Valuations, Growth, and Control: What Founders Should Know About SaaS Financing

Rob Belcher, Managing Director at SaaS Capital, recently joined Ken Lempit on the SaaS Backwards podcast to talk about how SaaS companies fund growth and why many founders give up more equity than they need to. They discussed how financing options have evolved, how growth debt fits in, what’s happening with valuations, and how AI is reshaping the landscape. The full podcast is embedded below and here are the key points from that conversation.

The Evolution of SaaS Financing

When Rob joined SaaS Capital in 2014, the lending environment for SaaS companies had already started to mature. The years after the 2008 financial crisis created new opportunities for alternative financing. Traditional banks had pulled back from tech lending, cloud infrastructure was taking off, and a new generation of lenders emerged to serve software businesses that didn’t fit the bank model.

Today, founders have several funding paths to choose from:

• Bootstrapping: The most flexible option, but it relies on personal savings and slower, organic growth.
• Angels and venture capital: The best-known path, but it involves giving up ownership and control.
• Private equity and family offices: These groups have moved into SaaS, often offering growth equity or partial buyouts for companies with $5–10 million in ARR.
• Debt capital: What we provide at SaaS Capital. Our loans are designed for B2B SaaS companies with recurring revenue, typically between $3 million and $15 million ARR, that want to grow without dilution.

SaaS Capital sits between the small, automated lenders and the big venture debt banks. We provide more flexibility and larger facilities than the former and less complexity and control than the latter.

How SaaS Capital Is Structured

SaaS Capital was founded in 2007, and from the start, it was structured differently from most lenders. We raise committed funds from investors, much like a private equity or venture fund, and we hold every loan ourselves. That means we do not package or resell loans.

This model allows us to be a stable, long-term partner to our borrowers. Our incentives are aligned with theirs. We do well when our portfolio companies do well, and we’re not dependent on another institution’s capital.

Matching Capital to Growth Stage

Not all capital fits every phase of a company’s life.

• Pre-revenue: Equity is usually the only option. There’s no revenue stream to lend against.
• $3–15 million ARR: Growth debt is often a strong fit here. It helps extend runway, fund expansion, or bridge between equity rounds while limiting dilution.
• Later stages: Banks and private equity become better options once a company has raised institutional equity and reached greater scale.

At SaaS Capital, we typically lend four to eight times a company’s monthly recurring revenue. The key is using the right funding tool at the right time.

Understanding Valuations

Valuation drives almost every funding conversation. Based on the SaaS Capital Index, public SaaS companies are currently trading around 6.3x ARR, which is near long-term averages. Private company valuations tend to be lower, generally in the 4–5x ARR range depending on growth, retention, and profitability.

Founders who want to increase valuation should focus on:

• Sustaining growth rates above 20–25 percent
• Maintaining strong retention and clean, enforceable contracts
• Building a predictable, repeatable sales motion
• Managing toward breakeven or profitability

Growth remains the primary driver of valuation, but disciplined operations and reliable data also make a significant difference.

The Role of AI in SaaS

AI has become part of nearly every conversation in software. Most companies we work with are already using AI in some way, whether for internal efficiency or as a feature within their product. We’ve started calling this trend subscription AI and software because so many SaaS businesses now blend traditional software with AI capabilities.

There’s a clear split in the market. True AI-first companies are attracting extremely high valuations, but many are priced for perfection. If they miss expectations, it can lead to painful down rounds. For most SaaS companies, the better opportunity is using AI to enhance existing products, improve margins, and deliver more value to customers.

The Takeaway

SaaS founders today have more funding options than ever, which can make it easy to give up too much equity too soon. Growth debt isn’t right for everyone, but for recurring revenue businesses looking to scale efficiently, it can be a powerful tool to maintain ownership and control.

At SaaS Capital, we’ve helped hundreds of SaaS founders grow sustainably by using capital strategically, not reactively. If you’re exploring financing options and want to better understand how debt fits into the mix, we’re always happy to talk through the possibilities.

Nick Perry

SaaS Capital® pioneered alternative lending to SaaS. Since 2007 we have spoken to thousands of companies, reviewed hundreds of financials, and funded 100+ companies. We can make quick decisions. The typical time from first “hello” to funding is just 5 weeks. Learn more about our philosophy.