The Pros and Cons of Revenue Based Financing

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Most startup tech companies come to a point in growth where an influx of capital is needed to take the business to the next level. The most common financing options are either debt or equity-based through resources such as venture capital, traditional bank loans, or angel investors. There is another option that is considered to be a combination of debt and equity financing: Revenue-Based Financing (RBF).

Here we have laid out RBF's pros and cons to help decide if it is the right funding option for you.

Pros:

Retain Control

Revenue-based financing is similar to equity financing in that funding is secured through investors or firms such as Venture Capitalists (VC). They differ, though, in that VC financing requires a share of the company or a seat on the board. Revenue Based funding does not require any control of the investment company. It leaves decisions and ownership entirely to the founder.

No Personal Collateral

Revenue-based financing is similar to debt financing, such as a traditional bank loan, because repayments are made monthly based on a percentage of future revenue. The main difference is that RBF requires no personal guarantee as collateral against the loan, such as in a traditional business loan. Meaning, you do not have to risk any of your personal assets.

Payments Reflect RevenueRBF is the most flexible option in investor financing because, as stated above, the repayment schedule is based on a percentage of monthly revenue. Therefore, if business is light, the payment is light. There will never be a month where the debt payment is more than the monthly income.

Quick Capital

Revenue Based Funding is approved on a much more flexible standard than traditional bank loans. Approval is based on the company's monthly recurring revenue (MRR), and payment is set at the original loan amount plus repayment cap, traditionally somewhere between 1.3-3x.

RBF has lenient requirements, such as no specific personal credit score or business experience. Because of this, it is an excellent option for small startups such as subscription-based services and software as a service companies.

Mutual Incentive

Unlike with VC funding, RBF investors have a mutual incentive for companies to produce revenue early in the investment. VC investors invest large sums of cash upfront but do not see a return until the back end. For RBF investors, the incentive lies in the fact that the higher the monthly revenue, the higher their monthly percentage.

Having RBF investors interested in the company's success early on allows founders to receive genuine help and advice from investors. These investors desire to see paced and steady growth lasting from month to month, versus unsustainable growth from a cash influx.

Additionally, because RBF investors do not gain from the sale of a company, there is no pressure to sell. This means founders can keep their companies as long as they desire.

Cons:

Limited Availability

Though the approval requirements are less strict than standard funding options, it does not mean that anyone can qualify. Because RBF uses the MRR to screen for eligibility, any company wishing to use it must already have a history of bringing in steady revenue from month to month. Therefore, RBF is not a great option for brand new businesses that are not yet selling products.

Lighter Capital

Revenue-Based Financing is an excellent option for giving a company a boost. Still, it will not save a sinking ship or allow for drastic changes in business structure. This is because the amounts secured through RBF are traditionally much smaller in size than Venture Capital financing. However, receiving lighter capital allows for shorter repayment times, ensuring that the company will not pay more in interest rates.

Monthly Payments

A monthly repayment plan is an excellent option for companies who already see steady monthly revenue. Still, it leaves out those who have not yet jumped into selling products or services. It also does not help companies who are looking to get out of operating at a deficit.

When considering RBF, companies need to keep in mind that the monthly gross margin will also be affected. This is due to a monthly repayment for the RBF that is now included in the equation.

New to Financing

Lastly, but worth mentioning is that Revenue-Based Financing is relatively new to the world of Financing. Innovation is great, but this also means that there is not a lot of regulation involved yet. This aspect has the potential to lead to predatory offers and higher scam rates. Although this fact should not necessarily be a deterrent on its own, extensive research should be done when deciding on a Revenue-Based Financing company.

RBF with RevTek

Revtek Capital has a proven track record of providing the lowest cost available and being the quickest solution to funding early-stage growth.

To inquire more about how to accelerate your company's growth through Revenue-Based Financing, contact us at (602) 730-4558 to schedule an appointment.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

Saas Customer Success: Best Practices and Why it’s Important

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We all know the importance of customer success but it's especially important in the SaaS industry. With the backbone of SaaS customer revenue resting on subscriptions, customer success directly relates to overall retention rate.

At the heart of the issue however, customer success is a general term at best. It is used to describe several different facets of your business that ultimately dictate the happiness of your customer and the use they get out of your product. As such, it’s difficult to give a specific metric or measurement to what customer success is. Rather, it might be better to think about what customer success is for your specific clients.

It’s with that mindset we hope to educate our readers, many of them burgeoning business owners themselves. Keep reading to learn more about the main goals of customer success and why it's important in the SaaS industry.

What Is a Customer Success Team’s Main Goal

Whether or not you have a team dedicated to this or are simply working on your own, customer success programs all have a single goal in common: optimizing the consumer experience of your product.

There are several ways this can be done but the most effective is finding out your audience’s desired outcome of the product. Is it to optimize the workflow of an entire team? Utilize cloud services optimized specifically for their corporate structure? Get in your client’s shoes and ask the questions they are asking.

Through understanding your core customer base, how they use your product and where they find value will become ever more apparent over time. It's important to then take this customer data and use it to drive company change that increases the product value for your existing user base

SaaS Customer Success Metrics

We have talked about metrics many times on this blog. Nevertheless, it’s  alway a topic worth talking about.

