SaaS Funding 101: The Ultimate Guide for Founders
You have laid a solid foundation for your SaaS business and now want to grow and scale-up operations. But to fuel growth, you need to source external financing. Traditional financing or VC funding are the first options that come to mind. However, the landscape of financing has changed with the advent of founder-friendly financing options. Let us first understand a few things about SaaS financing before making decisions.
SaaS Financing Options:
Here are some options to consider when looking for SaaS financing:
Equity Financing Angel Investors, Incubators, and Accelerators which are ideal for Pre-Seed and Seed rounds Angel investments usually come from an individual or a group of individuals through a syndicate. Angel investments work best when the company’s goals and ideologies align with the angel’s. It also leaves the company accountable to the angel since you may have to cede some ownership to the angel. The accountability factor might be less as compared to VCs since it is likely that the angel invests a smaller amount than the VC investment and generally for a smaller stake in the company. Angel investors usually help build the company and support it at a very early stage. Incubators are ideal for startups that are looking for mentorship, experience, and training along with funding. Accelerators are more suited for startups in the slightly later stage as a means to scale up. Incubators and accelerators generally provide your company with additional support beyond monetary assistance. They both offer a great deal of flexibility and can aid the growth of startups in their very early stages. While incubators are more founder-centric, accelerators focus more on teams than individual founders. Incubators generally tend to be available for an indefinite period, whereas accelerators are available for a fixed time and are usually in the form of group programs, which provide training, expertise, and mentorship. Venture Capital is the way to go for early to growth stage companies in Series A, Series B, Series C to pre IPO rounds. Venture Capital or VC is a type of pooled funding provided by investors or firms as an investment to startups and growing companies in exchange for a share of equity in the company. Venture Capitalists are inclined to fund companies with a large potential for growth or a recent track record of impressive growth. VC usually provides companies with significant investments but also entails losing control of your company and decision making rights as you give board seats and shareholder rights. VCs are more likely to invest in companies that have witnessed exponential growth to limit risk and increase the probability of high ROI. It also takes typically between 6-12 months to raise an equity round along with documentations and negotiations which can deviate a lot of founders from focusing on the business.
Recurring Revenue Financing (RRF) is simply better This financing model enables all stages of funding from bootstrapped to Pre-Seed, Seed, Series A, Series B, Series C and publicly listed companies and offers a unique way to startups who want to raise capital without relinquishing the reins of their business. SaaS companies with recurring revenue streams can trade their monthly or quarterly subscriptions to generate upfront growth capital. Investors bid for your contracts, and your startups get large cash at low rates. It is fast. It is safe. It provides great flexibility without equity dilution. And it is a stress-free way of empowering founders and procuring funds that they need right away. What’s even better is that your capital raising limits grow as your business grows. Your 12-month revenue and annual growth rate are the parameters used to calculate how much capital you can raise.
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Stages of Funding
Recurring Revenue Financing (RRF)
Pre-Seed & Seed
Angel Investors, Incubators, and Accelerators
Series A, B, C +