The massive shift from the traditional to the subscription business model has been on an upward trajectory without disruption for years. However, most SaaS businesses aren’t making a shift at all, since their default business model is subscription-based from the start. Transparency Market Research predicts that, by 2022, the SaaS market will reach $164.29 billion. This explosive growth has made subscription-based startups an attractive investment and created a new level of competition among venture capitalists (VCs). The competition is probably the greatest it’s ever been and, as a result, has driven investors downmarket to fund SaaS businesses at a much earlier stage than they would have five years ago.
Taking Advantage Of Investor Interest In B2B SaaS
As investors move downstream to fund at an earlier stage, there are several things you can do to impress investors, get funded, stay funded and grow. Start with the following:
- Build a strong team. This may seem like a no-brainer, but it’s an important factor for investors. They’re handing you money and want to know that the team carrying out your vision and growth plans can do the job. Investors know that a great idea won’t go anywhere without a solid team that can execute and bring it to the finish line.
- Create a strong story and practice your pitch. Fundraising is competitive. Most investors hear hundreds of pitches each year. It’s critical that you tell your story in a way that helps a potential investor easily understand your business and leaves them with a desire to take part in your next chapter. It’s critical that you validate your story with financial metrics and KPIs that support your go-to-market strategy. Not only will they reinforce your story, but they’ll also make it more interesting.
With your story nailed down, practice and adjust your pitch. You can’t expect an investor presentation to go well if you wing it. Share your pitch with mentors who can provide feedback and help you fine-tune your delivery. The more your practice, the more likely you are to deliver your story with confidence.
Here are a few additional tips that can help you perfect your strategy:
- Engage investors even if you aren’t ready to raise capital. In my experience, you should never stop fundraising. Staying engaged with the investment community can help lay a foundation for a future capital raise and spark early interest in your business. It gives investors who see potential in your story the option to track your progress. An investor can also provide valuable advice and connections to their portfolio of companies, which may also be your target customers.
- Mature your financial operations. Without tracking SaaS metrics and putting a system of record in place to help manage finances as your business scales, fundraising can be intimidating, cumbersome and tough to navigate. I’ve shared before that the world of B2B SaaS financial operations is fraught with spreadsheets and manual processes, neither of which will instill confidence in investors. By using a solution to automate your day-to-day financial operations and provide visibility into important data, you’ll be better prepared to deliver the metrics to support your pitch.
- Capture data early. Successfully securing capital hinges on your ability to not only track financial data, but to identify trends within it. By capturing data as early in your company’s life cycle as possible, you’ll be able to identify trends over time that will help build and tell your story, proving to investors how and why your company has potential for future growth. Annual recurring revenue (ARR) growth, average contract value (ACV), churn, retention, customer lifetime value (CLV) and customer acquisition costs (CAC) are a few of the critical metrics investors will expect to see.
- Make sure your timing is right. For any growing business, time is money. It’s easy to underestimate the amount of time your executive team will need to devote to raising capital and due diligence. In reality, raising capital is a full-time job. Your company may be in a stage of growth in which executives are needed and can’t be pulled away from day-to-day operations. Accurately forecasting cash needs and being aware of what your runway looks like will help you determine the best time for a capital raise.
With these first steps, you should be well on your way to acquiring funding from the right investor for your organization.
