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Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...
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Don't Underfund Your SaaS Business Don't Underfund Your SaaS ...

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  • 1. Don’t Underfund Your SaaS Business Todd Gardner, CEO SaaS Capital, inc. SaaS Economics | 04.04.08
  • 2. Agenda SaaS Capital Overview Cash Difference: SaaS vs. Perpetual Models 5 Sources of Capital Available to SaaS Businesses How a SaaS Capital Loan Package Works Getting Started with SaaS Capital
  • 3. SaaS Capital Overview
  • 4. Introducing SaaS Capital Focused solely on meeting the needs of SaaS companies Offer credit facilities between $1 and $8 Million Facilities tailored to the SaaS model in availability and repayment Offices in Cincinnati and Boston
  • 5. SaaS vs. Perpetual Models
  • 6. Cash Burn: SaaS vs. Perpetual Model millions Monthly payments instead of up-front license fees increase the capital required to build a software company by 50% to 100%
  • 7. SaaS Pre-IPO equity Pre-IPO equity Company Year (millions) NetSuite $125 2007 Ominture $54 2006 Dealer Track $80 2005 Kenexa $71 2005 Black Board $130 2004 Salesforce.com $88 2004 RightNow $ 31 2004 Average amount of venture capital raised prior to IPO was $83 million.
  • 8. SaaS Financial Implications Costs measured as a % of revenue are skewed for SaaS • Develop a clear and consistent “bookings” definition When should a SaaS model be profitable? • Depends on the size of the prize • As low as $3 million (growth constrained) • $10 million is possible (sustainable growth) • But cases where $50 million should be unprofitable Renewal Rate • Single most important metric in the business. 95% vs. 85% is night and day financially
  • 9. Cash Requirements of SaaS Real business applications still require sales people and customer service people who all want to be paid Good SaaS businesses require a good product which requires developers who also want to be paid Pure multi-tenant infrastructure might be less expensive at scale, but not dramatically so Some customers will pay you a year in advance. Good start, but still much less then 100% up-front Net-net: some components of the SaaS model may be lower cost, but nothing offsets the large deferral of up-front cash.
  • 10. 5 Capital Sources Available to SaaS Businesses
  • 11. 1. Customers Get 1st year in advance Easier said than done Ideal option if you can do it May hurt growth and cause lost deals (hidden cost) No equity dilution Adds variability to cash-flow Very good during “rocket-ship” growth
  • 12. 2. Outside Equity No scheduled re-payment terms “Value added” investors Large amount of funds available Expensive if successful Value-added investors Loss of control Lengthy process The less outside equity, the better for everyone. No one likes Series D!
  • 13. 3. Traditional Lenders (Banks) Many options Not much availability Established and well-known Balance sheet covenants approach to sourcing capital (Need to have money to borrow it) Least expensive – normally Primarily good for short-term AR (Consider all fees and warrants) “smoothing” They like GAAP assets
  • 14. 4. Venture Lending Typically closes quick Available ONLY when you are (At the time of an equity event) flush with cash (inefficient) Might extend cash runway Loans get smaller over time even as the business grows Dilutive Modestly extends cash runway
  • 15. 5. SaaS Capital Lending More availability: 3X Banks Current interest rate higher (borrowing base is future cash receipts) than banks - (currently 13% to 15%) Availability grows with business Payments funneled through a (negative amortization) lock-box No equity dilution No balance sheet covenants
  • 16. How a SaaS Capital Credit Facility Works Credit Facilities Between $1 M – $8 M Availability of borrowing-base driven by: • unbilled future SaaS contract value (30% to 50% advance) • a multiple of recurring revenue (3-5 times monthly) Revolving credit facility under which individual term loans can be drawn based on availability. • 30 to 36 month amortization Facility grows as you book more business, renew business, and re-pay the notes which have been drawn
  • 17. Questions?
  • 18. Thanks Todd Gardner, CEO tgardner@saas-capital.com 513.276.4563 (office) 513.368.4814 (cell)

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