Working with SaaS Capital™

Approach

As our name suggests, we exclusively finance Software-as-a-Service companies. We lend between $2 million and $12 million to scaling B2B SaaS companies. Our structure is specifically designed to give you access to significant growth capital while avoiding the dilution and loss of control of selling equity.

SaaS Capital™ pioneered alternative lending to software companies starting in 2007. Over the last decade, we have spoken to thousands of companies and funded more than 60. We think this makes us different from other lenders because:

  1. We understand the nuances of your business model and can get you a ‘yes’ or ‘no’ quickly. You don’t have to explain Deferred Revenue or Gross Churn to us. If it’s a good mutual fit, we can usually issue a term sheet in about a week.
  2. We originated, refined, and optimized the MRR-based credit facility. The structure of our products is ideal to fund a SaaS business. We can cite numerous examples of portfolio companies who leveraged a SaaS Capital™ committed credit facility to scale their business and benefited from increased multiples during a follow-on round or other equity event.
  3. We are efficient & transparent. We are a small team, and you will work directly with the same principals throughout your entire relationship with SaaS Capital™. We plan to be in this business for a few dozen more years, and our reputation is important to us. We strive to be transparent, clear and consistent from the first phone call through our entire relationship, and we value those traits in management teams we fund. The structure of our products and our streamlined engagement process reflects our commitment to being lean and nimble.
  4. We leverage our expertise to help you succeed. Executives from our portfolio companies are invited to participate in exclusive forums and conference calls to share their experiences, challenges, and successes. We connect our companies with SaaS-specific advisors and later-stage investors as needed, and we publish original, data-driven research on SaaS-specific topics such as valuation, retention, growth, sales strategy, and marketing.

Engagement Process

Our process usually takes 6-to-8 weeks from first phone call to funding, and typically follows the following sequence:

  • Introductory phone call (~20-40 minutes).
  • Assuming a fit, we’ll ask you for financial and business materials.
  • We’ll schedule a longer follow-up call to review the materials and your business (45-90 minutes).
  • Assuming a good mutual fit, we will then issue you a term sheet – within 1-to-2 weeks from the initial call.

The time from term sheet to closing is usually 4-to-5 weeks and involves an on-site meeting at your office, deeper accounting diligence, a technical review, and legal documentation.

Product

We lend between $2 million and $12 million to B2B SaaS companies with at least $250k in monthly recurring software revenue based in the US, Canada, or the UK. Our product is structured as an MRR-based committed credit facility. Our facilities have the following features and benefits:

  • Longer commitment and repayment periods (5+ years). Most facilities are committed for two years, during which you can draw and use the capital as needed. After two years, you can either renew for another two years or begin amortizing the debt over an additional 3 years.
  • More capital. We make available between 4x and 7x MRR to be drawn as needed. Total borrowable funds automatically increase as your MRR grows.
  • Lower total interest expense.Compared to a term loan, cash is borrowed only as it is needed, thereby reducing total interest expense, significantly.
  • Useable money.No balance sheet covenants so you don’t end up borrowing your own money. The goal of any SaaS funding is to extend your “runway” as long as possible. The duration, covenants, and availability of our structure all serve to lengthen the runway.

Why an MRR-based Credit Facility is “Just Right” for SaaS

The SaaS business model is well suited to enhance shareholder returns through the use of debt because even a modest increase in annual recurring revenue generates equity value that far outweighs the cost of capital. Therefore, the main objective of any debt raised by a SaaS company should be to extend your runway for as long as possible. More runway will enable your business to grow MRR for longer and thus continue to increase shareholder value.

Our MRR-based credit facilities are structured specifically to maximize runway. Every month, as MRR grows, credit availability automatically grows at the multiple advance rate. The power of the MRR line becomes apparent when a company has growth and burn dynamics such that the facility becomes a self-funding source of growth capital. If a company tunes its burn to its growth rate, the growth in monthly borrowing availability converges with the borrowing need, and the runway extension could be theoretically infinite. We call this “just right” combination of growth and burn “Goldilocks Mode,” and it is a highly accretive way to build a SaaS business.

We have had several portfolio companies achieve “Goldilocks Mode,” having funded the growth of their businesses from $3 million in ARR to over $12 million in ARR with nothing other than an MRR credit facility. Equity value created thus far in these scenarios ranges between $35 and $65 million per company and exceeded the cost of the debt by at least 20X.

Pricing

Credit facility pricing is derived from a combination of three factors:

  1. An interest rate of 12% to 14% on borrowed funds.
  2. A 1% to 1.5% annual facility fee.
  3. An “at-the-money” warrant. The debt is senior, secured, and usually, no personal guarantees are required.

Criteria

We offer MRR-based credit facilities to ‘scale-up’ stage companies with a minimum of $3 million in annual revenue.

Portfolio companies DO need to:

  • Sell a SaaS solution.
  • Have a minimum of $250k in MRR.
  • Have a minimum of 85% gross retention.
  • Maintain a headquarters in the US, Canada, or the UK.
  • Have a need for at least $1 million over the next year or two.

Portfolio companies DO NOT need to:

  • Be venture-backed.
  • Be profitable.
  • Have audited financial statements.
  • Have a lot of money in the bank.
  • Have any specific contracting or payment terms (i.e., long-term contracts) – we can work with almost all SaaS revenue models.