While there are many different types of metrics, there are only a core handful that ultimately give you the necessary data to assess the efficacy of  your customer retention. (Remember, in a world where monthly recurring revenue is the backbone of your business, retention equals success.)

As such, the following metrics are those we recommend all SaaS businesses keep a watchful eye on.

LTV

The Lifetime Value of a customer is a metric that serves two functions: it shows you who stayed onboard and it shows  you whether or not they are utilizing a higher tier product than when they started.

LTV shows you which clients are most in need of your product and provides insightful information into the kinds of custom features they use. Your high LTV clients are also going to be your top spenders and be the most likely to recommend your product to others in a similar situation to their own.

This means that one customer success story leads to another, all requiring a minimum effort to acquire.

Churn

The second big player when it comes to customer success is churn. The antithesis of LTV, churn rates indicate that your produce, process, or something in the nature of your product didn’t meet client expectations.

Whenever you see churn rates rising, it's an opportunity to take your strategy back to the drawing board and get input from clients on what didn’t work for them. In the long run, this can help you refine not only your product, but your custom services and customer support.

Refine Your Onboarding Process

Onboarding is something we have discussed on our very own blog and have mentioned in countless articles. There is good reason for this: your onboarding process has a massive impact on the early churn rate of your audience.

Unless you are in a very small niche, the likelihood of another SaaS company offering similar products or services to your own is quite high. If your onboarding process is sloppy, too involved, or too vague, there is a risk of churn after the tree trial or first month is over.

If this sounds like a matter of Goldilocks and the Three Bears, you’re correct. Fortunately, you have a little more control over how to change your process over time.

While it may not be clear at first, there are many ways you can gather information about the success of your onboarding process for both clients that churned and those that did not. These include online surveys and even reaching out individually through members of your support team to get client feedback on why they want to stay, and even more importantly, why they want to stay.

Focus on Upsell Opportunities

In SaaS and any other recurring revenue product, lowering churn is the main form of keeping a steady income into the company. To maintain this, you want to work smarter, not harder, at your customer success.

It’s easier and less resource intensive to maintain a current client than it is to acquire a new one. Similarly, it’s also far more profitable to upsell existing clients who already know how to use your product and use it as part of their daily workflow.

Maximizing the overall financial weight of your oldest customers is known as increasing a client’s “lifetime value.” This is the value that a single customer creates for your company over the entire duration of their subscription with you. The higher that number, the more money you make, thus absorbing any funding and time that went into acquiring the client in the first place.

This is yet another example of how having a well-oiled customer success machine can really benefit your business in the long run. Even though initially the investment is a little higher, you are paying into greater, more stable, future returns.

Customer Success is Business Success

This is where we talk about how RevTek Capital can help you on this incredible journey.

RevTek helps businesses grow. We do this by providing Capital in exchange for a percentage of your future revenue. In the world of SaaS where upfront costs can put a real strain on lead generation, that added financial help can be the difference between a small growth spurt and truly amazing results.

Can the added help get your business where you want it to go? Give us a call at 602-730-4558 to find out.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

How Venture Capital Works

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There is a point in the lifespan of every company where a decision must be made: seek funding or sacrifice growth. For those of us who are looking to stay in the game, sacrificing growth is not an option. It can mean the difference between whether you sink or swim.

This leads many to venture capital financing as a potential solution.

VC is an innovative fied that offers clients so much more than finance alone. Through a VC firm, startup companies and growing corporations alike will receive not only funding, but valuable guidance and networking which is integra to the longer-term health of their brand.

Interested in learning more? See how venture capital works in the article below.

Why VCs Invest

An important aspect of understanding why venture capital funds work is understanding the incentive behind a company whose main business model is lending out money. The answer rests in the symbiotic nature between VCs and the emerging companies they help support.

VCs make their returns by exchanging funding for a percentage of ownership in the company they chose to invest in. This is like buying a new stock at a good price and going it trades higher as time goes on. The better the company performs, the greater profit the VC receives.

VC, when done right, creates an environment where everyone wins.

How VCs Support an Environment for Growth

Venture capital firms look for talent to invest in at every turn. When they find it, they want to make sure their proteges experience the greatest level of success. As their reliance on the client is equal to the client’s reliance on them, this incentivises the VC to help their clients in every way possible. This includes more than funding alone.

Thus, in addition to funding, the purpose of an efficient VC is to build a client network, provide guidance to businesses owners in their field, and even offer small businesses the power of a fully developed management team and market research department. Taken together, these factors can greatly increase the chances of success in a relatively high risk game.

Who VCs Fund

Venture capitalists fund any number of businesses at all different stages of development. These range from silicon valley tech startups all the way to service based corporations such as Lyft or Postmates.

However, just because a VC can fund any type of company does not mean that all VC companies are right for your needs. Finding the right VC for your niche and your company size is just as important as the level of funding you receive.

This is related back to the idea of symbiosis between a VC company and the businesses they support. If you don’t work with an investor who knows your audience, understands your product or service, or understands how to work with your company at the stage it’s at, they will not be able to give you the resources you need for success.

