Undoubtedly, the
SAAS market is exploding. According to the analysts, the global SAAS enterprise
application market will rise to $50.8 billion/year
in 2018. So, what are your plans to boost up your SAAS
Venture?
When
it comes to developing a SaaS venture, the first question that strikes in one’s
mind is how to take your
company to the next level? And what if you’re unable to attract traditional
venture capital, what funding options do you have?
Banks are extremely averse to offering credit to
SaaS beginners. This is because bankers have much lower risk tolerance,
and they can’t guarantee a loan based on the value of the non-tangibles
properties, such as pre-paid subscription-based revenue.
However, there are other options for an initial SaaS startup.
At SaaS Funding, we fund many SaaS entrepreneurs. Below are few common ways to get
capital for your SaaS venture.
Internal
funding sources
The most used
tool before gaining significant traction is getting debts from internal sources
like co-founders, board members, and family or friends. Since Convertible debt is
flexible for both investors and founders, it is a very common way to structure
this type of investment. When it comes
to convertible debt, one thing to keep in mind is definitely its subordination
terms. If these terms are harsh, it is likely that they inhibit your ability to
get additional debt from other institutional lenders in future.
Online
lenders
Another option
is the commonly-promoted funding options for scaling and boosting that include
merchant cash advances and online lenders. Both these options enable you to
access some amount of cash quickly, but at a very high cost. It is recommended to use these lenders
only if you have an emergency cash crisis.
A/R Factoring
Your payment
schedule can differ with SaaS business. While some clients can pay you on a
monthly basis, some other may pay 30/60/90 days out. A/R Factoring is one such
way that allows you to borrow money according to your receivable accounts. Here,
it is important for you to know your ability to get the loan approved that depends
heavily on the quality of your contract. If you enjoy a good clientele, banks
will feel more comfortable in lending you than against a client that’s just
starting out.
MRR
Line
MRR line is
comparatively a new lending instrument. Many SaaS entrepreneurs have monthly
recurring revenue and investors may be willing to lend between 3-5X of your MRR
in order to help you quicken your growth. To get MRR Line debt funding, many of
them will require a personal guarantee on the founder so make sure you know the
risks.
Revenue- based financing
This is a way that may help
with unordered flow of cash, which is often seen in the early-stage SaaS
companies.
Hence, there are more options
than ever before for the entrepreneurs struggling with the bankers who don’t
understand the SaaS model.
