June 28, 2022
Financing growth, resilience, and the staying power of SaaS
Challenging times can shine a new light on our strengths. When the markets are uncertain, for instance, SaaS companies in many verticals are still models of staying power, with their carefully measured costs and services their customers often can’t do without. So when their options for financing narrow, how can they capitalize on their position to stay strong and continue to grow? Recurring revenue financing may have the answer.
The strength of SaaS
When Pipe’s trading platform was first conceived and launched, it was tailor-made for SaaS companies—SaaS business models are an amazing example of businesses with a predictable return on spend and limitless scalability. Even as we’ve extended the industry-agnostic Pipe platform to more business models, SaaS remains an impressive template for recurring revenue companies looking to grow.
Once a SaaS startup has proven product/market fit, scaling is all about dialing in customer acquisition costs and shortening the payback gap. Bringing in capital quickly to acquire the next wave of customers can be like rocket fuel for SaaS growth. Once the customers are flowing in, you need to keep them there, and with a useful—sometimes even indispensable—product and great user support, many SaaS companies are well positioned for low churn rates and maintaining strong revenue even when other sectors of the economy are struggling.
But even though many SaaS companies are in a good position to ride out the bumps in the market, they still face challenges if they want to stay relevant and resilient, and continue to grow.
If you’re not moving forward, you’re falling behind
Some of the biggest hurdles for SaaS companies in any market are customer wants and needs—and other SaaS companies. To remain competitive and continue to acquire subscribers, companies need to keep offering a great product that meets customer needs as well or better than the competition.
A great example of this is streaming services. A few have been in the news recently as they’ve lost customers and content. Whoever keeps investing in the best shows and movies—and offering the most appealing service tiers—will likely be the one to keep loyal customers.
And if your offering is technical, it’s even more crucial to keep up and not be outpaced by your competitors—which can take substantial investment (and, in turn, capital). Unfortunately, in today’s market with tightened access to venture capital and business loans, companies dependent on traditional financing options may find themselves navigating a tricky equation.
The growth capital gap
Along with the dip in VC funding in recent months, there’s been a drop in company valuations, with the revenue multiples used to value many SaaS companies decreasing by as much as two thirds. SaaS companies, which are often light on hard assets, generally depend on their revenue and cash flow to obtain financing. When the multiples are down, the amount of cash they can get for their equity has shrunk, and loans are more challenging to secure—how can they finance growth and stay competitive?
The only “traditional” option left is bootstrapping your growth. For SaaS companies, that can mean waiting x number of months for the CAC payback period and using that recurring revenue to self-finance the net growth initiative. But when time is of the essence, that may not be ideal. Can you wait months before hiring those new engineers to help your software keep up with the industry? Can you hold off on marketing when your closest competitors are generating a lot of buzz?
Some SaaS companies have gotten around cash flow gaps by offering customer discounts for up-front, annual payment. While this can indeed speed up cash flow—no more waiting months for a customer’s recurring payments to trickle in—many SaaS companies offer 20–30% discounts to incentivize this, which can have a major (negative) impact on profits and top-line revenue. As a knock-on, damaging your top line can hurt valuations—an added sting at a time when startup valuations are tumbling—and discounts can also impact customer perception of the value and “right price” of your offering.
So your options are potentially troublesome discounts or the pain of the waiting game? Not ideal—and, thankfully, not the case. With recurring revenue financing, you have a viable alternative.
Alternative financing for SaaS
The SaaS growth cycle was the inspiration for Pipe’s trading platform. For healthy SaaS companies with a solid product/market fit, the revenue is there—it just needs to be accessible more quickly to shorten the CAC payback period so you can keep reinvesting in your business. In some markets, this can mean the pursuit of rapid growth. In others—like today’s—it might mean staying relevant, performant, and steady. Either way, getting that capital faster is key.
Recurring revenue financing is the perfect match for many growing SaaS companies because it uses that stable, recurring revenue as its foundation. Rather than selling equity or taking on restrictive loans, RRF treats your future recurring revenue streams as tradable assets, letting you sell them to institutional investors for up-front capital. By trading tomorrow’s revenue for today’s capital, you can shorten or even eliminate the CAC payback period and reinvest in the growth and resilience of your company right away.
How SaaS companies can use Pipe
While selling your revenue directly to investors may sound daunting, Pipe’s two-sided trading platform makes it easy. When you sign up, you’ll securely connect your banking, billing, and accounting software to the Pipe platform.
Secure live data connections allow Pipe’s algorithm to analyze your revenue streams and give you a trading limit (that’s how much non-dilutive, up-front capital you can access at a given point in time) based on real numbers and the health of your company. Once you’re approved on the platform, Investors bid on your anonymized revenue streams, and you can trade any amount up to your limit for up-front cash when it makes sense for you.
When you trade, you get the cash in the bank within a few hours (sometimes faster—that just depends on your bank), and your repayments are automatically withdrawn as the traded revenue streams come in. No added interest, no ballooning repayments, no nonsense.
SaaS financing, on your terms
If you’re ready to grow your SaaS business or looking for capital to reinvest in the sustainability, resilience, and success of your business, Pipe can help you access your money sooner without dilution or business loans. You can grow your team, launch a new marketing campaign, improve your product, or extend your runway for a future equity round…. Once you’re connected and trading on Pipe, you’ll have a continuous growth capital partner you can leverage to access the financing you need, as often as you need, for whatever your business needs.
Sign up for Pipe today and connect your accounts to unlock your trading limit and see how much capital you can access. There’s no fee to sign up, and no obligation to make a trade.
Disclaimer: Pipe and its affiliates don't provide financial, tax, legal, or accounting advice. What you're reading has been prepared for knowledge-sharing and informational purposes only. Please consult your financial and legal advisors to determine what transactions and decisions are right for you and your business.