Are your investors tired and looking for an exit?
SaaS companies can use non-dilutive capital to buy out investors who have reached the end of their time horizons.
Investors can often hinder the forward traction of your company. Sometimes they put unrealistic growth expectations on the team and apply pressure to take on more equity funding. Other times, they prevent you from raising much-needed growth capital because they don’t like the valuation (yet they’re reluctant to cough up more money themselves).
Founders and management teams in either of these scenarios often consider ways to break free. This post looks at ways founders can buy out investors and offers examples of companies that have done just that — BasicGov and Buffer.
BasicGov wanted to clean up their equity cap table to make themselves more attractive for acquisition. Buffer took back the reins so the company could grow at its own deliberate, sustainable pace—a pace that its VCs deemed to be too slow.
Positioning for Acquisition: BasicGov Found New Investors to Buy Out Long Term Investors
BasicGov — a cloud-based approval and compliance solution for the public sector — was established in 1999 with backing from several early investors. Operating in the municipal software market, including its long sales cycle, BasicGov grew at a steady pace.
In order to accelerate the pace of growth, BasicGov needed more investment cash. However, they had several challenges. Their original investors were unable to put in any more money and they struggled to attract new investors for two reasons:
- Their MRR growth, while good, didn’t match the “triple, triple, double, double, double” rule of thumb that new VC investors are looking for.
- Growth investors are more comfortable with steady and stable growth. However, the company had not yet reached the magic revenue threshold that those investors work with.
In this scenario, the only way to move forward was to get their MRR to a place where they could attract fresh investment to buy out the old shareholders.
BasicGov took on $2 million in non-dilutive financing from TIMIA Capital to help them grow revenue quickly. They managed to attract a new investor to buy out their old investors in just nine months.
Taking Back the Reins: Buffer Used Customer Cash to Buy Out Investors
Due to ambitious growth targets, social media management firm, Buffer, began to run out of money in 2017. Its VCs didn’t approve of the CEO’s decision to take cost-cutting measures rather than to raise more growth funding.
This disapproval and mounting pressure spurred Buffer founder and CEO, Joel Gascoigne, into action and in 2018, Buffer bought out 16 of its Series A investors with customer cash.
Gascoigne said, “Starting the conversations, negotiations, and process of this buyout was one of the most important decisions I’ve made in the Buffer journey so far…This is a key inflection point for Buffer that puts us truly on a path of sustainable, long-term growth.”
If you’re not in a position to buy out investors using cash in the bank, debt financing is a great option.
Debt Capital Can Be Used to Buy Out Long Term Tired Investors
Most debt providers want their capital to be used to fuel growth — not to pay off equity owners. That’s why it can be difficult to break free from investors.
TIMIA Capital, on the other hand, is comfortable managing the risk. We’ve developed a fintech platform that helps us identify and invest in SaaS companies so they can use their stable revenue growth to buy out investors, clean up their cap table, and enter an exciting new phase of growth.
Our platform looks at things like ARR and customer churn rates in order to calculate the risk. If you have a sticky product, happy customers, recurring revenue, and a low churn rate, there’s a good chance you’ll qualify for non-dilutive debt financing to get rid of your investors.
Looking for non-dilutive capital?
TIMIA Capital works with recurring revenue technology
businesses between $2 – $20 million ARR.