Online shopping is typically where much of the commerce financing has focused on over the past three years. However, during this time, some retailers that started in e-commerce are diversifying and going the brick-and-mortar route. That’s probably because 54% of consumers still prefer to go into a physical store.

Like other businesses, they need money for a shop, but finding financing isn’t easy. Banks have been slow to offer better growth capital options, while some startups — such as Onramp Funds — focus on e-commerce. And venture capital isn’t for every business.

Enter Bonside, a financing platform designed for brick-and-mortar businesses that provides growth financing through revenue. Today, the company launched out of beta with an equity financing round of $4.35 million from a group of investors, led by Floating Point, that also includes 81 Collection and Philz Coffee’s Jacob Jaber.

“Venture capital is a beautiful instrument for tech businesses or businesses seeking some form of hockey stick growth, but it’s less transferable if you’re going after a slightly more linear growth or not a software play,” Bonside founder and CEO Neha Govindraj told TechCrunch. “Also venture capital is so expensive for a business like mine. It doesn’t make sense for me to give up like 2% of my business or 10% of my business every time I want to open a location.”

In 2018, Govindraj co-founded Glowbar, a New York–based company offering skincare treatments. It was while considering Glowbar’s real estate footprint that she realized businesses like hers didn’t fit the model of a traditional venture-backed company.

As a result, she created Bonside with a unique financing model structured via Repeatable Revenue Agreements, which Govindraj described as similar to what Y Combinator does with SAFE notes for startups.

Here’s how it works: The agreement is capital in exchange for a percentage of that business’ revenue. Business owners maintain ownership and repay via the revenue until they reach a fixed cap. Meanwhile, accredited investors benefit from overall reduced risk, exposure to their localities and a passive income source that outperforms market standards, Govindraj said.

There are also two ways to finance a deal — one is through a network of investors and the other is through a fund Bonside created.

“There’s no collateral, no personal guarantees, no equity triggers — it’s just that straightforward,” she added.

Businesses seem to like it. So far, Bonside has deployed nearly $2 million across five businesses, cumulatively grossing $25 million in annual revenue. More than 100 brick-and-mortar businesses are currently in its pipeline.

Investors like it, too. Bonside received over 500 applications to join its accredited investor marketplace and has already onboarded 200 members.

“Coming from a background in brick-and-mortar business, the solution Bonside offers resonated with me deeply,” said Jacob Jaber, founder of Philz Coffee, in a written statement. “The dream of expansion, of opening a second or even third outlet, is one held by many entrepreneurs, but the path to realizing it can be fraught with obstacles. Bonside streamlines this journey, providing successful business owners with a smooth conduit to growth-friendly capital, free from the complexities and stumbling blocks of traditional financing methods.”

Meanwhile, among the five businesses the company has provided the revenue-based financing to, she said each of them are overperforming against its underwriting, noting that each business owner has expressed that they are quickly working to reach their respective multiple on the invested capital.

“All of them are beating the clock right now,” Govindraj added. “The ‘best-performing’ business is 63% ahead of their timeline, and ‘slowest’ business is 15% ahead of their timeline.”

Govindraj intends to deploy Bonside’s new funding into development of data-driven underwriting, financing and analytics for the businesses it invests in. The company is also currently hiring additional engineers.

“We want to create this gold standard of what underwriting looks like for brick-and-mortar, and we have the unique opportunity to do that,” Govindraj said. “Small business lending has been explored in the past, however, SMB is 99% of the businesses in this country. That’s not a target demographic, that’s a really wide net. By focusing on brick-and-mortar services, we can tailor the technology that we’re building and make it verticalized in a way that is impactful.”

Editor’s note, June 7, 6:23 a.m. PST: Updated to add Floating Point as lead investor and other investors.

Bonside launches with $4.35M to provide growth capital to brick-and-mortar businesses by Christine Hall originally published on TechCrunch