Take 3 minutes to learn about SaaS growth funding options
So you want to grow your SaaS business?
You know your SaaS company business model positions you perfectly for both domestic and international growth.
Additionally, global acceptance of cloud software, reliable broadband and mobile networks together with a robust digital payment infrastructure make scaling up easy right?
But here’s the thing. Most SaaS products are inexpensive. And if you offer a ‘freemium’ version, you need a lot of customers to pay the bills and to finance your growth.
Then there’s the problem of getting the right SaaS funding. You may think your options are limited.
You either go down the VC route and end up giving away your equity in exchange for capital.
Or you jump on the bank merry go round. And endure a continuous cycle of pointless discussions, resulting in covenant laden and restrictive term sheets.
So what’s the SaaS funding solution?
If you understand the growth stages of a typical SaaS company, you can plan your capital needs accordingly.
Indeed, SaaS growth funding planning is vital. Because it buys you the time you need to source alternative financing options, more suited to SaaS business models.
What’s more, you can source SaaS funding options that work either on their own or alongside existing equity and bank debt.
Let me show you how this works:
Stage 1: Pre-Startup and Startup SaaS companies
Once you’ve established demand; your next step is to identify and validate a target audience and channels.
At this stage, it is likely you’ll make initial hires.
Your objective is to secure your first paying customers. Then to keep them and to make them profitable.
At the same time, you’ll want to identify a repeatable sales process.
Elsewhere, you’ll want to start building relationships with advisors and business financiers.
Growth finance options for a pre-startup and start-up SaaS companies include:
- Seed money and angel funding
- Series A funding from a VC firm
- Venture debt with significant VC backing
Stage 3: Scaling up your SaaS company and reaching profitability
By now your SaaS company has:
- Established a product and market fit
- Proved the product/service concept
What’s more, you’re driving traffic, leads, and more importantly conversions.
As a result, you have an established revenue stream, and your SaaS company is on a clear path to growth.
But you’re still burning cash. So you need to scale your business and move it into profitability.
This is the point when you realise scaling is expensive. Indeed, your costs increase as you grow your customer base. Moreover, it’s not unusual for costs to be higher than revenue.
Growth finance options for Stage 3 SaaS companies include:
- Series B funding from VC investors
- Beyond that, now is the time to explore private debt fund finance such as venture debt to give you a cash runway to your next funding round and to ensure that you keep your equity.
Stage 4: When your SaaS company reaches maturity
Congratulations! You’re running an efficient operation that delivers a tried and tested product/service consistently at scale.
But your work isn’t over yet.
You still have expenses to cover. And you may find you have to compete with new entrants in your market.
On top of that, your growth is slowing.
Now is the time to think about:
- Expanding internationally
- Mergers and acquisitions
- Exit and IPO strategies
Finance options for Stage 4 SaaS Companies include:
- Series C funding to support your VC firm’s exit
- Private debt fund finance in the form of bridging loans to support M&A activities
- Private debt fund finance to facilitate share buybacks
- Private debt fund finance to support international expansion
To sum up
As your SaaS company grows, so will your capital requirements.
Sadly, we often see SaaS companies suffer growing pains because they wait until it’s almost too late to secure the finance they need to transition through growth stages.
Don’t let this be you.
Talk to a private debt fund broker early about SaaS business growth finance options.