As such, if you are going to the venture funded route, make sure that you and your funding company (or even angel investor) are a good match for one another. Your business and their pocketbook will thank you for it later.

What Stages do VCs Fund

This leaves us with the final element of VC funding: the stage audience they most typically fund.

While it's unusual for seed stage companies to look at venture capitalist firms, it's not much further into the early stages of company development that they thought crosses their mind. As such, we wanted to give a quick run-down of the different stages of funding in existence and where you are most likely to see venture capitalists within this hierarchy.

  1. Pre-Seed Funding
    Phase: Startup
    Company Worth: $10-100 Thousand
    Investment Amount: $1 Million or Less
    Common Investors: Angel Investors, Personal Funds, Donations
  2. Seed Funding
    Phase: Product development, skeleton teams
    Company Worth: $3-6 Million
    Investment Amount: $1.7 Million
    Common Investors: Angel Investors, VCs
  3. Series A Funding
    Phase: Boosting Sales
    Company Worth:$10-15 Million
    Investment Amount: $10.5 Million
    Common Investors: “Super” Angels, VCs
  4. Series B Funding
    Phase: Scaling and expansion
    Company Worth: $30-60 Million
    Investment Amount: $25-30 Million
    Common Investors: VCs
  5. Series C+
    Phase: Well established and looking to go public
    Company Worth: $100-120+ Million
    Investment Amount: $50 Million
    Common Investors: Hedge Funds, Investment Banks, Private Equity Funds

While the above is just a bare-bones overview of different business stages, if you are interested in learning more we wrote an article here for further reading.

Working With Funding Experts

As a funding company that writes about funding, we speak from a place of experience. We are a team of entrepreneurs who take all we have learned growing our own businesses and using it to help others grow theirs.

At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it’s most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.

To begin the conversation about how to take your business to the next level, contact us at (602) 730-4558 to schedule an appointment.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

SaaS Onboarding Best Practices

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Onboarding is not limited to the first few interactions a client has with your product. Instead, it's time we understand onboarding as encompassing the entire lifecycle of the client.

Suddenly, this takes onboarding into sharper focus, making clear the way in which we welcome, indoctrinate, and interact with our user base as integrated marketing strategies. By taking a look at the bigger picture, we not only understand our clients better, but we can provide them more of what they most enjoy from our brand, whether it's in outreach, content, or even promotions.

What are the main tenants to cultivate these onboarding practices? Read below to find out more.

Why Does Onboarding Matter?

While we touched on this a little already, onboarding is more meaningful than simply having a good user experience. In fact, the success of your overall onboarding strategy is what will ultimately determine which customers stay with your brand and which look elsewhere.

In its beginning stages, your onboarding program is going to introduce your SaaS company culture to your prospective clients. This includes your free trial, signup process, access to your knowledge base, and potential ways to interact with different support team members to help you navigate this new software.

As time goes on, onboarding becomes a little more complicated, especially if your software is targeted at companies. At some point, you will need to have employee onboarding, team integration, and troubleshooting measures readily available for the first day on the job while using your system.

Finally, as your SaaS product becomes ingrained in the daily workflow of individuals and corporations alike, your onboarding process comes full circle by building a brand around who you are and what you do. This can include sharing to social media, sending out information, and anything else that keeps consumers in touch with your brand.

Knowing this, we can move on to the different types of onboarding styles companies tend to use to determine which might be best for your audience.

Creating Immediate Customer Value

When onboarding a client, you need to see your software from their perspective.

While it may be loaded with features and capabilities, those are not all going to be important to your client at this stage. What they want is to see your product deliver the results they are looking for. They want your product to make life easier, now.

There is no one rule that can help you achieve these results, as it largely depends on what your software aims to do. As such, most companies take an approach where they have a blended process of personalized help (high touch onboarding) and automated onboarding checklists to help your clients guide themselves (low-touch onboarding).

What this blended approach should do is two things:

  1. Keep the onboarding process simple enough to start quickly
  2. Have the onboarding process teach them enough to get immediate value

This second point is particularly important as it helps bring customers to an “aha moment.”

The aha moment is a coveted milestone for any SaaS product as it is the moment when your client fully realizes the value in your product. Once this moment is reached, it is much more likely your software is integrated into your client’s routine, thus reducing their risk for churn.

Monitoring Customer Success

How to know if you are practicing effective onboarding? It's all in your metrics. The lower your Churn and the higher your LTV, the better indication that you're doing something right.

However, it's important to note that metrics are not all that matter. This is because if there is a problem with your software or process, you want to know exactly where that issue occurs to fix it as soon as possible.

Generally, this is done by maintaining good customer contact. Make sure to reach out and monitor product use, perhaps even implementing customer success teams to highlight the good and the bad about your SaaS product. Over time, this will help you collect data to help tweak your process and make it as effective as possible for your target audience.

What We Know About SaaS

At RevTek, we fund and interact with many SaaS entrepreneurs. We know what a good product looks like but we also know it won’t get far without a good plan.

