Flexible Credit Options Help Software Startups Balance Growth, Liquidity

software startup

For the software industry, it’s still tailwinds all around. As demand for software-as-a-service (SaaS) explodes in every vertical, more software companies are starting up every day to meet it — and often, they’re being run using Excel spreadsheets.

“So, we continue to find ourselves pleasantly surprised when we meet a new company and we’re like, ‘Wow, I had no idea [there was] this industry or this solution,’” Rob Belcher, managing director at SaaS Capital, told PYMNTS. “And there’s just more and more every day.”

Belcher meets a lot of these companies as SaaS Capital is a leading growth lender to SaaS companies. On Jan. 6, SaaS Capital announced it had closed its fourth fund with $128 million in limited partner commitments.

“We’re fueled up with more capital and we think there’s a great opportunity,” Belcher told PYMNTS. “We’re going to stick relatively to our same strategy, maybe just sort of branch out a little bit on the margins, but generally speaking, what we do works, and we are excited to carry forward.”

A Monthly Recurring Revenue-Based Line of Credit

SaaS Capital focuses on growth-stage B2B software companies with revenue of $3 million to $30 million. These companies have been around for a while, have customers and have real revenue. Once they get to $20 million or $30 million, they have other options for funding.

A key part of the company’s underwriting is monthly recurring revenue (MRR). That’s the mechanism by which the company will grow and pay SaaS Capital back, Belcher said.

He added that he sees a big move in the market now toward usage-based models instead of perpetual licensing.

“The new growth area for a lot of companies is, maybe you have your subscription rate, but then you have some sort of usage piece to it too,” Belcher said. “That is an interesting one that we’re tracking and obviously helps companies grow and increase value too.”

An Opportunity to Save Shareholders Tens of Millions of Dollars

SaaS Capital’s value proposition is that its MRR-based line of credit enables these companies to skip the 20% to 30% dilution equity round, hold onto that and use debt to grow through that stage. That way, depending on the growth rate and valuation, these companies may save their shareholders tens of millions of dollars.

“That’s such a value-creating period, after that you can get great valuations, at least in the market today, from private equity firms and VCs looking for those very solid $20 million run-rate companies,” Belcher said.

Companies that don’t want the dilution or are not growing fast enough to attract venture capital can still be growing 15% or 20% a year and creating a lot of value. These entrepreneurs may then sell the business for $40 million or $60 million.

“That’s a tremendous outcome if you own all of it — if you’ve sold 80% of it along the way, maybe not so much,” Belcher said. “If you can hold on to all that and grow a nice, stable business with good, decent growth — tons of value.”