How to Survive the SaaS Funding Crunch

With many SaaS providers enjoying incredible growth during the pandemic, investors have been eager to support cloud businesses of all shapes and sizes. Now, though, the return to Earth is well and truly underway. 

A litany of economic challenges — from surging inflation, to labor shortages, to supply chain disruptions — have left both consumers and businesses reeling. Meanwhile, the SaaS market is slumping as stock analysts ponder whether some cloud companies have grown too fast. Inevitably, that’s impacting venture investments, too. In May 2022, global VC funding fell below $40 billion for the first time in more than a year — almost 45% down from the highs seen in late 2021. 

While this makes for grim reading, it’s worth remembering that many of today’s biggest tech players rose to prominence amid a protracted market downturn. Big challenges breed great companies — if you can find a path forward, and find a way to survive.

How can SaaS companies achieve this? For starters, it’s important to realize that this isn’t the time to chase elusive VC capital. Companies that raise seed or early-series rounds in the current climate will find the process more difficult, their valuations will be lower, and they’ll have to dilute more in order to raise cash. 

Fortunately, there’s a better way. Using new fintech solutions, recurring revenue technology businesses can leverage their recurring revenues to unlock new sources of financing, backed by their portfolio of contracts. This streamlined approach allows businesses to raise the capital they need to drive growth, with no dilution of equity, and no restrictive covenants or relinquishing of strategic control — and best of all, the new capital can be accessed within days, not months. 

Withstanding the VC crunch will involve more than just funding, however. SaaS start-ups must recognize that their own clients are also feeling the pinch, and have less cash available for software purchases. To maintain liquidity and keep the orders rolling in, digital businesses need to consider implementing more creative pricing options.  

SaaS providers can also tap into new technologies to unlock game-changing buy now, pay later (BNPL) capabilities that allow customers to spread payments over time, making it easier to close deals even when cash-strapped buyers are tightening their purse strings.

With tech-enabled BNPL solutions and advanced automation, it’s possible to assess risk and growth potential, empowering software firms to offer tailored and flexible pricing. This helps convert the “Not now(s)” and the “No(s)” to a “Yes,” thereby expanding your market, accelerating sales, and reducing sales cycles. This helps build brand loyalty and repeat business, and gives SaaS firms access to customer payments instantly — something that’s crucial during a VC drought. 

This is a tumultuous period for software vendors, and to overcome these challenges we’ll need to look beyond the old ways of doing business. Relying on VC funds to support growth is no longer enough: SaaS leaders must be prepared to think creatively to keep customers on board and finances flowing. 

The good news is that innovative pricing and payment solutions are rewriting the rules of the SaaS industry, giving vendors the ability to bring in capital and new clients, even during difficult economic times. So reach out to Ratio today — and learn how we can help you to revamp your SaaS business’s pricing strategy and overcome the VC funding slowdown.