RevTek helps businesses grow. We do this by providing Capital in exchange for a percentage of your future revenue. In the world of SaaS where upfront costs can put a real strain on lead generation, that added financial help can be the difference between a small growth spurt and truly amazing results.

Can the added help get your business where you want it to go? Give us a call at 602-730-4558 to find out.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

The Funding Life cycle: 5 Stages of Funding for SaaS

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Whether you are a startup, newly established, or an SaaS with a defined product looking to scale, at some point funding starts getting important.

While we have a glorified view of “bootstrapped” companies that made their way from the ground up, this is not reasonable for a large majority of businesses. The competition is too fierce and the products too plentiful. By passing up the opportunity to strategically utilize funding, you will fall behind your competition.

Fall too far behind in the digital world and your product will soon suffer. Ultimately, it could lead to your company failing entirely.

But with all the funding options available today, how do you know which type is right for your business? Where do you fit in? What should you ask for? How much do you need? What are the best sources of funding?

Below, find the 5 categories of funding to see which is right for you.

What Investors Watch For

Before investing in your company, it’s an investor's due diligence to assess the profitability of your company. This allows them to determine the health of your company, whether or not it has the potential to grow, and how well it will scale into the future.

As such, angel investors, private equity firms, and venture capital firms alike will look at several KPIs to ensure you meet their investment criteria. These could range anywhere from a minimum MRR, CAC, and your overall projected growth strategies.

Keep this in mind— it will ultimately help you make a realistic assessment of which funding type your company most needs.

Pre-Seed Funding

As time goes on, the playing field of startup funding rounds has been subject to many changes. With growing competition to stand out and the need to properly leverage the SaaS growth curve, raising money as early as possible has become increasingly common.

Unfortunately, finding funding at this early stage is incredibly difficult. Not only are companies this small in a vulnerable position, their overall trajectory and business plan may not be well defined. In combination, this poses a serious risk to their overall stability.

Company Worth: $10-100 Thousand

Investment Amount: $1 Million or Less

Common Investors: Angel Investors, Personal Funds, Donations

Seed Funding

This next phase of funding marks the beginning of a company’s first major growth stage.

Here, seed capital is often received from venture capitalists to take a product from a developing stage to something more finely tuned. In exchange, these VCs often exchange their funding for a 10-25% equity stake in your company.

Company Worth: $3-6 Million

Investment Amount: $1.7 Million

Common Investors: Angel Investors, VCs

Series A Funding

Series A is the tipping point where companies finally have a developed product while shifting focus to refining their business model.

By this point in the company life cycle, the focus moves from getting by and gaining tractions to a more sales-orientated perspective. The demands at this stage often involve revenue within the existing market, having a reliable set of KPIs you can realistically meet, in addition to a business model that supports your future growth.

As the core team is usually established by this point, investors begin to take benefit as well— series a financing being the gateway to preferred stock in the company.

Company Worth:$10-15 Million

Investment Amount: $10.5 Million

Common Investors: “Super” Angels, VCs

Series B Funding

While Series A funding looks mostly at growth and gaining market traction, companies looking for Series B funding are more likely to focus on scale, meeting new market demands, and expanding product offerings. This indicates that you know your market, you know which KPIs to watch, and you are looking to take that information and apply it to a larger audience.

With the increase in demand, comes an increase in manpower and a keener look toward strategic marketing decisions. Commonly, at this phase entrepreneurs will use their funding to hire more staff, expand into larger markets, and even see if they can gain a strategic advantage through buyouts or outpacing the competition.

Company Worth: $30-60 Million

Investment Amount: $25-30 Million

Common Investors: VCs

Series C and Beyond

By the time a company reaches Series C funding, they are well established in their industry and looking to move towards an IPO.

There is no limit to the types of funding they can acquire as they years go on, providing these companies remain profitable. In fact, after Series C, it’s reasonable for a company to seek everything through Series E funding if that is the route they choose to take.

At this stage, funding is no longer used to finance growth,

Company Worth: $100-120+ Million

Investment Amount: $50 Million

Common Investors: Hedge Funds, Investment Banks, Private Equity Funds

When Funding Goes Public

Once you have cycled through all the funding tiers, developed a brand, a company, and a team dedicated to success, you might just find yourself in a position to accept IPOs. At this point, you are no longer limited by a small pool of investors, you are opening your company to the general public. Through common stock, your company becomes part of a global economic system alongside some of the heavy hitters in today’s tech industry.

However, we all have to start somewhere. Making the most of where you are today just might be what helps boost your brand tomorrow.

At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it's most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.

To begin the conversation about how to take your business to the next level, contact us at (602) 730-4558 to schedule an appointment.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

High Vs. Low: SaaS Customer Onboarding

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At its very core, “onboarding” is a term used to describe the process in which your prospective client learns about your product, makes an account, and decides whether it's value is worth the subscription cost.

As such, successful client onboarding is much more complex than getting an individual to make an account or sign up for a freemium plan– it's about a clean sales process which ultimately leads to client retention.

From the first point of contact all the way to the quality of your customer service, building a skillful onboarding process is an art form every SaaS Entrepreneur should learn, refine, and consistently update.

