Friday, 13 May 2016

How to Get Capital for Your SAAS Venture?

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? 

Saas Funding

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.