How to Prepare Your SaaS Company for a Capital Raise

October 9, 2020
SaaS Accelerator

Funding is a vital but often quite challenging part of the growth and development of any SaaS company. In order to prepare your SaaS company for a capital raise, there are a few questions you need to answer:

  • When is a good time to start looking for capital?
  • What types of capital are available for my SaaS company?
  • How do I prepare my SaaS company for a capital raise?

This article will help guide you through these questions as you prepare your SaaS company for a capital raise.

For more information about SaaS financing, read our Founder’s Guide to SaaS Financing.

When to Raise Capital For Your SaaS Company

Raising capital for your SaaS company can be cumbersome and intimidating, and there are several moving parts you need to prepare in order to position your SaaS company for funding. In order to determine when you should raise capital, you will need to think and plan ahead.

1. Determine Your Target Funders

Before you start reaching out to capital providers, take some time to do research. What types of funding are available for my company? Who are potential investors/lenders that I could qualify for? Which one is most likely to fund my company?

2. Prepare Your Documents

As a SaaS investor, we look closely into how prepared a company is with the documents we need. This includes the company overview deck, historical financial statements, and cash flow projections. Your financial and legal documentation should also be prepared and updated, such as the capitalization table and articles of incorporation. Be sure to have all of your unit economics available, including CLTV and CAC. 

3. Determine How Much Capital You Need

Think about how much capital you need and how you will use it. Investors and lenders will look closely into your capital plans and how their money is going to help your SaaS company grow. Are you going to invest in product development? Are you going to focus most of it in marketing? Have a detailed plan in place to demonstrate this. 

Types of Capital for SaaS Companies

There are a variety of capital types your SaaS company can pursue. Each has different requirements and may benefit your company in different ways depending on your goals and stage of development.

1. Angel Investors

Angel investors are generally involved in early-stage companies and are most often the first to invest in young companies. These investors typically provide seed funding and advisory to help SaaS companies generate traction and the runway needed to build out their technology.

2. Venture Captial

After angel rounds, SaaS companies may choose to pursue venture capital. Not only can VCs provide capital, but they can also offer invaluable industry advice and strategic introductions to partners, employees, or customers. In exchange, they usually require a preferred equity position, a board seat, veto rights, anti-dilution rights, and a say in how the business runs.

3. Venture Debt

For SaaS founders who want to maintain control and minimize equity, debt financing is an alternative source of capital. Venture debt offers SaaS companies access to minimally-dilutive capital with fixed terms. In exchange, companies will need to repay the principal and interest. While sourcing VC investment is typically a long process, acquiring venture debt can take as little as four weeks assuming the company meets the necessary qualifications.

For more information, read our Founder’s Guide to Venture Debt.

4. Revenue-Based Financing

A growing favorite among many SaaS founders, revenue-based financing is another debt financing structure that offers flexible payments and minimal dilution. As opposed to venture debt’s fixed monthly interest payments, payments are based on a percentage of monthly revenue. This means companies can grow at their own page and payments adjust based on the natural ups and downs of the company’s revenue. 

For more information, read our Founder’s Guide to Revenue-Based Financing.

Essential Items for a Capital Raise

Once you have decided on the type of capital you want to pursue and the audience you want to approach, now it’s time to focus on the basic necessities required for a raise. 

1. Pitch Deck

Essential to almost any type of capital raise is a pitch deck, which helps explain your company and product. When preparing your pitch deck, consider these tips:

  • Create a clear and concise story within 15-20 slides
  • Pay attention to the “look and feel” of the slides, making sure to visualize key points
  • Use clear language and avoid jargon or acronyms
  • Display your market opportunity and where you fit
  • Highlight the talent on the team
  • Don’t dive into excessive details – touch on key indicators 
  • Update key metrics or industry changes as they happen – make sure your pitch deck is never out of date
  • Protect your intellectual property by adding “Confidential and Proprietary: Copyright of [Company Name]. All Rights Reserved” at the bottom left of your deck cover

2. Financials

Following the theme of presenting easy-to-digest information, you will want to present your financials in a standard format that aligns with SaaS industry norms. This way your potential investor will immediately recognize the information presented. 

3. Understand How Your Metrics Compare to Your Peers

Flow Capital, along with other alternative debt or equity lenders, will play close attention to your company’s revenue growth rate. Not only should this be presented clearly, but you should also understand how your SaaS company compares to others at a similar revenue size. For more insights on which metrics to highlight, here are 7 SaaS Growth Metrics Investors Care About Most

4. Priority List of Capital Plans

An investor will want to know how you plan to use the funds to give them insight into your priorities and direction. Are you looking to hire more team members? Do you need more marketing dollars? Analyze your company’s pain points, figure out where funding is most needed, and lay out the strategic places for the funds you are seeking. 

5. Show Your Financial Projections

SaaS investors and lenders are looking to invest in companies that show potential for growth. Calculate financial projections that are realistic that avoid assumptions that are difficult to justify. Make sure you are able to defend your data. 

6. Prepare for Questions

Last but not least, the final thing you can do to prepare your SaaS company for a capital raise is to prepare for questions potential investors will ask. You can expect standard questions such as:

  • How long is your sales cycle?
  • What is your revenue retention rate?
  • What is your churn rate? How can it be mitigated?
  • Is the company equipped to handle significant growth?

About Flow Capital

Flow Capital provides founder-friendly growth capital for scaling SaaS companies. We offer fast funding with flexible terms that are tailored to meet your company’s unique current and future needs. 

To apply for financing, fill out our online application form here