Looking to improve your current client onboarding process steps? See below for our top categories to keep in mind.

Reduce Your Friction

The main piller of successful customer onboarding is managing “friction".

Generally speaking, this term implies the level of difficulty a new customer encounters when making an account and learning to use your product. The more friction there is in your onboarding process, the less likely you are to have a successful onboarding attempt.

Depending on the type of population your software is built for, friction can occur in vastly different areas. To determine what your friction areas may be, consider asking yourself the following questions:

  • What is the age of my target audience?
  • What is their level of technological literacy?
  • Is my software simple, or complex?
  • Will future clients rely heavily on live tech support to troubleshoot?

In the sections below, we will explore how different methods of onboarding can reduce any challenges faced by your user base.

The Great Debate: High-Touch vs. Low-Touch Onboarding

There are two main schools of thought when it comes to onboarding: low-touch and high-touch. Low-touch onboarding is a simple, largely automated, process. High-touch onboarding is in-depth and offers live, personal, support.

High-Touch

When a team member, project manager, customer success manager, or any other dedicated personnel from your company helps the client run through onboarding, this is known as a high-touch approach. In these approaches, almost everything about the onboarding process is customized and personal to the individual clients from the initial kickoff call, support emails, and any account modifications.

Low-Touch

On the other end of the spectrum, there is low-touch onboarding. This is an almost entirely automated process in which a client onboarding checklist is built into your software to take an individual through the process of making an account and experiencing an initial tutorial. Often low-touch will also rely on chatbots in lieu of a support team to keep personal client contact to a minimum.

Which One is Better?

While there is a place in SaaS for both methods, which one is “better” remains a heavily contested topic.

Some companies believe that low-touch onboarding should solely be reserved for new start-ups who don’t have the power for a support team. Others believe that the personalized contact in high-touch onboarding complicates the process and will turn people away.

In reality, most companies find a happy medium by using a blended approach. How much of each style you use is really a matter of trial, error, and careful attention to the services your clients use most.

Looking at two examples, we can see the different uses of low vs. high-touch onboarding:

Example 1: Low-Touch

Let's say that you are looking to market a simple SaaS product that helps people organize their bookmarks on the internet. The software has few advanced features and is something you want your audience to be able to use right away.

Here, signing up with an email and running through a short automated tutorial is often all you need. As such, having a low-touch onboarding process is going to create the least amount of friction. It will help your clients get up and running, perhaps even with a promotional free trial, with minimal barriers, steps, and annoyances.

Example 2: High-Touch

Now let’s say you are looking to market a task management system that has the capacity to integrate several other products or services from your company. This system allows for several employee accounts, document management, scheduling, and many other advanced features. This technology is free for 30 days to allow everyone time for the full experience— maybe even to reach an “aha” moment where users see the full value of your product.

Here, you most definitely want a high-touch process. Not only will you initially need onboard administrators, but you will need the sysport system to navigate employee onboarding, multiple accounts, and potentially an entire suite of softwares each with their own purpose. The more complicated the services, the more need for personalized tech support and consumer relationship management.

When you put these ideas into practice, knowing your audience gives you valuable information about how to craft your onboarding experience. To see how this works in action, let’s look at two examples.

Testing Your Process

No matter which style or combination you implement, it's important to look at the type of churn created by your system.

Churn rate is the silent killer of many SaaS companies. This is because there is a high percentage of clients who churn who will never give feedback as to why your software didn’t work for them.

Missing out on valuable information such as this could be detrimental to your company. Sometimes, all it takes is a simple poll asking for feedback to determine whether the problem was your product itself, or an onboarding system that missed the mark.

In either case, the information gathered will be of great use to the long-term success of your SaaS business.

The SaaS Experts Who Also Do Funding

This is where we talk about how RevTek Capital can help you on this incredible journey.

RevTek helps businesses grow. We do this by providing Capital in exchange for a percentage of your future revenue. In the world of SaaS where upfront costs can put a real strain on lead generation, that added financial help can be the difference between a small growth spurt and truly amazing results.

Can the added help get your business where you want it to go? Connect with us at Contact us or (602) 730-4558 to find out.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

How Much Money Should a SaaS Company Raise?

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The reality for many SaaS entrepreneurs is that the cost to begin a software company is simply too much for any one individual to amass. As such, while we all love a good “rags to riches” story about a tech entrepreneur who bootstrapped their way to success, it's not a realistic goal for a vast majority of SaaS companies.

This begs the question: how much money do I actually need to raise to take my growth to the next level. Depending on where you are at in the lifespan of your business, this number can look a little different for everyone.

As SaaS financing experts, read below for the funding stages you may encounter on your way up the ladder, how much money to raise for a startup, and furthermore, how to get the funds.

What Investors are Looking For

There is a difference between marketing to an investor and marketing to a client.

While clients are looking for your product to resolve their pain points, they are also far more susceptible to good sales copy-- emotionally driven passages, promises of a better tomorrow, and the like.

For investors who come into contact with thousands of different companies each year, their eyes are primed for something a little different.

