Gaining Access to Early-Stage SaaS Capital
Raising money for a startup from scratch is a challenging road to walk.
Building a SaaS business from the ground up is no easy task by any means. There are a lot of variables to consider and it involves a lot of risks. Managing these variables and risks will likely feel possible at some times and overwhelming at others. Building a SaaS company and finding SaaS investors are just a couple of the considerations that are on each SaaS founder’s plate.
One way that SaaS founders can give themselves a better chance of success (and help reduce stress along the way) is by partnering with a founders studio that can offer not only funding but also technical expertise and other services. Golden Section is a founders studio and venture fund that can help SaaS startups in exactly this way. Golden Section is focused on partnering with B2B software startups from the pre-seed stage all the way through to series B, and guiding our portfolio companies along the path to a meaningful exit.
A founders studio that uses the personal experience of veteran startup founders and business leaders can be one of the best resources to help your founding team cut through the confusion and chaos of starting a business and achieve balance and sustainability. Golden Section can help founders navigate the risks and complexities of being a B2B SaaS startup by offering resources like playbooks and the support of a community of founders and other experienced leaders.
For many founders, one of the most intimidating parts of starting a business is raising the necessary capital. Without proper funding, most startups would be doomed to fail from the start. However, startups are extremely expensive, and it can be very difficult to find anyone willing to invest money in a brand-new business that has no traction yet. One way for startups in this pre-seed situation to gain access to the SaaS capital needed to get their idea off the ground is a combination venture fund and founders studio like Golden Section. While Golden Section is much more than just a method of funding your startup, it can provide help in that area as well.
Whether you are planning to use a startup studio or a similar kind of incubator or accelerator, raising capital for a startup in the pre-seed stage is a complicated matter. If you feel like you need help navigating the complex world of startup fundraising, you are not alone.
Saas Company Valuation
Potential investors have a lot to consider when they are deciding whether or not to invest in your startup. One of the best strategies you can adopt when you are looking for pre-seed funding is to try to put yourself in the mind of an investor. SaaS investments require careful SaaS capital valuation. And there are many factors to take into account when investors are making that valuation.
Rule of 40 SaaS Valuation
SaaS Valuation Calculator
SaaS Capital Valuation
SaaS Company Valuation
One good rule of thumb is that a startup’s valuation usually comes down to sustainability. Your pre-seed SaaS startup probably isn’t seeing much or any revenue yet, so most investors are very interested in determining whether your startup is sustainable enough to reach the point where there will be actual, tangible value being generated.
When investors are evaluating your startup, there are a lot of risks they need to take into account. Keep in mind that investors are usually working with other investors who are close friends or colleagues. They have not only their money but their reputation to worry about. They also probably don’t want to put themselves in a position where they lead their friends or colleagues astray by recommending a bad investment.
This means that investors are likely going to be very thorough when evaluating your startup, simply because there is a lot on the line for them. It will likely take some time and persuading before they fully trust that your startup is a good investment choice that stands a chance of returning their money down the line.
Above all, when investors are evaluating your startup, be completely transparent with them. If your goal is to hide your business ideas flaws so that investors will give you money anyway, you will probably not be very successful. If investors keep uncovering holes in your plan as they dig deeper, that’s going to reflect poorly on you. In the pre-seed stage, many investors are looking for a founding team they can trust, not a bullet-proof idea. No two investors are the same, so there are few immutable truths when it comes to their behavior. One investor may use a different SaaS valuation calculator than another or just have a different set of priorities.
Saas Private Equity
Raising money for a startup from scratch is a challenging road to walk. You may be able to apply for a bank loan, but as a pre-seed startup, it’s likely the bank will deny you the loan because the investment is too risky. If this has happened to you, or if you are looking for alternative sources of capital for any other reason, you have a few additional options to consider.
SaaS Venture Capital
SaaS Private Equity
There are different types of funding that you’ll need at each stage of the startup journey. The best way to go about raising funds for your startup usually depends on the stage your startup is in. When you’re just starting, the first round of fundraising is called the seed round. If your startup is still pre-seed, that means you haven’t raised your first (seed) round of capital yet. Many seed or pre-seed stage startups benefit from participating in an incubator program or founders studio to help propel them through the precarious early days.
After you’ve made it past the seed stage, you’ll probably be looking for expansion capital to help you grow your business and help it continually gain more traction. This money could help you expand or improve your marketing efforts to help drive increased revenue, for example. Later on, you might want to raise late-stage capital as well. The type of funding you seek and the way you approach investors is usually dependent on the age of your startup and which step of the process it is in.
One of the best ways for startups to find funding is through a venture capital firm. These firms are made up of investors who are interested in putting money into developing businesses with the aim of earning back dividends on their investment. Venture capitalists are usually most interested in startups in which they see strong potential for fast and significant growth.
Factors for Consideration
SaaS Capital Efficiency
If you are going to raise capital from investors, it is important to understand how to use it efficiently. Investors will probably have a hard time trusting you and being willing to invest in your startup if you can’t demonstrate to them that you are capable of using their money responsibly and efficiently. Investors are already reluctant enough to invest SaaS capital even if everything checks out. If they don’t feel totally confident that you will spend their money wisely, it could be that much harder to get them to invest.
SaaS capital efficiency is very important because investors are going to want to see that you know how to use your funding efficiently. There are many factors to consider when you are planning how to use the capital you raise as efficiently as possible, such as SaaS headcount ratios. Without taking the necessary time and consideration to have a plan for how you will use your capital efficiently, you will be much less likely to be able to raise it in the first place. Not to mention, your startup will not survive long without a plan to allocate capital efficiently, even if you can secure the funding.
B2B software companies we have invested in... and counting
Saas Capital Benchmarks
When you are trying to decide how much capital you need for your SaaS startup, it can be extremely beneficial to understand the B2B SaaS marketing benchmarks that will aid you most along the way as you make funding decisions. If you are going to ask investors to provide you with capital, you need to tell them very clearly how much money you are asking for. This number can’t just be arbitrarily chosen, however.
Determining how much seed funding you need for your startup is one of the trickiest parts of the process. You will likely need to consider factors such as how you want to compensate your employees, how much capital will be needed to provide your customers with the experience you promise them, and how much you will need to settle your debts with vendors.
If your startup doesn’t have a clear picture of these numbers yet, that’s okay. You can use SaaS capital benchmarks taken from other examples of successful businesses that are similar to yours to estimate how much funding you need to ask for. There are software tools that are designed for conducting this type of research. Remember that startups are extremely unpredictable ventures, so you might be wise to overestimate a bit when determining how much funding you need. However, overshooting too far can be a mistake, since investors almost always want to hear exactly how you plan to use the money to help your business.
Here’s what our portfolio company founders are saying…
From our MVP in 2015 to demonstrated Product Market Fit to strategic support with our growth funding, the Golden Section team has been an indispensable partner and resource for System Surveyor.
Founder & CEO, System Surveyor
Since QMSC’s inception, Golden Section has provided valuable direction regarding strategic market alignment, branding, and most importantly intuitive guidance for our technology roadmap.
Marshall R. Williams
As an entrepreneur, I need to have a partner who understands my vision, not just a digital order taker. Golden Section has exceeded my expectations, providing tools and people to help grow my business rapidly.
Founder & CEO, KARE