More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost

Jessica Rovello and Kenny Rosenblatt, the entrepreneurs behind Arkadium, a gaming start-up founded in 2001, initially avoided raising venture money. It took four years before the business earned enough to pay them a salary. The sacrifices were “very real and very intense,” Ms. Rovello said. Nevertheless, the business grew steadily and profitably to 150 employees.

By 2013, though, as investors poured capital into some rivals, the lure of easy money became too tempting to pass up, and the company raised $5 million. Tensions ensued as Arkadium’s investors expected the company to continue raising money with the goal of selling or going public. Ms. Rovello wanted to keep running the company profitably, growing revenue at 20 percent per year and developing a new product that could take years to pay off.

In September, Arkadium used its profits to buy out the investors, allowing the company to remain independent and grow on its own terms. Ms. Rovello said she had no regrets about stepping off the venture-funded path.

“If your end game is having a business that you love and continuing to thrive and making careers for people,” she said, “then I’m winning.”

In September, Tyler Tringas, a 33-year-old entrepreneur based in Rio, announced plans to offer a different kind of start-up financing, in the form of equity investments that companies can repay as a percent of their profits. Mr. Tringas said his firm, Earnest Capital, will have $6 million to invest in 10 to 12 companies per year.

Hundreds of emails have poured in since the announcement, Mr. Tringas said in an interview. “They’re almost entirely from people who assumed there was no form of capital that matched any version of their expectations,” he said.

Earnest Capital joins a growing list of firms, including Lighter Capital, Purpose Ventures, TinySeed, Village Capital, Sheeo, XXcelerate Fund and, that offer founders different ways to obtain money. Many use variations of revenue- or profit-based loans. Those loans, though, are often available only to companies that already have a product to sell and an incoming cash stream.