The main concern for investors is knowing your product ains, whether your audience is B2C or B2B SaaS, the amount of money you may need, and what kind of growth your funding may earn over the next 12 to 18 months and beyond. These are the two top contenders an investor will consider when making the final decision about whether your business might be profitable in the long term, or whether your idea needs more work.

As such, you want to make sure your proposals are direct. Tell them what you do, how you do it, and where you want to see yourself in the future.

The different Stages of Investing

What level of funding your SaaS needs will depend largely on how established you are, what your prospective goals are, and what series of funding you are looking to receive. This is particularly true for SaaS Startups, as the spending curve for software companies are often much steeper in the beginning of a company’s inception when compared to their financial needs vs revenue at a later time. This is due to the business model and growth rates of SaaS companies relying heavily on returning revenue (such as monthly subscriptions) to remain sustainable and profitable, rather than many other products or services which are on-time purchases.

Pre-Seed

If you need pre-seed money, you are at the earliest stage of your fundraising journey. Most likely, our company is still forming, your revenue growth is not secure, and you are looking to raise money to get past this early stage of your business.

While having a business model is a great way to solicit your company, understand that at this stage, funding will likely come from friends, family, and your own pockets.

Seed

Raising funds for “seed money” is the point in your business where you begin to take your growth more seriously. Think of this phase as the foundation to building up your business in a way that starts to make an impact.

Generally, investing at this stage of the game is risky for individuals. As such, it is much more common to run into angel investors who are less risk averse than more traditional investors (such as private equity companies or banks).

Raising capital at this stage could be difficult for an SaaS company as this is the most financially intensive period in a tech startups life. This is the point before you have subscribers, recurring revenue, and a proven niche you know how to reach and convert.

Depending on your goals, you may find yourself asking for millions of dollars to help cover the initial cost of getting your business running, conducting outreach, and getting your name on the map.

Series A, B, and C

Some companies will never need more than seed money to get off the ground and get profitable. However, it's good to know that on the other side of these investments, there are broader horizons.

For companies looking to scale in a big way, potentially grow their product offerings, or even begin acquiring smaller companies that offer similar services, going up the ranks in series funding might be for you.

Like with other types of funding, you will likely be asking for an amount in the millions depending on what you are looking to accomplish. The difference here, however, is that as your company grows more profitable, you will be seen as a safer investment. This opens the doors to more traditional investment opportunities such as capital investors and banks, all of who might be able to provide you with the financial services you need to take your business to another level.

Before you Take on Debt, Ask yourself This

Taking on an investment loan might seem like the only way forward in the earlier stages of your company, but remember: not every kind of loan is right for every kind of company.

You must make a careful assessment of your own goals and prospects before engaging an investor, not only to keep your investors happy, but to ensure your business grows in the direction you imagine.

Here is the thing: when you are accepting investments, there are going to be strings attached. Your investors are not just giving away money, they are seeking an opportunity for their own gain. This usually means part ownership of the company, some involvement in decision making, and oftentimes certain requirements and stipulations you have to agree to before receiving financing. While this works for some, not everyone wants a business that has several cooks in the kitchen, so to speak.

The decision is intensely personal and only you can decide what is right for you. That being said, if you decide not to use external funding, you growth process will likely be slower and your prospects smaller.

SaaS Funding Experts

Many times what gets in the way of a SaaS company reaching their full growth potential is not having the funds to function at that initial negative profit while leads and sales are being discovered.

At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it's most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.

To begin the conversation about how to take your business to the next level, connect with us at Contact us or (602) 730-4558.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

Your Guide to SaaS EBITDA Margins

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As a SaaS business owner, the value and profitability of your company are always on your mind, especially in the early stages. There could be situations where you ignore overall profit declines or are unaware of your specific metrics, both of which run your company without reliable metrics.

In any case, several formulas can help you assess the profit margin of your company that will tell you how much value your software company holds. Calculating EBITDA is one such metric that business owners use to measure growth and profitability.

What is EBITDA?

EBITDA stands for "Earnings Before Interest, Taxes, Depreciation, and Amortization". It seems like a complex term, but broken down it is a calculation for profitability. It is sometimes an alternative to net income or operating cash flow.

EBITDA is the figure that takes the total revenue, subtracting company costs from it, and adds back in interest, taxes, and depreciation values. Knowing this figure helps companies to evaluate themselves against similar businesses and industry averages. EBITDA is also often discussed when considering the sale of a company because it gives buyers a good idea of its ability to generate cash flow.

How to Calculate EBITDA

To calculate EBITDA, you should already have all the data sets you need on the company's income statement and balance sheet. There are two ways to calculate EBITDA.

These two formulas may yield different results because Net Income may include various factors than Operating Income, such as one-time expenses and non-operating costs.

Starting with Net Income, the formula is:

EBITDA= Net Income + Interest + Taxes + Depreciation + Amortization

Because you can calculate Net Income without interest and taxes, you must first add them back to the amount.

Starting with operating income, the formula is:

EBITDA= Operating Income + Depreciation Expense + Amortization Expense

Because you can calculate Operating Income before you subtract interests and taxes, there are not more steps to the process.

