “We see great opportunity to work with entrepreneurs here in the Midwest. There is opportunity elsewhere, but we’re really focused here.”
Christine McGuigan is the Managing Editor of Silicon Prairie News