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The Capital Stack: How to Optimize User Acquisition Funding

Once you’ve established you have built a marketing machine that works that is you can repeatedly invest capital into an ROI positive ad spend formula, then the next logical question becomes - "Where do I find the capital to fund my machine?"

App developers often leave money on the table by not thinking through the numbers as an investor would.

Marketing managers are often depending on budgets set by whoever is running the finance function in their company. Traditionally a marketing budget is allocated to the UA team where the goal is to acquire as many high-LTV users as possible for the funds available.

Rather than “How much money do I have to spend on UA?”,  the smart question to ask is “Where do I find the cash to feed the machine”?

To address this, we need to introduce the concept of Capital Efficiency - using the type of financing that will cost the company (and its founders) the least, in order to achieve the required goal. To this, developers need to understand the capital stack - their range of options and costs/benefits associated with each, from lowest cost to highest cost.

Credit line from ad network

Cost: Free

If an ad platform like Facebook or Google is prepared to give you a line of credit for purchasing ads, you should use this to the fullest extent possible - it is essentially free credit, albeit for a limited time period before it has to be settled.

Ad networks are not in the business of taking a risk, particularly on early-stage businesses.

It takes time to build up a credit history in order to build up a decent credit line which may be at odds with your timing objectives if you have identified an ROI positive formula and could still invest profitably after the line limit had been exceeded.

Also, the credit lines may not be sufficiently large to maximize the opportunity and invoice due dates need to be carefully managed and paid off in sufficient time to avoid credit lines being suspended or terminated.

Credit cards

Cost: Interest-Free period, thereafter ~18-24% per annum

Credit cards can be a useful tool in the arsenal of UA but carry some limitations. Many developers enjoy significant air miles/travel benefits from using credit cards to fund UA. If you can utilize the interest-free period, and you can pay off the entire balance on the due date without fail, then it’s a very effective financing strategy.

Most credit cards used to fund UA are the personal cards of founders, therefore making them personally liable to settle.

Limits granted to individuals (even with a good credit history) are not normally sufficiently large enough to properly scale. Repayment cycles on credit cards are not usually long enough to fund LTV cycles, so interest costs must be factored in.

If the business is unable to reimburse the cardholder, then interest becomes payable, and late payments will affect personal credit scores.

Cash at bank (cashflow from an existing app)

Cost: Foregoing 0-1% per annum deposit interest

If you have spare cash from existing operations (eg a game generating positive cash flow) this should be used next. Measure the ROI of the ad spend versus the lost cost of interest to figure out the ROI calculation.

Note: Do not confuse recently raised VC funding sitting in the bank with free cashflow from revenue-generating operations (see below)

Most companies don’t have this luxury, hence look for sources of external capital to grow.

Lines of credit secured against accounts receivable (AR)

Cost: 1-2% monthly

Accounts Receivable (AR) financing is a very effective way to finance growth. It allows you to borrow immediately against both IAP sales from app stores and ad impressions served by leading ad networks, allowing you to get your revenue in your hands up to 60 days early.

This type of financing is low-cost, flexible and non-dilutive for founders and scales with your business. Moreover, the costs typically decrease with additional volume.

AR financing is not normally available from banks below a monthly revenue threshold of $1MM/month.

These facilities are also not widely available outside the US and Canada. Many financial institutions do not understand how to finance against AR where a traditional invoicing relationship does not exist. Fortunately specialist lenders like Pollen VC offer a credit line product tailored to digital marketplaces like app stores and ad networks.

VC funding (cash already raised sitting in the bank)

Cost: Typically 20-30% equity per round

Many companies consider deploying their recently raised venture funding round into user acquisition. It’s easy to think that because the money is in the bank, it should be deployed first, but it’s important to think of opportunity cost such as the creation of intellectual property (IP), scaling teams, etc.

Using VC funding for predictable UA cycles is a very expensive way to grow. The funding raised has a high cost in terms of equity dilution, so you should reserve it to finance riskier activities in your company.

VC funding

Cost: Typically 20-30% equity per round

Raising venture capital from a reputable VC gives you the money you need to deploy into your business to grow it. It comes packaged with advice and access to the VC’s network who can make valuable introductions and advice to help your business grow and generate a return for the investors.

Equity is always more expensive financing than debt, particularly secured debt. Equity has the lowest claim on your assets if you fail (for example anyone who has lent money to the company), so VC investors expect the largest return.

If you are raising funding and diluting your equity purely to fund predictable UA cycles you should consider all other alternatives first and only entertain raising VC funding if there is a super-compelling case where the equity dilution is worthwhile.


Smart developers should think of this stack of financing options as a waterfall - exhaust the least expensive bucket before moving onto the next one, and keep going until your machine reach maximum capacity.

This post is part 2 of a 3-part blog series on funding mobile growth:

Part 1 - How to Analyze User Acquisition Metrics Like a Hedge Fund Manager

Part 3 - When to Double Down or Stop Your User Acquisition Campaigns

Pollen VC provides flexible credit lines to drive mobile growth. Our financing model was created for mobile apps and game publishers. We help businesses unlock their unpaid revenues and eliminate payout delays of up to 60+ days by connecting to their app store and ad network platforms.

We offer credit lines that are secured by your app store revenues, so you can access your cash when you need it most . As your business grows your credit line grows with it. Check out how it works!