SaaS Capital funding supports growth and strategic acquisition, while creating $28.8 million in net equity value
“We looked at many different financing alternatives to fund our growth including venture capital, venture debt, and commercial banks. SaaS Capital’s approach was truly unique. It allows us access to the greatest amount of capital with a line-of-credit that provides us flexibility on when we borrow and when we re-pay.”
Background and Situation:
The company was born in a shotgun marriage of two “dot.com” businesses back in 2002. Despite this difficult beginning, the management team and angel investors bootstrapped the business for 10 years and became an industry leader with $9 million in revenue and break-even cash-flows. Desiring to build upon their success, the management team and investors sought additional capital for two important objectives:
- Increase spending on sales and marketing to accelerate growth and thus increase the valuation
- Opportunistically acquire weaker competitors to achieve economies of scale and market dominance
The company had already fully exploited commercial bank financing options which were inexpensive but did not provide sufficient capital to reach their objectives.
In terms of equity financing, the company’s investor base which included a number of VC’s investing as individuals, was sensitive to dilution, maintaining control, and preserving flexibility around exit timing. Ironically, raising a round of Venture Capital was not appealing to them.
SaaS Capital Solution:
SaaS Capital put in place an initial $3.5 million line-of-credit for the company. The proceeds were used to:
- Attract, hire, and retain new talent to the organization, including a new CEO
- Improve both their product and go-to-market capabilities
Approximately six months later, the company had the opportunity to buy a small competitor. SaaS Capital financed 100% of the acquisition through availability on the initial line of credit which had grown with their revenue, as well as increasing the line amount to $4.0 million, and also extending an incremental $1.3 million acquisition loan.
Benefits to the Company:
The size and structure of SaaS Capital's $5.3M total financing package allowed the company to:
- Increase organic growth by investing in the team, product, and marketing
- Make an all cash offer for a competitor which both decreased the purchase price as well as increased shareholder value (little dilution)
- Managed interest expense by only drawing the capital as needed
- Positioned the company for exit at substantially improved terms.
INDUSTRY: HIGHER ED TECHNOLOGY › FOUNDED: 2002 › FUNDING DURATION: 27 MONTHS › REVENUE GROWTH: 85% › EXIT EVENT: PRIVATE EQUITY
﹡A note about calculating the cost of equivalent equity:
The cost equivalent equity is calculated as (Amount Borrowed/Pre Money Value)*(Exit Value).
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