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The CEO of Uberflip Discusses SaaS Funding Options

January 4, 2017

The following article was originally posted on LinkedIn by Yoav Schwartz, the Co-Founder and CEO of our new portfolio company, Uberflip. And while Yoav says some nice things about SaaS Capital, the real reason we have made this a guest post on our site is to provide a clear example of how debt can be used strategically to fund the growth of a SaaS business. — Todd Gardner, Founder and Managing Director, SaaS Capital

Raising Capital: Why We Chose Venture Debt

It started nearly a year ago, when my VP Finance, Braedon, and I met Todd Gardner for the first time at SaaStr Annual in San Francisco.

This was the first conference I had been to as an attendee (vs. a speaker/sponsor) in a few years so I was looking forward to absorbing a ton of knowledge, meeting some of our awesome customers and networking with other founders. It was also time to start fundraising for our next stage of growth at Uberflip.

As an aside, Uberflip has been mostly bootstrapped to date, not for lack of early attempts at raising venture capital, but as the story goes we survived and then thrived by focusing on revenue and building a sound business.

But the time had come to “step on the gas,” and that would require additional capital beyond the angel funding and recurring revenue we had secured to date.

The money would be used to grow our sales and engineering teams as we continue to move up market, and close bigger, more complex deals. As far as raising capital is concerned, the timing couldn’t have been worse as SaaS multiples plummeted just weeks earlier (and as a result that was all people were talking about).

Nevertheless, we had a unique proposition – a healthy business with solid YoY growth, low monthly burn and a history of responsible spending.

Being in a position of strength meant we had options. VCs who had typically been focused on “growth at all costs” were now looking for businesses like ours – healthy, sustainable and growing.

Here’s Why We Didn’t Choose Venture Capital

Years of conditioning made venture capital seem like the first choice for adding cash to our balance sheet, but the further down the road we went, the more we realized it didn’t make sense for our business at its current stage. We had millions of dollars in the bank, were relatively close to breakeven, and the dilution we’d have to face would make little sense since we wouldn’t need to start spending the money for another year.

That’s likely a different story than many SaaS startups that raise a round (i.e. Series A given our stage) to support their existing burn as they try to catch up to the valuations set in a previous round.

We have a sustainable, repeatable and (somewhat) predictable business. It became clear to us that we could borrow money based on our recurring revenue at very good rates given our SaaS metrics and balance sheet.

Finding the Right Debt Lender

Once we decided to go down the debt route, we explored our options. There were many. We could go to our bank – the rates were good, but the cap was very low (traditional banks are extremely conservative and don’t understand SaaS). We spoke with Silicon Valley Bank, who is probably the best known lender in our industry, as well as many of their direct competitors.

We learned that many debt lenders rely heavily on the business having taken on venture capital in the past as a safeguard to pay back the debt if things go sour. We recognized through this experience that most debt lenders are very closely tied to the VC model, and often act as a layer on top of the traditional venture capital strategy.

Why SaaS Capital?

As the name suggests, SaaS Capital only lends to SaaS businesses. Unlike other lenders, they showed a keen interest in our business, our go-to-market strategy and our roadmap. Their due diligence process is quite similar to that of a VC – something I hadn’t experienced with other lenders. They treat lending as an investment. Most debt lenders treat lending as a transaction.

Why Now?

We’re a leader in an extremely fast moving industry – content marketing software.

We’re at the stage where product-market-fit means appealing to the most forward thinking marketers who are setting the trend for how to be innovative. Our current customers are ahead of the curve, but right behind them is a massive wave of marketers who are close to catching up.

Now is the right time for us to lean in and spend more aggressively on growth to attract and own the mindshare of this upcoming wave of content marketing professionals.

Most importantly though, our product is mature and revenue engine tested. We’ve learned a lot of lessons through failure. We’ve burned modest sums of money to learn those lessons, and I’m always cognizant of the fact that had we raised a more traditional VC round during those learning stages, we would have burned a lot more, and probably for longer. So, you could argue that staying lean actually saved us time.

For clarity, I’m not opposed to VCs – I call many of them friends, advisors, and even some investors (through personal investment). It just hasn’t been right for us to date. But that may change. Things always change.

The Bottom Line

Debt isn’t for every business. If you’re still in growth mode, or haven’t quite figured out product-market-fit, debt is downright dangerous. But when your SaaS business starts to resemble a well-oiled machine, debt makes a lot of sense.

Yoav Schwartz

Co-Founder, CEO at Uberflip

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