start a business Difficult enough, but expanding it into a successful and profitable director is more difficult. Securing project financing at an early stage is usually the best way to accelerate and sustain growth, but with different financing options available, how do you determine the best course of action? What is the best alternative to venture capital, and at what point in your company’s growth do other sources of funding make sense?
Choosing the right funding partner can be daunting, as they need to align with your mission, values and goals. Otherwise, you will get stuck in a relationship that does not align with your goals and may end up with less ownership than expected.
Here’s a summary of how alternative financing can come into play, how it can benefit high-growth SaaS startups and how to see if it’s right for you.
The development of alternative financing
There is a dearth of undiluted financing options for businesses with recurring revenue in the growth stage. We have found that traditional sources of debt capital (such as banks) prefer to simply provide debt to companies with heavy assets where collateral can be secured.
Every sleeping dollar in a savings account or other traditional short/liquid debt instrument is exposed to a real loss in value as inflation rises.
When it comes to SaaS or light business models, there is simply no asset base for collateral, which makes traditional debt providers uncomfortable. Moreover, while subscriptions or recurring revenue business models are not technically new, they are not sufficiently supported. SaaS companies can often only look to traditional banks for funding after achieving profitability and/or receiving institutional venture capital support.
This rules-based approach is feasible, but it leads to a massive market gap for early stage companies that have achieved product-market fit and serious revenue attraction. If they don’t fit into the Checklist, they are simply tossed into the backlog until all the boxes can be checked, regardless of the base preposition.
Revenue financing allows founders more control over their decisions without compromising board seats. SaaS companies can particularly benefit from this model, as it delivers future revenue from customers who have already signed up.
Revenue financing enables companies on a healthy growth path to have immediate access to future cash flows from the monthly payments of their customers. Another benefit is that borrowers’ credit limits can be adjusted according to their projected monthly growth, and they can withdraw money when they need it.