Convertible Notes and Startup Funding
February 12, 2025
Just like accounts receivable turnover ratio show the financing that the firm is providing to its buyers interest free, the accounts payable turnover ratio show the financing that the firm is able to receive from its vendors and suppliers free of cost. Since there are no interest charges involved and this is purely trade credit, […]
Beginning a startup can be quite an overwhelming process. This is because of the fact that founders need to make many significant decisions. They need to decide the markets which they intend to serve. Also, the product mix needs to be decided. It is also important that a company chooses its financing and investors carefully. […]
A lot of new-age start-ups are very innovative in their business models. However, a lot of these start-ups also follow the same type of model in a different industry. The aggregator model is a great example of such a start-ups. Companies like Uber and Airbnb can all be called aggregators. Also, there is a dearth […]
In the previous article, we studied the concept of convertible debt and some of the common terms which are used while discussing convertible debt. In this article, we will have a closer look at some of the advantages and disadvantages of using this form of debt. Advantages of Using Convertible Debt Many companies continue to […]
In one of the previous articles, we studied about covered bonds. We discussed how covered bonds are considered to be safer as compared to asset-backed securities. We also explained how having double recourse makes covered bonds virtually risk-free and gives investors the confidence they require to invest their money even if they end up getting […]
Scalable business models are the latest buzzword in entrepreneurial circles all across the world. Most new-age founders aspire to make their businesses more scalable. However, scalability has to be built into a business before it actually exists. It is for this reason, that the decision to scale or not becomes strategic and something that founders must work towards in the early stages of the business. In order to make a correct decision, entrepreneurs have to be aware of the various pros and cons that scalability has to offer.
This article will provide a detailed explanation of the pros and cons of scalable business models.
Investors’ preference for scalable business models is well known across the globe. However, this preference is not without any reason. A scalable business model provides investors with some very specific advantages. Some of these advantages have been mentioned below:
A scalable business model allows investors to pump in large amounts of capital within a short span of time after they have validated the workings of the model. Venture capital funds are time-bound. Hence, if they have a five-year horizon and if it takes them two years to find a winner, they would want to deploy as much money in the project as possible so that they are in a position to exit the investment at a high valuation when the fund is about to mature.
This shorter payback period means that the investors, as well as the founders, are likely to have more cash available at the end of the investment cycle which will allow them to scale the business even more. Scalable business models have a self-perpetuating cycle which allows them to reach even more scale till the market has been saturated.
Hence, as soon as a business model has been validated, investors and founders can start capturing market share. This gives the start-up company a high brand recall. This first-mover advantage is crucial to the success of the business in the later stages.
Scalable business models also tend to have some important disadvantages. Most founders decide to overlook the disadvantages since the model provides many benefits. However, it is important to know the details of the disadvantages before making the final decision.
Industries, where scalable business models are prevalent, are prone to increased competition which often leads to price wars and finally leads to decreased profitability in the long run.
The bottom line is that scalability is a very important characteristic in modern business. Even though it does have some disadvantages, the advantages offered are vastly greater. As a result, scalability is preferred by a lot of investor groups.
Your email address will not be published. Required fields are marked *