London-based investment firm D2 has launched a $20m (£15.3m) fund to offer startups an alternative route to funding than the traditional venture capital funding process.
In addition to straight equity funding, D2 is offering a hybrid financing option for startups using what they call a flexible hero (hybrid equity or revenue option). This option allows startups to raise money against a share of future revenue streams instead of equity.
D2 claims that depending on the growth direction of the startups being funded, it could end up being 75% cheaper for the companies than a straight equity round.
D2’s fund is focusing on early-stage European startups. Investments from D2 will be in the range of $200,000 to $1m.
Amory Poulden, founding partner at D2, said: “Startups today benefit from a set of digital rails that they can build their business on top of. The net effect is that it’s never been cheaper or faster to iterate to product-market fit and scale.”
D2’s aim is to provide a “new form of venture capital that is better aligned with the opportunities of today and gives founders more options to grow their company in the way that makes the best sense for them”.
Poulden described how venture-backed seed funding rounds rarely result in later growth, with only 1-2% of these startups reaching the valuation status of a unicorn – startups valued at over $1bn.
Fellow D2 partner Nicholas Gaggero said: “At the early point in a startup’s life everything is possible, and nothing is certain. Yet the way you raise your first round of capital narrows your options as a founder and dictates the direction of your business.
“D2 offers more flexible venture capital that can end up looking very different depending on whether a founder ends up pursuing a classic venture path or a more profit-focused route.”