A recap of a topical panel session at the recent LTV Conference in New York.
The LTV Conference brings together some of the brightest minds in SaaS. TIMIA Capital CIO, Greg Smith, participated on a panel titled: Growing A SaaS Business With Customer Cash. If you’ve followed any of our recent Medium posts, you’ll know that this is a topic close to our hearts.
Greg was joined by fellow panelists, Einar Vollset, General Partner at Tiny Seed Fund and Jade Huang, CEO and Co-Founder of StyleSage. The panel was moderated by Thomas Smale of FE International and the conversation delivered some excellent food for thought for any early-stage startup.
Here’s a highlight of some of the most interesting points:
Bootstrapping is hard (but worth it)
Bootstrapping is not easy. You generally need access to some cash to get your vision off the ground. According to Greg Smith, you can use your own cash (if you have some), you can go to friends and family, or you can rally and perform professional services in the early days to help get some cash in the door while validating product-market fit.
Einar Vollset added that while it’s difficult to bootstrap, it’s not impossible—particularly in B2B SaaS. You can have conversations with customers, you may even get a letter of intent (LOI) from customers who are willing to pay for what you build. You can also build a landing page and see who comes so you can test product market fit, customer acquisition channels, etc.
The bottom line is that it will be tough in the early days but once you get some paying customers, you can scale sustainably and be capital efficient while growing your business.
Strive for capital efficiency
According to Greg, you can drive the cost of capital down by being resourceful. You don’t need to build the perfect product—you don’t even need to build a complete product—build what’s core, and start getting some customers in the door.
Jade Huang added that you can do a lot yourselves in the early days. This scrappiness helps you learn valuable lessons first hand, while saving money. Jade and her co-founder built their product themselves as they had the skills to do so. They ran a pilot of their early-stage product with a group of customers. It failed but the learnings were immense. They narrowed down the three things they needed for MVP and focused on them. In this way, they were able to launch a product, get some paying customers, and seek less capital from investors when the time came.
Data is key—start collecting it early
Getting your data house in order in the early days is key for startups—both in terms of your business data and in terms of your product usage data. These early metrics and resulting trendlines will help you determine your future success metrics identify the kind of business you want to be.
The metrics will also help you if you decide to raise capital down the road. All investors will look for data to demonstrate the market opportunity or health of your business.
Bootstrapping companies have resources at their disposal
Today, there are more resources available to new entrepreneurs than ever before. If you need to need hosting or technology, AWS and Google have free resources for startups. If you get to the stage where you need a CRM, Pipedrive is amazing and is free for 3 months for startups. There are hundreds of examples like this if you look for them.
Looking for non-dilutive capital?
TIMIA Capital works with recurring revenue technology
businesses between $2 – $20 million ARR.
Raising money is not a success metric
According to all panelists, raising money should never be viewed as a success metric. Einar said, “If raising funds was a success metric, Theranos and Kolor would be the most successful companies in Silicon Valley.”
According to Jade, as soon as you bring in investor money, the investor will set their own expectations about your performance. They will likely be hands on. And even if you have ideas about how to run your business, they investor may have conflicting ideas.
Greg added, “Venture Capitalists will tell you that time is not your friend—you’ll be pressured into making decisions based on how fast you can deliver growth instead of what’s best for your business. If you grow at a more modest rate of 50% year-over-year, in 10-12 years you’ll have a very successful business – and you’ll own it all!”
You want to work towards the outcomes that you set for your business, not to the outcomes that someone else sets for you.
Equity is not free
There is no need to raise more capital than you need to. Equity is not free. In fact, according to Greg, equity is the most expensive capital you’ll ever get.
Jade added that there is a personal consideration for founders too. As founders, you have a personal connection to your startup. When you give away a piece of your company, you must remember that you are never getting that piece back, so don’t take the decision lightly.
Always ask yourself, “Can we grow organically at a slower pace?” If you can, you should. However, if you’re in a market where there is a lot of competition, you’ll need the ability to move fast to keep pace. To build fast, you need cash.
Tips for raising capital
Each of the panelists contributed to this list of considerations:
- Be prepared for 3-4 months of prep work if seeking venture capital, less for other options like revenue financing
- Do your research to find investment options (venture capital, revenue financing, traditional lines of credit, etc.)
- Figure out how to get introductions to the ones you want to engage
- Document conversations meticulously
- Identify and learn from objection points. Can you address any of them going forward?
- Narrow down your options—prioritize investors that align with your vision
- Ask to speak to other portfolio companies the investor works with
- Pay for good legal advice and agreement drafting—don’t be afraid to spend money on people who know tech, it’ll benefit you in the long run
What does the future of startup financing look like?
Today the big banks are starting to realize that the flower shops and traditional customers are going away and the economy is being fuelled by entrepreneurs building SaaS companies. They are trying to figure out how to finance this new industry that has no assets and no inventory. Soon their credit departments will figure out what churn, CAC, and all the other SaaS metrics mean and they’ll start providing credit.
Until then, there are options like revenue financing, venture capital, angel investment, and so on.
If you’re interested in learning more about growing your SaaS business with customer cash, follow our blog and if you’d like to hear more about TIMIA’s Revenue Financing model, contact us today.Back to top