Diversify Your Capital Stack to Drive Lasting Growth

Many SaaS founders and CEOs focus more on driving rapid growth than they do on their long-term prospects — because after all, they assume, if you’re growing fast enough then the capital will keep flowing in and you’ll soon find your way to a strong exit

During the current tech downturn, however, that might not be the best strategy. Today, VCs and other investors are growing warier about investing solely on the basis of growth. Banks and other financial institutions are also shutting off the spigots, or demanding significantly more of the companies to which they provide capital.

For SaaS brands, that creates a potentially existential challenge. Growth is the key to success — but you can’t grow if you don’t have access to growth capital. That’s what makes it so important to diversify your capital stack, and not rely too heavily on equity or debt funding to carry your business forward.

Don’t lose steam

The nightmare scenario, for SaaS vendors, is to start losing the confidence of investors and financiers. If you over-expand, start losing talent, or cut spending too fast, it’s easy for your funding sources to dry up — and that can snowball into a major problem for your brand.

Fortunately, there are ways to bolster your business’s resilience and drive sustainable growth, even during times when investors are tightening their belts.

The secret is having a diversified capital stack that preserves independence and autonomy, especially when times are tough. Alongside the usual equity and debt finance capital streams, for instance, software startups are now using fintech-enabled funding channels that enable them to leverage their recurring subscription revenues to secure the cash they need to maintain growth. 

Stay in the driver’s seat

A best-in-class capital stack leverages the full power of new fintech solutions that provide flexible payment options for your customers and growth capital by leveraging your current and projected  financial performance data. With full visibility into current and projected earnings, fintech providers can open the door to cash advances on favorable terms - some can be at zero cost to you. The “cherry on top” is that it is NOT debt; debt can be very onerous and most VCs don’t like to invest in companies with debt.

With all the relevant data already in-hand, such tools are also highly responsive and agile. While bank loans and VC deals can take months for approval, these innovative types of financing can be completed within days, giving startups the agility to act quickly when circumstances change. 

Better still, it keeps the vendors’ owners and leaders firmly in the driver’s seat, with no need to relinquish equity or agree to burdensome covenants and usage restrictions.

A diverse capital stack 

During easier times, some startups may find it’s possible to grow and succeed while relying solely on conventional funding sources. As the market grows more challenging, however, startups need to look for new options. 

That starts with diversifying your capital stack, and building out the tools you need to maintain cash flow and grow your business steadily without sacrificing control. 

Sound like something your business could benefit from? Get in touch with Ratio today to learn how we can help you build for growth even when times are tough.

published on
August 17, 2023
Ashish Srimal
Co-founder & CEO at Ratio
Ashish Srimal is a SaaS entrepreneur and executive who has built SaaS startups and led large SaaS businesses.
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