Why CEOs Need to Get Strategic About Fundraising
The tech sector has been facing some choppy water in recent months. Global VC investment plummeted putting even the sturdiest software startups under huge financial strain. Which companies withstand that pressure and survive the funding drought will depend almost entirely on strategic decisions made at an executive level.
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When global venture investment falls more than 50%, the balance of power sits with investors, and every dollar you raise costs more equity than it did a year ago. This post covers why waiting out the drought is its own risk, how slower lenders and tighter covenants change the math on debt, and how advances against recurring revenue extend runway without dilution.
"In calm waters, every ship has a good captain. It's rough waters that provide a true test of leadership." - Swedish Proverb
Certainly, the tech sector has been facing some choppy water in recent months. Global VC investment plummeted — down more than 50% year-over-year — putting even the sturdiest software startups under huge financial strain.
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Which companies withstand that pressure and survive the funding drought will depend almost entirely on strategic decisions made at an executive level — especially when it comes to fundraising and managing cash flow.
It's a buyer's market
With the faucet dripping instead of gushing, the balance of power is currently very much with investors.
That means SaaS leaders who sign term sheets now will wind up giving up much more equity for every dollar they bring in. Effectively, they're trading away a bigger piece of the pie, and getting less in return.
The same applies to debt financing. Taking on debt to keep the doors open might seem like a reasonable strategy, but lenders are moving slower than they used to, and many loans now come with strings attached—so it's smart to compare venture debt and revenue financing before you commit.
Don't hunker down
Of course, companies can't afford to simply hunker down. Costs are climbing, and enterprise customers are cutting spending. Companies that fail to secure ready access to capital could find themselves running out of runway — or unable to grow once the market improves.
Companies need to think strategically about cashflow and capital. That means thinking not just in terms of how to access the money they need, but also about what they'll give up in order to access that capital—something a funding comparison calculator can quantify in minutes.
Seek low-cost capital
One smart approach that savvy software leaders are now exploring involves using alternative, tech-enhanced forms of fundraising, such as Ratio Boost for SaaS.
With AI-powered fintech tools, SaaS vendors can glean insights into the reliability and likely longevity of their customer subscriptions by analyzing complex transaction data.
These insights can then be used to secure advances linked to the business's recurring revenue—often via a true sale structure—with no need to give up equity or accept burdensome covenants.
An integrated solution
Because fintech solutions are anchored directly into companies' backend systems, there's far less red-tape: the information and data needed to secure capital is already available, so companies can get speedy access to capital on far more favorable terms than would otherwise be possible.
That kind of agility confers a vital strategic advantage on SaaS vendors striving to remain nimble in the face of economic uncertainty—see how one SaaS provider accelerated growth. Ready to start thinking strategically about how your company raises capital? Reach out to Ratio today.
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