For forward-thinking Technology and SaaS vendors, even the darkest clouds have a silver lining
Glance at the headlines, and you’ll feel a little gloomy about the state of the tech sector. Recession fears continue to weigh on our minds, interest rates look set to keep on rising, venture capital funding is at a two-year low, and enterprise software buyers are tightening their belts.
In the SaaS sector, though, there are grounds for optimism. After all, every bust is usually followed by a boom. Already there’s talk of a “tidal wave” of VC investment in 2023 as cash accumulated during the slowdown cannot remain on the sideline without VCs incurring various penalties.
For software leaders, there’s no denying that recent months have been tough. But the current moment actually represents a golden opportunity for turbocharged growth — if founders lay the groundwork by making sensible, strategic, and future-focused decisions today.
Limitations with conventional funding
With VC funding down since last year, there’s more competition for limited investments. As a result, investors are offering less capital and demanding bigger stakes of the companies they buy into, leaving business owners with limited resources and less control. Not to mention raising equity capital which was already time consuming has doubled or tripled in terms of time commitment for the leadership team
Strategically, that isn’t a good place to be — especially as SaaS businesses find themselves forced to stump up more to meet operating costs such as payroll, while also grappling with cash-strapped buyers who want big discounts before they’ll sign contracts.
That’s leading many tech startups to take on debt to cover their day-to-day expenditures. When interest rates were very low, this sort of borrowing was a viable option for some businesses who were willing to live with restrictive covenants of debt.. But interest rates aren’t currently low, nor will they be any time soon — and just like VCs, lenders are doing more and more due diligence, taking more warrants, placing more and more restrictive covenants on the companies with which they do business.
That kind of red tape is anathema to high-growth startups, which need to be nimble and ready to pounce on any opportunity that comes their way. Clearly, in order to ride the coming updraft to new heights, SaaS businesses need to work now to unlock smarter and more flexible forms of funding.
A smarter strategy
For companies keen to emerge stronger from the tech downturn, it’s clear that conventional funding channels aren’t always a sensible choice. Fortunately, with advances in financial technology, it’s becoming possible to think more strategically about how to prepare for growth.
Every company should always be asking “ what is the most optimal capital structure” for them? In fact the new mantra for CFOs should be Always be Optimizing (ABO) the capital structure.
First, every company should consider using non-dilutive financing like Ratio Trade to optimize their capital structure to minimize dilution and maximize flexibility. Compare here how Ratio Trade compares to Venture Debt and Traditional Revenue Based financing.
Second, in this environment where Cash is King for every business, accelerate your revenue by offering financing options to you customers by embedding finance options in every purchase. And no matter how and when the customer chooses to pay you get paid the Total Contract value (TCV) upfront. Ratio Boost seamlessly embeds into your sales process and provides every customer with flexible payment options and helping you close deals faster and while getting paid upfront. Hence optimizing your capital structure by reducing the need for growth capital.
Keep on innovating
By innovating with fintech solutions and using it as competitive weapon technology businesses can accelerate even in the current economic headwinds, and access growth capital without tying themselves to unfavorable VC deals or restrictive debt agreements.
When market conditions improve, it will be these vendors — the ones who made the right decisions when they mattered most, and who used the downturn to plan for the future — that are best positioned to seize new opportunities and enjoy faster growth.
At Ratio, we’re dedicated to delivering the innovative pricing, payment, and funding services that help SaaS businesses succeed. Get in touch today — or visit the Ratio website to learn more.