The Rule of 40

Knowing the EBITDA of your company is necessary for finding another necessary calculation: The Rule of 40. This number is a well-known figure in the SaaS Industry that assesses the health of your SaaS Business.

The formula says that if you add together your revenue growth rate and EBITDA profit margin, and if their sum equals more than 40%, your company is healthy and doing well.

The Rule 40 still applies to companies with low or negative profits because they may have high enough growth rates to counterbalance them—for example, start-ups seeking to maximize customer acquisition costs. The opposite is also true for slow-growing companies that have significant profits.

The median EBITDA margin for publicly traded SaaS Companies typically sits around 37%, meaning just under half of the companies meet the Rule of 40.

The Trouble with EBITDA

Many business owners may not choose to rely on the EBITDA measurement because there are a few drawbacks. EBITDA is not a Generally Accepted Accounting Principal (GAAP). Therefore, many companies may calculate it differently. Buyers can also be wary of committing to companies that highly advertise EBITDA because this number can downplay and distract from rising costs in financial statements.

We Boost Your SaaS Company with an EBITDA Margin

Our team at RevTek Capital understands how crucial EBITDA margins are to the health and revenue increase of your SaaS company. By taking a capital investment to increase sales and marketing dollars or diversify your customer service options to drive up profits, RevTek can help you boost your company's growth.

We make it our aim to accelerate your business growth and would love to show you how by helping you calculate your EBITDA. No successful SaaS business CEO has ever run their company without taking financial metrics and statistics into consideration. Call today at 602-730-4558 so we can evaluate your company earnings and help you determine your company’s next growth steps.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

Growth Capital vs. Venture Capital

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Somewhere along the line, every business needs outside funding. Whether it be to help during the startup process or to expand or restructure further down the line, obtaining outside capital enables companies to succeed. Let’s compare growth capital and venture capital, as well as the superior funding options that RevTek offers.

What is Growth Capital?

Growth capital, which is also called growth equity, involves private equity investments into a company. Usually, more developed companies seek growth capital to either expand or transform their business.

Growth capital is a form of private equity investing, which occurs when private equity firms or investors put money into a target company. Private equity investors do not want to take risks, which is why the companies they invest in have already shown success.

What Are the Advantages of Growth Capital?

Coaching: When a PE firm or group of investors provide a company with growth capital, the capital is not all that they will give. Since most investors are experienced in business, they will also provide advice and consultation to help you operate and manage your business effectively.

Financial Backing: The most obvious benefit of growth capital is the resources needed to expand a company or enter a new marketplace. A successful company that has stagnated can use growth capital to increase its success.

What Are the Disadvantages of Growth Capital?

Lose Equity: In order to receive growth capital, you will be required to give up some equity in your company. The amount of equity you give up will depend on the amount of capital you need.

Lose Control: Most PE investors also require you to give up some control. Depending on the amount of capital you need, it may be as simple as giving a board seat to a person of their choosing, or it may require losing your position as the majority owner.

Who Needs Growth Capital?

Growth capital is almost exclusively for mature companies that have already proved their profitability and have significant cash flow. Growth equity investors refrain from risking their money, which is why recipients of growth capital must demonstrate current profitability.

The size of the company also matters. According to Venero Capital Advisors, most PE firms focus on target companies valued somewhere between 10 million and 100 million dollars “for either a minority or majority stake in the target company. And it is not uncommon for the invested capital to provide some level of liquidity to current owners.”

What is Venture Capital?

Venture capital is a common way for promising startup companies to gain the finances they need to grow. Venture capital financing involves venture capitalists, who are often part of a venture capital firm, investing in a startup company.

There is a high level of risk involved for venture capital investors. They invest into early stage companies that have not demonstrated the ability to maintain solid revenue and profitability. They make their capital investment based off of the potential of the business plan.

While companies generally receive venture capital early in their growth, there are also different stages of venture capital. It could be at the seed stage, the startup stage, or several other stages where the company is already expanding and showing revenue growth.

What are the Advantages of Venture Capital?

Large amount of capital: Compared with other traditional ways of raising capital, venture capital offers the most.

Risky: While most investors require demonstrated profitability, venture capitalists are happy to invest in early stage companies that have potential. This opens doors to other ways to raise capital.

What Are the Disadvantages of Venture Capital?

Lose Equity: As with growth capital, venture capital usually necessitates giving up some equity.

Lose Control: The amount of control you lose depends on the amount of capital you need. This can range from losing your position as the majority owner, bringing in a minority owner, or simply giving up a few board seats.

Who Needs Venture Capital?

Venture capital is almost exclusively for startups and early stage companies. To obtain venture capital, all one really needs is a strong business plan with potential for significant revenue and profitability.

What Does RevTek Capital Offer?

While both private equity and venture capital offer different benefits, RevTek offers a better financing model. Whether you are a startup that has achieved early success or a more mature company looking to expand or change, we can help.

Our model is quite simple: we provide the capital, and you pay it back in manageable monthly payments based on your monthly, recurring revenue. You do not have to be profitable to be eligible, but you should have a recurring revenue of at least $50,000 a month.

We offer significant benefits that distinguish us from the alternatives.

