Securing SaaS venture capital is a challenge especially with the sheer volume of companies entering the SaaS market every year – understandably so bearing in mind how tough it is to get venture capital funding for any startup. Even in Israel where Israeli venture capital firms are closer to optimal than in most other countries, it’s still pretty challenging.
What Is a SaaS Startup?
A SaaS startup is a startup that deals with Software as a Service (SaaS). SaaS in itself is a software distribution model that gives consumers access to applications over the internet.
It is rather convenient because it’s over the internet in lieu of physical media and custom installation. As a SaaS company, you host all the SaaS products and maintain and update them automatically for customers to access them on browsers.
Most SaaS products fall under one of three broad categories:
Packaged SaaS
These are products that help manage a specific process in an organization, improving employee engagement and strengthening customer relations.
Collaborative SaaS
The products help improve how well teams work together. Collaboration can be on messaging, video conferencing, or basic collaboration on documents.
Technical SaaS
These applications offer tools to manage developmental and technical processes.
Why It Is Easier to Secure SAAS Venture Capital Than Other Kinds of Venture Capital
Venture capitalists and investors love investing in SaaS companies and startups and here is why:
Lower Barriers to Customer Adoption
Away from venture capital news, allow me to take you back to when software was very cumbersome to obtain not to mention expensive. We lived in times where customers had to pay one-off fees for lifetime access or limited-time access to the software in question.
The scene has drastically changed - to say the least. Now, users pay an ongoing subscription fee for access, which magnificently magnifies the flexibility of pricing.
Another underrated point when it comes to pricing is as customers grow, in the case of B2B businesses, they can henceforth upgrade their subscription. What I am trying to say is customers can start with the lowest possible pricing/package until their growth necessitates an upgrade.
The mere fact that you can start with the lowest prices increases the number of organizations and individuals that are able to become customers. I cannot emphasize enough how much investors love businesses with a large total addressable market.
The Convenience of Cloud Deployment
I’m sure by now you have heard of the big C, the big cloud. The cloud has made software significantly more consumable because it is deployed on the cloud.
Software vendors no longer have to come on-premise to manually install the applications locally on to consumers, servers or computers. Cloud deployment significantly reduced the hurdles customers have to jump to obtain software.
Cloud-based deployment has also completely eliminated the geographical constraint that was once upon a time an issue. A customer can still quite easily obtain software from developers based in the other corner of the world because there is now need to physically deploy the product.
The cherry on top is that updates are also automatically pushed to the users so if you are not exactly an IT genius, you don’t have to go through the struggle of manually downloading the updates yourself.
Easier Forecasting
Forecasting is the most important aspect to Israeli venture capital investors and other investors around the world. Predictability is what matters to investors and founders as well.
Sales in companies are billed annually and SaaS companies have a huge chunk of their revenue recurring. Another company could be making just as much but without a source of recurring revenue, they will always start the new year at zero.
Judging from previous sales, it is possible for investors to make inferences on projected revenue but with no mechanism to provide revenue assurance closely correlated to previous performance. In the example I have given above, the first company has an easier task of expense management and making risky decisions on matters like staff expansion.
All this technicality boils down to the predictability of future revenue.
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