There’s Much to Consider When Advising Your Clients on Growth
At some point in your relationship with your SaaS clients, it’s likely that an owner, founder, or other leader has asked you what your thoughts are on the right financing for a growing SaaS company like theirs. That’s a tough request, especially considering that the avenue you choose could have a significant, long-term impact on the company’s operations and financial outcome.
Below, we’ll explore a few procedural considerations to help you understand where your clients are in terms of growth and how that impacts the type of financing that they need for their growing SaaS company. Let’s dig in.
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Where is your client at in their growth journey?
If your SaaS client is still in the early stages of its growth, it may have difficulty obtaining larger/institutional funding. Options such as bank loans, equity investment, and even some standard loans may be out of reach due to the company’s current recurrent revenue, lack of assets, valuation, or even its operational focus (e.g. many firms prioritize technology platforms with established value in niche markets, so your client may not be considered if they’re still building out their platform).
What makes the most sense for your goals?
This is an important question because it informs how the funding will likely be used and thus which avenue to take. A young SaaS client that’s still building a customer base and proving market value likely just needs funding to maintain operations, whereas a more established client is likely looking to scale. For the former, an angel investor or a smaller debt financing loan may be best. For the latter, a larger venture debt loan or equity funding will likely be more appropriate and useful.
Who are you working with?
We’ve touched on this slightly, but not every funding provider is the same. Even factoring out the type of funding they provide, who they are as a company greatly influences whether your client will be an ideal fit. Distinct philosophies, sector focuses, financial performance, and portfolio company outlooks can all impact whether a funding provider decides to move forward with your client. Carefully consider the less tangible attributes and interests of a funding provider and ensure they align with what your client believes in and prioritizes as a SaaS business. For example, some firms greatly prioritize environmental impact and sustainability; does your SaaS client influence or impact this with their technology?
What happens once funding has been secured?
This is incredibly important because it impacts how well your client can put their selected source of funding to work. For example, banks and many venture debt providers are simply providing loans, so they will not be deeply engaged with your client over time. They will simply want to ensure that the client is hitting their growth metrics and making their required repayments. On the equity side, it’s common to see angel investors, equity-based firms, and other venture capital firms taking an active role in the company’s use of funding and their daily operations. Of course, this is not indicative of every company — some equity providers may not be as involved, and some traditional debt-based lenders may take a more active approach.
What is your client’s long-term goal?
Closely related to above questions is understanding what your client is looking to achieve in using this funding. They may be using the capital as a bridge between future equity raise rounds, or they may simply need the money to sustain operations. They may need the money for more strategic uses, such as buying other investors out, accelerating sales and marketing activity, or one of many other more specific purposes. In these cases, it’s important to understand what the long-term impact of the funding is.
Obviously, a loan will need to be repaid and will have interest. That is an additional expense on top of the principal, but it does not necessarily require the payout of profits to investors. That is more common with equity investors, who will need to be paid dividends in exchange for their investment. Those payments will likely never end as long as the equity investor holds a stake in the business. All of this will impact what happens at the end of a relationship or when the company decides to sell, the owner wants to exit, etc.
Explore Financing for Growing SaaS Company Clients with River SaaS Capital
River SaaS Capital provides both venture debt financing and equity funding options for our clients. As a partner to a SaaS company, we will work closely with you to understand where your client is at now and how we can be helpful to them in their growth journey.
In most cases, clients utilize our venture debt funding first to accelerate sales and marketing and achieve other specific goals, while taking advantage of the benefits of interest only payments and flexible repayment terms. This is usually followed by an equity investment, in which the company can further pursue their growth goals, or begin more strategic growth activities.
Whether your client is ready now or needs some time to meet our funding criteria, we will stay in close communication with you and them to provide strategic insights, guidance, and support. We value long-term relationships — not one-time investments. It is far more valuable to us to see a company achieve its growth goals on its own terms and with our support, rather than us dictating how that journey unfolds.
To learn more about our process and how we can work together, fill out the form below. Our investment team will be in touch. Look forward to working with you!