  • We do not take your equity. We have no interest in taking any ownership in your company. Venture and growth capital necessitate giving up minority to majority ownership, but that is not what we want. Our goal is to provide you the capital you need to succeed.
  • We do not take control. We also do not require a place on your board of advisors or need any people involved in the operations of your business. You know your business better than we do, so we want you to continue to run it the best way you know how.
  • We offer a simple and quick solution. Both venture capital and growth capital require that you sell your business plan, model, or expansion idea to the investors, with no guarantee that they will accept it. At RevTek, we offer a simple, quick process that will provide you with the capital you need.

Whether you are a young startup looking for venture capital or a mature company interested in obtaining growth capital, RevTek can help you. Contact us today to schedule a consultation with one of our experienced team members.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"

SaaS Sales Strategies

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Now that you have developed a useful, high-quality Software as a Service (SaaS) product, you’re probably looking to scale your business by increasing sales. As your sales team works to find new clients, here are some SaaS sales strategies.

Why Are Sales so Important for SAAS Businesses? 

Finding leads and selling your product or service is important for all business models, but that is especially true for SaaS. Outside of slightly discounted prepaid annual plans, you will only have relatively small payments coming in every month.

As Ben Cotton says, SaaS “companies reach profitability over time and must continually provide value, otherwise their clients will become at risk of churning.”

So maintaining your current customers, which is significantly less expensive than acquiring new customers, is important, but you need to add new ones too. Here are some tips to make it happen.

Referrals

One of the best ways to generate new leads is an effective referral program. Usually this involves discounts or credit for existing customers who successfully refer new ones.

As you’re working to build your brand, personal referrals are an effective method to accelerate the development of your reputation.

As you develop your referral program, you need to maintain a strong balance. On the one hand, you want to provide enough incentive to encourage people and businesses to recommend and refer their connections. On the other hand, you don’t want to provide too much of a discount or cash, decreasing the quality of the leads that come in through the program.

Content Marketing

One of the fastest-growing sales and marketing strategies is content marketing. Instead of focusing on the sale, content marketing is all about answering questions that your customers have.

Content marketing is part of a larger element of your sales strategy known as inbound marketing. Through the use of high-quality content, social media and SEO work, the goal is to improve your brand recognition and trust, as well as generate new leads.

Sell the Benefits, Not the Features

As you’re talking with potential clients and developing your sales content, it’s important that you focus on how your service will improve their lives.

Many SaaS providers get caught focusing on the specs and features of their service, which can bog down potential users. Some customers will want to know all the details about how your product works— and you should be ready to provide it to them — but don’t lead with it.

Qualify Your Leads

Once new leads start pouring in, it is important that you vet the quality of the leads. As a growing company that will work intimately with your clients, you want to know that they will be a great customer before you begin.

While you may want to take the short term gain by signing a contract with an under-qualified client, it may end up costing you more money in the long-run. Your sales cycle should result in long-term clients that stick with you.

Set Your Prices Strategically

When you start your scaling process, make sure that your prices are strategically set. You may be tempted to offer request discounts or lower your prices below your competition, but it is essential that you don’t sell yourself short.

You need to price according to the quality of your product and your business’ customer service. You shouldn’t price your business to equate with the lowest level providers of the same service.

Some potential customers may object to your prices, but that’s the way it should be. After all, it is better to have a smaller number of quality clients who are willing to pay more than an overabundance of weak clients.

Trials

As the market has grown more and more crowded, it has become increasingly important to provide some sort of demonstration about the functionality of your product. Offering a free service upfront is a great way to generate buzz and leads.

With the free trial that you offer, it is important that you keep it short. Some SaaS giants, like Spotify and Dropbox, have the financial capabilities and services that work with longer free trials, but most SaaS startups can’t and shouldn’t offer anything longer than two weeks.

Throughout the duration of the trial, you should be persistent in reaching out to the client. Check in with them as soon as they sign up for their free trial, and several more times throughout the process.

This way, they will be impressed not only with the quality and utility of your product, but your customer service.

How Can Revtek Help You with Your Sales? 

Here at RevTek, we know how difficult it can be to penetrate a crowded marketplace, find new leads, qualify those leads, and sell your product. We also know that that process requires significant amounts of capital — capital that you don’t have as a SaaS startup.

That’s where we come in.

We have developed an excellent process to aid growing SaaS businesses like yours. We provide you with growth capital that you can use to boost your sales efforts or hire a new sales representative, among other things, in exchange for manageable monthly payments based on your monthly, recurring revenue.

Unlike others, we do not take any equity or a seat on your board and our terms are simple. To be eligible, you do not have to be profitable, but you should have a predictable recurring revenue of at least $50,000 a month. If you are a qualified SaaS company, learn more about how we can partner with you today.

Funding Solutions from RevTek Capital

If you are looking to raise capital for your startup, choose RevTek.

Our experienced team can provide you with the money you need to expand your tech startup.

Contact us today to learn more about how we can help your business grow.

If you are looking to obtain growth capital or move into a new market, contact us today.

Download our free eBook

"Scaling Valuation Secrets for SaaS Companies"