Funding SaaS Growth – Overcoming Death By Drip Feed

Mitch Williams.

 

It’s no secret – the SaaS model revolutionised selling software. Buyers love the idea of paying monthly over the life of a subscription rather than shelling out large upfront payments. This in turn, helped many get over the hurdle of trying out new, untried technologies and tech companies. All of which super-charged the growth of SaaS.

So subscription models work great for your customers and your customer acquisition but they don’t provide enough cash to invest in your own SaaS business’s growth. While it might get you the customers you need it also means smaller amounts of less predictable revenue – metered out to you monthly, quarterly or annually.

The upshot, especially in the earlier stages of your growth, is that it’s harder for you to fund new hires, significant sales and marketing initiatives or product development as you get drip fed your revenue. Lines of credit or bank loans are not easy for growing SaaS companies to access – banks just don’t get it. As for angel and VC money – it can take a long time and it’s only a small percentage who will actually get it. Not to mention the loss of control and equity, dilution and guarantees that may come along with these options

Even as your Annual Recurring Revenue (ARR) grows and you start to build a bigger customer base, bringing in more cash flow, you still carry the risk of unpaid future subscriptions. But most importantly the problem is that increasing the recurring revenues comes at a cost. The cost of customer acquisition requires even more capital. So while you can plan your growth investments with some certainty – there is always the possibility that you will end up with some delinquent customers or higher than expected churn, and miss your future revenue targets.

How, then, do you bring forward your cashflows and keep your SaaS customers happy? Like SaaS itself there is plenty of innovation happening in the funding and financing world.

 

With the SaaS model hitting maturity, it’s now possible for financiers to offer funding arrangements that are specifically built for SaaS.

 

Multipli’s subscription prepayment funding model for SaaS companies is the first of its kind – we finance subscription customers for the life of their contract, paying companies upfront for the agreed subscription amount.

In developing our offering, Multipli Managing Director John Delaney said, “SaaS companies need certainty in their business models and cash flow. Our funding will help them be more self-sufficient and grow faster while still delivering “pay-as-you-use” technology that customers want”.

One key feature of the model is that it lets SaaS companies offer their customers a range of payment options. Annual, quarterly, monthly – it makes no difference – the business still gets the agreed value of the contract up front. This then does away with the need to offer discounts to entice potential customers to pay more initially or commit for longer.

Since it’s all paid upfront, cashflow is effectively “de-risked”. Multipli takes on the task of chasing up any late payers and the risk of delinquent customers. Chasing payments is a distraction and cost a growing business doesn’t need. Subscription prepayment funding can really work in your favour when you need to invest money back into development, sales and marketing, or expansion.

Being able to bring your cash flow forward – in many cases by years – allows you to fund your growth faster and execute on larger initiatives – focusing on the projects  that will drive competitive advantage, customer success and superior offerings. In effect you get to spend on your growth like a much bigger company and hopefully, as a result, grow much faster.

Key to success for a growing SaaS business is providing a frictionless sales experience for new customers. So when looking at any financing model – it’s important to check out what the financing approval experience is like for the customer. Anything that is overly complex or intrusive can delay deals and even affect your close rate. Multipli developed mymultipli – a purpose-built software solution that allows accredited partners to integrate online and offline sales order processes with finance approvals and payment systems. It adds velocity to sales with seamless and ‘straight-through’ creation and processing of customer payment plans, online. Your customers get rapid notification of approval, you get paid the agreed value of the contract quickly and the billing cycle is handled on the mymultipli platform, in one smooth, painless process.

Multipli is able to offer a better way for SaaS companies to close more deals, more quickly and invest more rapidly in their own growth. The goal is to help make SaaS innovations more accessible for more buyers, whilst supporting growing tech founders to thrive in their businesses.

Next steps

Read SaaS Metrics 1 – Improving Your Committed Monthly Recurring Revenue (CMRR)