A few reminders about the concept of internal growth 

Definition of organic growth 

Internal growth, or organic growth, is the process of expanding the company by using its own resources internally. The company uses the higher sales and profits to reinvest in the business.

Here are some of the options businesses can choose to grow organically:

• Increase the number of employees and the degree of professionalization of employees to increase production.
• Increase the production capacity of existing products, e.g. by purchasing new machines, investing in R&D
• Open new sales outlets, factories or branches
• Achieve economies of scale
• Improve product marketing to drive sales
• Investing in research and development

Benefits of organic growth

First, internal growth is less expensive. Companies that use internal financing for expansion - such as retained earnings - rather than external financing such as bonds, do not need to pay regular interest.

This option is also less risky. Management has more control over the resources used to grow. This contrasts with acquisitions, which involve another party.

On the other hand, internal growth allows the company to maintain control. Conversely, external growth may require additional capital increases, which may result in changes in ownership.

Finally, the company's values and culture endure. These two elements are internal capabilities that explain the success of their activities. External growth can degrade these capabilities because it requires the synergy of different values and cultures.

Disadvantages of organic growth 

However, using internal growth means accepting the risk of slower growth . The company relies only on internal resources. This contrasts with a merger or acquisition that integrates the resources, markets and customers of two companies. 

A second drawback is the dependence of growth on the stage of the industrial cycle. Suppose that the industry has entered a mature phase. In this case, it will be difficult for firms to increase the size of the business further. This phase will usually lead to a phase of decline, where the market size will decrease.

Expansion can also be limited with internal growth. Companies may have difficulty gaining market share if the company is already the market leader.

Finally, organic growth is often vulnerable to liquidity problems. When expansion is a long-term concept, companies may delay their expansion plans because of liquidity problems, which are more short-term. 

To overcome these drawbacks, an innovative financing solution is gradually emerging on the markets: Revenue Based Financing. 

FBR as an internal growth driver 

What is RBF in concrete terms?

Revenue Based Financing is designed for SaaS, eCommerce and more generally for digital start-ups and digital SMEs. 

The RBF is based on the use of the company's future revenues by converting these MROs into an up-front cash advance, thus unlocking new growth leverage to finance the company without any dilution of its capital. 

Thanks to this financing, the entrepreneur retains full control over his company and has access to the funds released very quickly, which are without guarantee. 

Once the company is eligible (French company with a minimum of 9 months of commercialization and +10K€ of monthly turnover), the amount of the monthly payment is calculated according to the company's performance. In return, the financer takes a commission which generally varies between 3 and 6% of the amount financed. 

After that, these financings increase as the company's turnover increases to accompany the company in its short-term growth. This avoids making a one-shot deal and providing a large amount that cannot be used immediately. 

Overview of the benefits of FBR

Flexibility of monthly repayments

The main advantage of FBR is its flexibility. Repayments are fully aligned with the company's revenues, which means companies don't have to worry about being repaid by their financing providers.

No personal guarantee

A cash advance does not require a personal guarantee for the loan, which means you are not risking any personal assets for the good of your business. Personal guarantee is a major drawback of other business loans and venture capital investments.

Revenue Based Financing does not require a personal guarantee.

Rapid injection of liquidity for businesses

A revenue advance bypasses many of the steps required to obtain traditional business loans. The evaluation process is faster and there is no need for a specific personal credit score , all of which are required to obtain equity financing . 

Easier cash flow management

The flexibility of all revenue-based financing models makes it easier for businesses to manage their cash flow. Since businesses only have to make monthly payments, cash flow is even easier to manage!

A data-driven funding model

The flexible repayment structure means that revenue-based financing is largely metrics-driven. As a result, most lenders have advanced analytical tools to quickly and efficiently assess their applicants' situations, allowing companies to access financing more quickly.

Karmen: the essential tool for applying RBF to your internal growth 

Now that you have assimilated the theory, you must surely wonder about the application of RBF to organic growth?

The right use of RBF can be more advantageous than soliciting external venture capitalists. Thus, RBF can be used as a sure way to improve your KPIs for future fundraising. 

The Karmen product is certainly the most successful and the one that will help you achieve your goals as efficiently as possible. This financing solution adapts precisely to your needs, establishing an instant, fast, flexible and non-dilutive line of credit. 

Looking to grow your SaaS business without dilution? Karmen will finance your growth in key areas such as marketing and recruitment. 

If you subscribe to this tool as a digital company, Karmen will reduce your WCR by extending your payment terms with your suppliers.

This financing solution allows you to : 

• establish a simplified reimbursement schedule
• to retain control of the capital through non-dilution at 100%.
• get credit released within 48 hours

To be eligible, the funding request must: 

• be spread over a maximum of 12 months
• include an amount of up to 5 million euros
• be based on revenue growth

The internal growth of your e-commerce platform will also be supported by the tool to finance your expenses to stimulate your growth such as a purchase of stocks, a marketing budget, or recruitment.

Are you a French company with at least 9 months on the market, and annual sales in excess of €300K? Join the community of entrepreneurs supported by Karmen by filling in this form .

To conclude, internal growth is often not well understood and implemented by young digital companies because education is not yet sufficiently developed on this subject. However, this mode of growth has many advantages, such as lower costs, a greatly reduced risk on the transformation of the resources used, a certain maintenance of corporate control and finally values that endure.

Karmen is currently the most reliable partner to implement this organic growth, a dynamic that is increasingly common in the United States and is gradually coming to Europe.

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