How to Fund Your SaaS Business
For entrepreneurs, funding a business is of utmost importance. Since the SaaS (Software as Service) market is booming, many entrepreneurs see this as an opportunity. Investors see the SaaS businesses as secure investments since they start making profits much earlier compared to other businesses, it is one of the businesses that investors proficiently invest in. In order to get investors to invest in your SaaS business, it is imperative that you are well aware of all the funding options you may have. Here are some funding options for those who are starting up a SaaS business.
- Convertible Debt
Convertible debt, otherwise also known as debt funding through internal funding sources are often sought by entrepreneurs from co-founders, board members or friends and family. These debts have relatively low-interest and convert into equity at a specified date. It is flexible for both parties; the inventors as well as the founders. When getting a convertible debt be sure to wary of traps and especially research the subordination terms and maturity date.
- Online Lenders
Another used funding technique is debt funding through online lenders. With the advancement of the internet over every aspect of life, entrepreneurs now have the option to look for funding from online lenders. They allow you to access a small amount of cash (less than $100k) but at a very high cost. So, be careful and only use these lenders when you’re in a real pinch and triple check the true cost of such loans with an effective APR calculator.
- Revenue Based Financing
Revenue Based Financing is also a successful way to get good funds for your SaaS business. Newer SaaS companies usually have lumpy or seasonal cash flows, revenue-based financing is designed to tackle with exactly that. You can submit smaller payments in rough and tight months and bigger payments when things are smooth. Look for investors who offer non-dilutive growth capital to SaaS companies and whose loans are also structured with payments according to the flow of your revenues.
- A/R Factoring
In this business, the payment schedule is bound to vary as some clients may pay you on a monthly basis while some may pay net 60 or even 90. This option allows you to loan cash based on your accounts receivable. Make sure that you have a solid contract as getting your loan approved depends on a lot of its quality.
If you are interested in starting a SaaS business check out this business plan template to help get you organized and increase your chances of funding: (SaaS) Software as a Service Company Business Plan Template