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– Brick and mortar. As the co-founder of Glowbar, a chain of facial care stores, Neha Govindraj encountered financial difficulties growing a brick-and-mortar business.
“I ran a multi-unit service business and wanted to continue to expand the number of locations,” she says. “The question was, if I have an existing door that’s doing really well, how can I almost reallocate the revenue that I know will fund my future locations?”
The experience inspired the 30-year-old Bain & Co. graduate. to found a second startup: Bonside, a financial technology company that finances traditional companies. Launched in June 2023, Bonside offers a form of financing that does not require physical businesses to give capital to investors or take on debt. Instead of taking a stake, Bonside writes checks in exchange for a percentage of the businesses’ revenues, refunded until those stores reach a set limit. He calls this financing a “recurring revenue arrangement.”
Bonside started with a $3 million fund, closed a year ago, that supported 10 companies looking to expand. Recipients included Evolve Med Spa, which grew from eight locations to 12 with the support of Bonside capital; Jojo’s ShakeBar restaurant, which grew from four to seven locations; and Y7 yoga studio. Overall, Bonside’s portfolio companies have increased the number of their locations by 30% since receiving startup funding. In parallel with deploying its own capital, Bonside created a marketplace where investors could support physical businesses using the same model.
Today, Bonside is announcing its second financing vehicle, a $5 million fund it calls Premiere II. Fortune reports first. “We are here, we will actually do this and create an industry around it,” Govindraj says of the second fund.
On the new vehicle, the initial Bonside check amount will be $250,000; in the private market, the minimum check size is $15,000. The fund is supported by wealthy individuals, as well as real estate directors and family offices associated with the stationary sector.
Govindraj sees the model as a much-needed financing alternative for sectors for which venture capital simply doesn’t make sense, from food and beverage, to car washes and nurseries, to her own category – beauty and well-being. (She left Glowbar in 2021). However, she believes this type of financing can also be combined well with venture capital or private equity; such companies are investors in Bonside. Startup financing can help companies grow without diluting the ownership interests of other investors. Govindraj also sees Bonside as an alternative to bank loans that does not require personal guarantees. “It’s a non-dilutive option that they now have in their capital stack, in addition to equity, in addition to debt, in addition to equity private equity and in addition to cash flow,” says Govindraj.
Ultimately, Govindraj hopes that the introduction of a new type of financing will help grow the brick-and-mortar sector. “A lot of people were celebrating the development of hockey sticks and the software industry in the world,” he says. “In fact, they make up less than 1% of the world. What about the other 99% of companies?”
Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe
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This story was originally published on Fortune.com
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