For tech founders, it’s not easy finding the right funding strategy for your business. We know this firsthand since we’ve been through the fundraising gauntlet as entrepreneurs ourselves.
To help ease the fundraising process for founders, we wanted to cast a light on how some of our partners approached raising capital for their SaaS businesses. Specifically, we’re going to zoom in on two founders who set clear priorities for fundraising. Setting priorities first can push you to focus on the right funding partners, ensuring that you get exactly what it is you want and need.
Wisboo prioritized maintaining founder equity positions
Based out of Argentina with a team of ~50, Wisboo is a SaaS company that helps content creators produce and sell courses on their own websites. When we began working together, Eze Carlsonn, Wisboo’s founder, knew exactly what he wanted to prioritize throughout his fundraising efforts. Eze wanted to preserve his founder equity stake in the company above all else. These priorities pushed Wisboo toward one primary funding option to meet the company’s needs: revenue-based finance.
“We’re big fans of revenue-based financing and we’ve done 3 revenue-based financing deals. We think about it in simple terms,” says Eze. “We’re focused on growing our company 5x year-over-year, and a typical revenue-based financing deal will have around a 2x return. If you do an equity deal in this scenario, then you would be giving away much more upside than a revenue-based financing deal.”
Here, Eze acknowledges one of the main ideas behind revenue-based financing. When growth costs are unknown and risks are huge, venture capital equity investments make the most sense. Ownership in the company offsets that risk by providing investors with (theoretically) unlimited upside. When growth costs are known, i.e. you know your customer acquisition costs and churn rate, then the cost of equity at exit becomes exorbitant compared to the ~1.5x cap on repayments for revenue-based finance.
By prioritizing founder equity, Eze narrowed the focus of Wisboo’s fundraising efforts. He knew exactly what he needed and who to pursue for funding support. That’s how we ended up as their partners.
Onshore prioritized flexibility in the face of uncertainty
Based out of Chicago, OnShore is an independent validation and verification firm. The business creates software testing solutions that help enterprises in highly regulated industries comply with safety standards.
Even with uncertain market conditions throughout the pandemic, OnShore was on a steep growth curve throughout 2020. At this time, Valarie King-Bailey, CEO of OnShore, began her search for the right funding partner to help further propel growth. Like Wisboo, the company wanted to preserve their founder equity positions, yet didn’t want the burden of an interest-based, fixed payment loan. Especially during the onset of the pandemic, Valarie was focused on finding a funding partner that could provide the flexibility the business needed to navigate uncertain market conditions.
“We didn’t know how the pandemic would affect cash flow, so it was really important for us to get a funding mechanism that flowed with our cash flow,” said Valarie. “The attractiveness of revenue-based financing vs. debt or traditional venture capital is that revenue-based financing follows your cash flow. In months where revenues are low, then monthly repayment is low. In months where revenues are high, then everyone wins.” And this repayment flexibility is exactly what helped OnShore power through 2020 strong.
Since taking on funding about one year ago, Valarie feels that it has paid dividends almost immediately. OnShore was able to hire and overcome understaffing issues, while also investing in product. “The investment allowed us to complete some critical development to our product, and hire the right people we needed to continue growing – and both quickly,” mentioned Valarie. “This is a major reason why our 2020 ended so positively, exceeding our annual revenue goals by wide margin.”
Following the Wisboo and OnShore examples, we encourage tech founders to first set priorities for fundraising goals before beginning the process. Do you want to protect your equity position as a founder, or do you want to find strategic investors? Or are you looking for both? Depending on the answer to these questions, what type of funding and which partners you pursue become more clear. Eze and Valarie used their priorities to narrow the focus of their fundraising efforts. In turn, they were able to secure the funding they needed for growth without compromising on their priorities.
If you’re thinking through your fundraising strategy and priorities, have >$500,000 in annual revenues, and are growing ~30% YoY, then we would love to see if revenue-based financing might be the best funding option for your growth. Reach out to us through our Get Funded form, and we’ll get something on the calendar!