Arc Debuts ‘Hybrid Financing’ as Startups Scramble for Cash

Finance company Arc has introduced what it calls a new form of financing for startups.

Advance Plus, the company’s “hybrid financing” method announced Wednesday (Jan. 11), is designed to form a bridge between traditional venture debt and revenue-based financing.

“Like traditional venture debt, Arc Advance Plus offers a six-month grace period during which no principal payments are required,” the company said in a news release.

“Unlike traditional venture debt, however, the offering is free of the warrants, covenants, dilution, and fees that have been barriers to startups’ ability to access growth capital.”

The offering, designed for early-stage startups, allows companies to convent future revenue into upfront capital “at a competitive price point and within 48 hours,” Arc said.

The launch comes as startups are looking for new ways to get financing as venture capital becomes more scarce, as PYMNTS noted last month.

A December report by the Financial Times (FT) found that companies have resorted to deals such as bridge loans, structured equity, convertible notes, and participating bonds to keep their valuations aloft.

“Everyone is taking corrective action,” one Silicon Valley investor said.

And because last year’s market conditions were expected to stretch into 2023, the same investor said, even well-funded tech companies asked themselves: “What are the adjustments [we need] so we can live longer, how can we punt financing from next year into 2024?”

This week saw Marc Lore’s would-be disruptive restaurant tech startup alter its course amid a difficult funding market.

The Jet.com co-founder’s food company Wonder, which was envisioned as something of a blend of food delivery, food trucks and ghost kitchens, bringing mobile kitchen vans to consumers’ homes to offer fresh-made meals, is now pivoting to a fixed-space mode.

The dearth of funding has also led to a drop in initial public offerings (IPOs) in 2022, as deals fell to levels not seen since the financial crisis in 2008. Only $207 billion was raised from IPOs in 2022, a 68% drop from the prior.

Meanwhile, research by PYMNTS found that this year will not be a good one for FinTechs looking to go public through special purpose acquisition company (SPAC) mergers.

Data showed the pace of SPAC deals falling to the low-single-digits in most cases, particularly for payments, shopping, and work-related companies.