Revenue-Based Financing as a growth driver for SaaS

The financing solution tailored to your SaaS model
Accessible anywhere and everywhere, the SaaS model is gradually becoming the norm. The only downside for SaaS companies is cash flow! There’s a gap between the point when you need to make investments to grow your business and the moment you receive the funds from customer subscriptions.

The software world is undergoing great changes: the SaaS model is gradually becoming the new standard. Accessible anywhere and everywhere, day and night, its promises are winning over users, be they individuals or companies. The only downside for SaaS companies is cash flow! There’s a gap between the point when you need to make investments to grow your business and the moment you receive the funds from customer subscriptions.

How can you optimize your cash flow? Or finance your growth? In this article, we reveal an innovative financing method that enables you to turn your monthly subscriptions into immediate cash flow.

The cash flow gap: the drawback of SaaS

A number of SaaS companies face the problem mentioned above, known as the cash flow gap. This gap is particularly prevalent in the SaaS model since the monthly subscriptions you sell bring in regular but modest amounts of money. Your immediate cash flow is limited and your attempts to grow or develop the business are restricted.

So how can you reduce this cash flow gap to accelerate your growth? You’ve actually got four options:

  • The first solution is to mix things up a bit and offer your customers annual subscriptions. What are the benefits? You collect a larger sum when payment is made, which increases your cash flow accordingly. However, this strategy does have its limitations: for customers, the appeal of SaaS is often the fact they pay a smaller fee each month rather than a large amount all at once. To convince them to opt for an annual payment, you could even offer a discount of 20-30%. This process does have a ceiling, however. You may persuade some of your customers, but the others will want to simple continue with their monthly subscription. You could also offer intermediate periods (quarterly, half-yearly), which will provide you with more immediate cash flow than monthly subscriptions – but still less than the annual subscription.
  • The second way to get hold of more cash in one go is to raise additional debt financing. This method of financing is appealing, because you remain 100% in control of your business and you repay a defined monthly sum, while still having the cash available for business development and growth. The only reservation is that you must present numerous guarantees, especially if you are doing this via a bank, as banks are still reluctant to finance activities that are 100% online.
  • You can also choose to raise equity. Here, the amount received is immediately more substantial, and you would then have the means to allocate funds to your various growth levers (product, marketing, etc.). The additional advantage of this is that your incoming investors can bring additional skills to support you. However, you shouldn’t forget that raising equity is a time-consuming – and costly – process: you lose a certain amount of control over your own company. On top of that, there aren’t that many investors to go around.
  • The last option is to grow more slowly, bootstrap-style. You finance yourself with the cash flows from your monthly subscriptions. “Do more with less” becomes your favorite motto and “saving” your preferred watchword! This strategy has worked very well for some companies; you’ll just have to be patient.

And what if none of these options appeal to you right now? There is yet another method of financing available that will accelerate your growth. It’s innovative, and it enables you to transform your monthly subscriptions into instant cash. It's called Revenue-Based Financing, and we'll tell you about it right now.

Revenue-Based Financing turns your subscriptions into immediate cash.

What is Revenue-Based Financing?

First, let's take a quick look at the concept of Revenue-Based Financing (RBF). RBF enables a company to obtain financing in 24 to 48 hours, on a non-diluted basis, with repayments adjusted according to the revenue attained.

Silvr, pioneer of RBF in France

Since its introduction in 2015, RBF has quickly become very popular in North America. Good news: this financing method is now available to European entrepreneurs. Silvr, a pioneer in RBF in Europe since 2020, has already supported around 100 entrepreneurs.

So what's in it for your SaaS? You may have already guessed the main benefit of RBF, but let's spell it out: you can receive future revenue immediately. Charles Tiger, ex-Partech and now Investment Analyst at Silvr, explains further:

“We enable SaaS companies to annualize their monthly subscriptions. That means you continue to sell monthly, while receiving maximum value right away to invest in your growth. You boost your cash flow and maximize the value of your ARR (and, therefore, your valuation).”
Charles Tiger, Investment Analyst at Silvr

So how does it work in practice?

It’s actually very simple:

  • First, you connect your payment accounts (Stripe, Chargebee, Recurly, etc.) and your bank accounts to our platform. We then analyze your data, performance and growth potential.
  • If you’re eligible, you pick the monthly subscriptions you want to convert into immediate cash and you receive the funds within 24 hours.
  • It’s up to you to choose how to allocate these amounts to help your business grow – you’re in sole charge!

How does Silvr work for SaaS?
SaaS

The cash flow gap is a problem native to the SaaS model. There are several solutions to finance yourself and get around it in order to accelerate your development. The Revenue-Based Financing allows you to bridge this gap by transforming your monthly subscriptions into immediate cash flow... and by giving you the means to invest for your growth!

Do you have a financing need? Come and talk to our team.

- Published
January 23, 2023
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