Use of Funds | Sep 04 2020
Funding Growth for SaaS Companies
Software as a Service / SaaS, as a model for technology business is massively expanding; it is estimated that the sector will double in size over the next two years.
This is driven by SaaS technology models having huge potential with opportunities for recurring revenues, the ability to build market share without exposing clients to large upfront costs and flexible development models.
Developing a technology business is expensive. SaaS businesses going through rapid growth need to hit customer acquisition targets, retain their customers and respond quickly to user needs. This requires significant investment in the form of sales and marketing teams, customer satisfaction managers and specialised technical departments.
SaaS technology companies typically have two avenues to seek funding:
Trading shares in your technology business for cash is the most common and well reported option available for financing the growth of a young start up. Where revenues are low and simply too small to service a loan equity makes sense. However funding the growth of your SaaS business with equity can quickly become expensive, diluting your share in the technology you worked hard to build can massively devalue your reward should you cash out.
Debt is ideal to be used as strategic, low cost growth capital which can complement existing equity financing. Provided you can service the interest of a loan, debt gives you a much cheaper opportunity to fund the growth of your company. Smart use of debt funding is vital in allowing companies to achieve rapid growth between equity rounds, expand into new markets and achieve profitability.
Choosing the right loan
As CEO or CFO, your job is to steer the company in the right direction and make the best financial decisions to give your company the capital it needs to advance in this ever competitive arena, so choosing the loan that has the best benefits for the company is your priority. We’ve worked with both VC backed and Owner Managed businesses and understand the challenges and politics faced when structuring your funding.
SaaS Deal Overview
We recently secured a £3.5m SaaS loan for a leading AI Solutions provider that required finance for growth and expansion and to cover existing debt obligations. The client had strong IP and good recurring revenues which put them in an ideal position to seek debt funding. Consequently we found them multiple offers for a number of loan options that included venture debt, IP secured finance and a term loan. Presented with a number of options the client ultimately chose SaaS Finance as the terms and structure from the lender presented them with very reasonable covenants and repayment period.
Fuse Capital works with many pre-profit SaaS companies that are leveraging recurring revenue streams and their IP in order to raise funds without needing to raise equity.