One of the things I love about startups is that every week I’m learning something new. Naturally, there’s no one way to do things and so entrepreneurs are always trying out different ideas and occasionally sharing them with the world. Earlier this week three different blog posts came out detailing alternative SaaS funding strategies a) Raise one time from angels ($1.3M) and might do more, b) Raise from multiple rounds but smaller amounts ($2.5M) each time depending on the progress of the business, and c) Raise a tremendous amount of money ($700M+) as quickly as possible over multiple rounds. Let’s dive into some of the highlights.
- “We believe that there’s room for a company that can be successful for its customers, employees, founders, and investors (generally in that order) without demanding a multi-hundred-million or billion-dollar outcome. We spent a lot of time discussing the frustrating binary (succeed on a massive scale or die trying) of the classic tech startup model, and how we might craft a creative structure that would allow for the potential of a huge outcome without forcing an unhealthy growth rate or a destructively impatient approach.”
- Only raise from non institutional investors so that there’s no timeline
- Investors initially expected to get their money back via dividends (1x non pref)
- Keep optionality open to go the venture route but don’t drive towards that
- “SaaS companies do not require large amounts of capital all at once in order to fund expensive R&D, brand marketing, or giant sales teams. Instead, we require small amounts of capital over an extended period of time, in order to experiment and continuously push harder on the things that work. This is why most SaaS companies today should raise several smaller rounds of funding during their “seed phase” before raising a series A. The ideal funding for a SaaS company looks closer to an IV drip than a shot of adrenaline to the heart. We need more funding sources that understand this.”
- Most SaaS startups don’t warrant the traditional VC model of go big or go home
- Raise enough money each round to get to breakeven at another milestone
- SaaS supports dripping in more modest amounts of capital and still producing great outcomes
- “Domo recently drew down $100M from their credit facility and currently only has ~6 months of cash left with their current burn rate. Given they raised $730M in equity capital from investors and another $100M through their credit facility, it implies they have spent roughly $750M over the past 8 years to reach a little over $100M in ARR, an extraordinary and unprecedented amount of cash burn for a SaaS company.”
- Last quarter burned $40M to add $8M of new ARR
- CAC of $430k with avg ACV of $67k
- Median payback of 98 months
It’s great to see people detailing different funding strategies as there’s room for innovation and new ideas. Figure out what’s best for the business and execute accordingly.