How SaaS can raise capital in 2024
How can early-stage SaaS companies raise growth capital in today’s market? In order to grow and scale sustainably, SaaS companies need strategic investment partners that align with their goals and have realistic repayment terms.
We hosted a webinar with a panel that included several leaders in SaaS growth, including Adina Davis, Camila Key Saruhashi, Nancy Chou, Phil Edmondson-Jones and Ferran Puig, to discuss the future of SaaS funding and how companies can future-proof their fundraising strategy.
Our panelists discussed:
- Current trends: How has the landscape of fundraising across equity and venture debt capital changed over the last two years?
- Types of financing: Should founders focus on debt, equity, or alternative financing methods?
- Best practices for founders: What do VCs look for in SaaS businesses today?
Current trends
VC funding is still a viable option for some companies. Companies in the top quartile, which tend to get higher valuations, are still seeing success in securing VC funding.
The bar is higher for growing companies, especially those working towards series B funding. VCs are looking for companies that boast stand-out efficiency, excellent product-market fit, and proven scalability before investing. The economic downturn of the last two years has negatively impacted many key metrics, making VC funding harder to secure for early-stage SaaS companies.
But it’s not all bad news: in Europe, upcoming rounds of series B funding look promising, indicating a potential positive ripple across the industry, with better days ahead and fundraising settling into a more stable environment.
Types of financing
With VC still often proving elusive in North America, many early-stage SaaS founders are turning to alternative forms of financing. With options including debt, equity, and revenue-based fundraising, it can be difficult for founders to find the balance that best supports sustainable growth.
Debt: Our panelists agreed that debt should be used sparingly and strategically, with specific goals in mind, as it can quickly become a slippery slope, destabilizing your company when repayment is due.
Equity: This is the primary growth avenue for early-stage SaaS companies, and it has its own pros and cons. Equity fundraising with the right partner opens opportunities for mentorship, access to investor networks, and long-term strategic support. On the other hand, it dilutes ownership and requires founders to relinquish some control.
Equity financing pairs well with other forms of fundraising, as founders can strategically offer small amounts of equity as needed.
Revenue-based: Available through platforms such as Capchase Grow, revenue-based financing provides companies with predictable ARR, and scales alongside company growth, making repayment easier. Revenue-based funding helps founders avoid unnecessary dilution and provides working capital on-demand so borrowing stays manageable and can easily be paired with other modes of fundraising.
Best practices for founders
While VC funding is difficult to come by, it isn’t impossible, and the metrics that VCs are looking at are good for founders to keep in mind regardless of the funding options you’re considering.
These metrics are an excellent indicator of overall financial health and growth potential.
The founder: Many VCs are taking a chance on the founder. Are you passionate? Do you have a proven record of being resilient and adaptable? How are you uniquely positioned to succeed in the space? Fundraising isn’t the accomplishment – building the product is, and a disciplined, intentional approach is key.
The strength of the product: Your product-market fit should be meticulously researched, backed by data, and gaining traction on its own merits. Investors want to know how their capital will help take your company to the next level.
The company’s story: A strong memo conveying the nuance and context around your company is extremely helpful. Outside of your pitch deck, you should be able to concisely articulate your company's value, purpose, and future in an engaging manner.
A narrative memo will also help all of the stakeholders involved in investment decisions learn your story without having to dig through your deck repeatedly.
A Q&A document: As you meet with potential investors, you’ll notice questions that arise more than once. Keep a running document with common questions and answers so that you’ll always be able to provide potential investors with well-considered responses.
A solid runway: Some investors are content with a six-month runway, but our panelists agreed that twelve months is safer and makes your company more attractive to potential investors. Investors want to build a better future with you, and a longer runway provides more peace of mind and more time to get your partnership off the ground.
Key takeaways
The market is undeniably starting to recover from the downturn of the previous two years, and while venture capital is no longer the cash cow that it’s been in the past, it’s still a strong option for companies that have solid metrics.
At the same time, it’s always worth considering alternative forms of growth funding, including debt, equity, and revenue-based funding, which can help SaaS companies power long-term sustainable growth.
No matter which funding type you choose to pursue, some things are true across the board: strong metrics, product-market fit, and company narrative are key to attracting potential investors. Whether you seek out a well-known VC firm, take on venture debt, or combine equity funding with scalable revenue-based funding, a strong foundation is essential.
Learn more about revenue-based financing with Capchase Grow.
