Since 2020, the world has seen a rise in the number of startups – which is great! People are finally pursuing their dreams and starting the business they’ve always wanted to. Right after the e-commerce market, the Saas space is also quickly growing and expanding all over the world.
So, if you’re new in the business or are thinking of entering the SaaS space, then this may be the right time for you. However, finding the funding for your project is a whole different story. But don’t worry, because even if it seems difficult, there are a number of ways in which you can find the right funding to finance your business if you really put your mind to it.
In this article, we’re going to be guiding you through the different options you have when it comes to financing your SaaS business – let’s get started!
The safest option most companies go for…
Bootstrapping. It’s when you choose to grow your company from the inside, without looking for external funds or loans. It basically involves the stakeholders connected with the company putting in their personal savings and funds to start the project.
The reason why many businesses go for this is because it’s one of the least expensive ways to get your initial funding, especially for startups.
There are also a number of other benefits that come with bootstrapping, such as retaining full ownership of the company, not having to consult with external investors since all the stakeholders are associated with the product, not getting into debt, and less financial risk as well.
According to 2022 SaaS performance trends, SaaS financing that involves bootstrapped companies has a positive net margin when compared to VC-backed companies.
Partner financing – your next best option
Some of the leading SaaS companies in the world right now are funded by partner financing. In short, this is when the company relies on the funds given by the company’s partners. You end up sharing the company’s ownership, along with the loss and profits made by the company with the partners as well. But, why would someone be willing to finance your startup?
Well, here are the perks that partners usually get for financing projects, in most companies around the world:
- Special access to the product(s) before the rest of the world gets access to it. This may also include giving them access to the product even before the beta testing phase.
- Since they basically function as external stakeholders, they do have a say (to a certain degree) in the company’s roadmap.
However, the other perks of partner financing include:
- Easily establishing the startup business with a very low cost
- Being able to change your legal structure when you wish, if and when the need arises
- Income splitting is possible, which is beneficial in terms of saving tax
- You’ll be able to borrow at a greeted capacity
- There won’t be much friction between the external stakeholders and management, in most cases
Finally, VC fundings are still popular among startups
Despite having access to several other funding options, many startups still rely on Venture Capital funding for their initial growth. This is because it’s reliable and has been trusted by most companies in the past.
It’s a private equity financing that investors provide for small businesses they believe in – especially if they believe that the company has long-term growth potential. VC funding can come from investors who are well-to-do, banks, and other financial institutions as well.
These 3 options happen to be the most reliable (and very often used) modes of SaaS financing for startups. However, make sure you have a great MVP in hand before you consider getting your funding, since many startups make the mistake of finding their funding before they’ve reached the right stage of growth.