The reality for many SaaS entrepreneurs is that the cost to begin a software company is simply too much for any one individual to amass. As such, while we all love a good “rags to riches” story about a tech entrepreneur who bootstrapped their way to success, it’s not a realistic goal for a vast majority of SaaS companies.
This begs the question: how much money do I actually need to raise to take my growth to the next level. Depending on where you are at in the lifespan of your business, this number can look a little different for everyone.
As SaaS financing experts, read below for the funding stages you may encounter on your way up the ladder, how much money to raise for a startup, and furthermore, how to get the funds.
What Investors are Looking For
There is a difference between marketing to an investor and marketing to a client.
While clients are looking for your product to resolve their pain points, they are also far more susceptible to good sales copy– emotionally driven passages, promises of a better tomorrow, and the like.
For investors who come into contact with thousands of different companies each year, their eyes are primed for something a little different.
The main concern for investors is knowing your product ains, whether your audience is B2C or B2B SaaS, the amount of money you may need, and what kind of growth your funding may earn over the next 12 to 18 months and beyond. These are the two top contenders an investor will consider when making the final decision about whether your business might be profitable in the long term, or whether your idea needs more work.
As such, you want to make sure your proposals are direct. Tell them what you do, how you do it, and where you want to see yourself in the future.
The different Stages of Investing
What level of funding your SaaS needs will depend largely on how established you are, what your prospective goals are, and what series of funding you are looking to receive. This is particularly true for SaaS Startups, as the spending curve for software companies are often much steeper in the beginning of a company’s inception when compared to their financial needs vs revenue at a later time. This is due to the business model and growth rates of SaaS companies relying heavily on returning revenue (such as monthly subscriptions) to remain sustainable and profitable, rather than many other products or services which are on-time purchases.
If you need pre-seed money, you are at the earliest stage of your fundraising journey. Most likely, our company is still forming, your revenue growth is not secure, and you are looking to raise money to get past this early stage of your business.
While having a business model is a great way to solicit your company, understand that at this stage, funding will likely come from friends, family, and your own pockets.
Raising funds for “seed money” is the point in your business where you begin to take your growth more seriously. Think of this phase as the foundation to building up your business in a way that starts to make an impact.
Generally, investing at this stage of the game is risky for individuals. As such, it is much more common to run into angel investors who are less risk averse than more traditional investors (such as private equity companies or banks).
Raising capital at this stage could be difficult for an SaaS company as this is the most financially intensive period in a tech startups life. This is the point before you have subscribers, recurring revenue, and a proven niche you know how to reach and convert.
Depending on your goals, you may find yourself asking for millions of dollars to help cover the initial cost of getting your business running, conducting outreach, and getting your name on the map.
Series A, B, and C
Some companies will never need more than seed money to get off the ground and get profitable. However, it’s good to know that on the other side of these investments, there are broader horizons.
For companies looking to scale in a big way, potentially grow their product offerings, or even begin acquiring smaller companies that offer similar services, going up the ranks in series funding might be for you.
Like with other types of funding, you will likely be asking for an amount in the millions depending on what you are looking to accomplish. The difference here, however, is that as your company grows more profitable, you will be seen as a safer investment. This opens the doors to more traditional investment opportunities such as capital investors and banks, all of who might be able to provide you with the financial services you need to take your business to another level.
Before you Take on Debt, Ask yourself This
Taking on an investment loan might seem like the only way forward in the earlier stages of your company, but remember: not every kind of loan is right for every kind of company.
You must make a careful assessment of your own goals and prospects before engaging an investor, not only to keep your investors happy, but to ensure your business grows in the direction you imagine.
Here is the thing: when you are accepting investments, there are going to be strings attached. Your investors are not just giving away money, they are seeking an opportunity for their own gain. This usually means part ownership of the company, some involvement in decision making, and oftentimes certain requirements and stipulations you have to agree to before receiving financing. While this works for some, not everyone wants a business that has several cooks in the kitchen, so to speak.
The decision is intensely personal and only you can decide what is right for you. That being said, if you decide not to use external funding, you growth process will likely be slower and your prospects smaller.
SaaS Funding Experts
Many times what gets in the way of a SaaS company reaching their full growth potential is not having the funds to function at that initial negative profit while leads and sales are being discovered.
At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it’s most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.
To begin the conversation about how to take your business to the next level, contact us at (480) 332-0399 to schedule an appointment.