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The Funding Life cycle: 5 Stages of Funding for SaaS

Funding Life cycle

Whether you are a startup, newly established, or an SaaS with a defined product looking to scale, at some point funding starts getting important.

While we have a glorified view of “bootstrapped” companies that made their way from the ground up, this is not reasonable for a large majority of businesses. The competition is too fierce and the products too plentiful. By passing up the opportunity to strategically utilize funding, you will fall behind your competition.

Fall too far behind in the digital world and your product will soon suffer. Ultimately, it could lead to your company failing entirely.

But with all the funding options available today, how do you know which type is right for your business? Where do you fit in? What should you ask for? How much do you need? What are the best sources of funding?

Below, find the 5 categories of funding to see which is right for you.

What Investors Watch For

Before investing in your company, it’s an investor’s due diligence to assess the profitability of your company. This allows them to determine the health of your company, whether or not it has the potential to grow, and how well it will scale into the future.

As such, angel investors, private equity firms, and venture capital firms alike will look at several KPIs to ensure you meet their investment criteria. These could range anywhere from a minimum MRR, CAC, and your overall projected growth strategies.

Keep this in mind— it will ultimately help you make a realistic assessment of which funding type your company most needs.

Pre-Seed Funding

As time goes on, the playing field of startup funding rounds has been subject to many changes. With growing competition to stand out and the need to properly leverage the SaaS growth curve, raising money as early as possible has become increasingly common.

Unfortunately, finding funding at this early stage is incredibly difficult. Not only are companies this small in a vulnerable position, their overall trajectory and business plan may not be well defined. In combination, this poses a serious risk to their overall stability.

Company Worth: $10-100 Thousand

Investment Amount: $1 Million or Less

Common Investors: Angel Investors, Personal Funds, Donations

Seed Funding

This next phase of funding marks the beginning of a company’s first major growth stage.

Here, seed capital is often received from venture capitalists to take a product from a developing stage to something more finely tuned. In exchange, these VCs often exchange their funding for a 10-25% equity stake in your company.

Company Worth: $3-6 Million

Investment Amount: $1.7 Million

Common Investors: Angel Investors, VCs

Series A Funding

Series A is the tipping point where companies finally have a developed product while shifting focus to refining their business model.

By this point in the company life cycle, the focus moves from getting by and gaining tractions to a more sales-orientated perspective. The demands at this stage often involve revenue within the existing market, having a reliable set of KPIs you can realistically meet, in addition to a business model that supports your future growth.

As the core team is usually established by this point, investors begin to take benefit as well— series a financing being the gateway to preferred stock in the company.

Company Worth:$10-15 Million

Investment Amount: $10.5 Million

Common Investors: “Super” Angels, VCs

Series B Funding

While Series A funding looks mostly at growth and gaining market traction, companies looking for Series B funding are more likely to focus on scale, meeting new market demands, and expanding product offerings. This indicates that you know your market, you know which KPIs to watch, and you are looking to take that information and apply it to a larger audience.

With the increase in demand, comes an increase in manpower and a keener look toward strategic marketing decisions. Commonly, at this phase entrepreneurs will use their funding to hire more staff, expand into larger markets, and even see if they can gain a strategic advantage through buyouts or outpacing the competition.

Company Worth: $30-60 Million

Investment Amount: $25-30 Million

Common Investors: VCs

Series C and Beyond

By the time a company reaches Series C funding, they are well established in their industry and looking to move towan in IPO.

There is no limit to the types of funding they can acquire as they years go on, providing these companies remain profitable. In fact, after Series C, it’s reasonable for a company to seek everything through Series E funding if that is the route they choose to take.

At this stage, funding is no longer used to finance growth,

Company Worth: $100-120+ Million

Investment Amount: $50 Million

Common Investors: Hedge Funds, Investment Banks, Private Equity Funds

When Funding Goes Public

Once you have cycled through all the funding tiers, developed a brand, a company, and a team dedicated to success, you might just find yourself in a position to accept IPOs. At this point, you are no longer limited by a small pool of investors, you are opening your company to the general public. Through common stock, your company becomes part of a global economic system alongside some of the heavy hitters in today’s tech industry.

However, we all have to start somewhere. Making the most of where you are today just might be what helps boost your brand tomorrow.

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.

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