As a startup founder, you may have come across the term \u2018securitisation\u2019. In short, securitisation is the process of pooling future receivables like income arising under licensing arrangements into securities that investors can buy and sell. While securitisation has traditionally been a source of financing for large publicly traded companies, startups have begun accessing it as financing. This article will explain securitisation in more detail in the context of startups. <\/p>\n\n\n\n
Securitisation involves the transformation of future cash flows, such as contractual payments, recurring revenues, and royalties, into tradable securities, known as asset-backed securities (ABS). <\/p>\n\n\n\n
Since these ABS derive their value from the underlying assets, startups can sell an ABS to investors. In this sense, securitisation allows startups to access capital by leveraging their anticipated revenue streams. Consider the following example. <\/p>\n\n\n\n
Suppose your startup produces solar power plants and services long-term power purchase agreements (PPAs) with energy suppliers. However, it needs to access \u00a315m in financing to expand its manufacturing capacity. So, you decide to use securitisation to unlock the value of its future cash flows arising from the PPAs.\u00a0<\/span><\/p>\n Working alongside a financial advisor, your startup:\u00a0<\/span><\/p>\n On this basis, investors can subscribe for notes in the SPV, which entitles them to future cash flows. Investors are prepared to offer XYZ \u00a315m in upfront financing in exchange. <\/span><\/p>\n<\/div>\n\n\n\n While securitisation seems like a viable option for businesses seeking to finance their ventures, it is not suitable for most startups. There are key characteristics that make certain startups more suitable for raising financing through securitisation. <\/p>\n\n\n\n Securitisation is typically more suitable for larger startups that have:<\/p>\n\n\n\n Startups in the early stages of development may not have the necessary scale or predictable cash flows to make securitisation a viable option. <\/p>\n\n\n\n If you are considering securitisation, you should assess the quantity and quality of the receivables. This is because this process treats the receivables as collateral for the upfront financing.\u00a0<\/p>\n\n\n\n Accordingly, the receivables should be substantial enough to attract investor interest and demonstrate a low risk of default. Startups with a diverse customer base and long-term contracts are more likely to meet these criteria.<\/p>\n\n\n\n Startups should evaluate the market demand for their asset-backed securities. Accordingly, investors will evaluate the creditworthiness of the underlying receivables and ensure they are sufficiently guaranteed to generate future cash flows. Nevertheless, before you consider securitisation, you should speak to a financial adviser.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n\n
Is Securitisation Suitable for My Business? <\/h2>\n\n\n\n
Size and Growth of Your Startup<\/h3>\n\n\n\n
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Quality and Quantity of Receivables <\/h3>\n\n\n\n
Market Demand<\/h3>\n\n\n\n