A growing SaaS company can absolutely benefit from getting additional funding, especially when the competition is tight and you need to make sure your product’s continuously being improved.
If your organization operates on a subscription-based model with a high gross margin, then revenue based financing (RBF) may suit you. With your sticky revenue and ability to scale in the foreseeable future, you can take advantage of the non-dilutive and growth-inducing nature of RBF.
But what types of companies will actually benefit from RBF?
Type #1: Pre, Post, or Anti-Venture Capital
For many founders, ownership dilution is not an appealing option—it’s not even in their minds at all. They worked hard to start their business and they won’t give up equity just to get more capital.
Other than founders not interested in ownership dilution, though, there are others who seek RBF. Businesses that haven’t tried VC yet or have used up the funds provided by a VC seek alternative capital. It can be difficult to get additional funding from current investors, so RBF becomes an appealing financing option.
Type #2: Companies at Profitability—or Close to It
If you approach a bank or apply for an SBA loan, they would usually require that you be profitable first before they let you borrow money. The approval can only be possible if you can clearly prove you’re able to pay it back.
On the other hand, revenue based financing firms can finance your growing business even prior to profitability. Instead of the typical requirements, you’d encounter from traditional lending institutions, RBF firms take a look at the following:
· Your business’s cash runway
· The organization’s projected growth
· Positive unit economics
Additionally, as long as you have recurring revenue, RBF firms can be confident enough to provide financing. Since RBF repayments are based on a percentage of your company’s revenue, you will eventually be able to pay for the borrowed amount (plus interest) without having to worry about reaching a target figure every month.
Type #3: Organizations at Different Growth Rates
Revenue-based financing is not startup financing. Instead, it should be considered growth financing. If your business is experiencing moderate to hypergrowth, RBF is a good funding option.
Venture capitalists usually only fund companies that can exceed 100% growth every year, but such pressure doesn’t exist within the context of RBF. Businesses funded through RBF enjoy the freedom to operate under controlled growth rates. Instead of worrying about growing bigger and faster, business owners can focus on growing at a healthy pace.
An Aligned Focus Towards Growth
RBF helps facilitate a healthier relationship between founders and investors. Once you find the right funding partners, you’ll realize that you’ve also found a rich source of business management advice.
Revenue-based financing allows founders to grow their companies without the pressure of exceeding standards and expectations. This makes it possible for these businesses to listen to their customers better and address their needs, which ultimately leads to lasting growth.