A New Approach to Funding SaaS Companies
By Lew Moorman, GP/co-founder Scaleworks
During the deployment of our first $60M venture equity fund, we came across so many good software companies that were not a great fit for traditional venture capital. Some were not growing quite fast enough to be viewed as “venture scale”, others wanted to take a more controlled invest as you grow approach.
As we studied these situations case-by-case, one thing became very clear: some injection of capital could absolutely accelerate their momentum. However, right now there are not many options for companies at that stage — some continue to bootstrap and miss their opportunity, and others do raise VC even though they may not really be suitable for that path.
Unfortunately, traditional banks still require consistent cash flow or tangible assets to collateralize any loan, something that growing SaaS companies typically don’t have. They do, however, have consistent recurring revenue streams, with high gross margins. We believe that is a bankable asset, banks don’t.
So we thought…hey, we can provide yet another path for founders and teams with great products. We call it our “venture finance” fund, and we’re ready to deploy $10M immediately.
The fund will make loans to growing SaaS companies in value of up to 6 months of their recurring revenue. To manage the fund, we’ve brought in Rackspace’s former CFO of 6 years, Karl Pichler as GP, Venture Finance. His experience with financing and advising companies on lowering its cost of capital is second to none. He has also seen the same pushback from banks that we have. Now we get to work on solving these problems together!
We’re looking forward to hearing from companies who want to chat about their place in the SaaS world and how we can help scale them from great products to great businesses. Whether we take a majority equity position or help with debt financing, we hope to continue to build a community of SaaS companies building smart and sustainable businesses.
Lew and team Scaleworks