Without really knowing it, most of us are using SaaS, like Teams, Salesforce or Workday – all great examples of SaaS applications. Ten years ago a famous technology entrepreneur and investor, Marc Andreessen, wrote a piece called ‘Software is eating the world’ suggesting:
“We are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy”
A decade later, and following a massive growth in software-enabled businesses, we are in no doubt about Andreessen’s incredible foresight – seven out of top-10 companies (in market-cap) are software-related companies!
In this blog we will focus on an important enabler of this trend – the servitisation of software, also known as Software-as-a-Service (SaaS). Supported by the increasing acceptance of the cloud technology, we have seen a rapid emergence of SaaS companies.
Growth is a necessity…
Now let’s have a closer look at typical SaaS providers and their specific needs. In this fast-paced and often highly competitive environment it is crucial for these scaling companies to maintain a strong growth momentum. Not only to stay ahead of the competition in an often winner-takes-all market, but also due to the nature of the business model whereby revenue for a software product is not booked at once but spread out via recurring subscription fees, with a funding gap as result.
Growth is a matter of survival: crucial to finance your business and stay ahead of competition. For these reasons SaaS providers grow their customer base to generate additional revenue, which closes the funding gap.
…Leading to funding and M&A challenges and opportunities
Often, upscaling SaaS companies consider raising fresh equity from growth investors. Alternatively, a business combination with a (larger) strategic partner is seen as the best way forward to propel growth. Onboarding equity investors most often leads to dilution, reduced -or even loss of- control and changes in governance structure. In recent years, we observed SaaS companies increasingly seeking non-dilutive debt financing. However, due to typical charateristics of many SaaS companies, such as the lack of tangible assets and a negative cash flow, many banks are struggling to fulfil the debt financing preferences of fast growing SaaS companies.
A partner for growth
In order to prevail over the competition and realise your growth ambition, you as a SaaS company can benefit from financial support during these decisive moments within your growth journey. Support from a partner, that is able to combine an in-depth sector network and intelligence with straightforward financial and strategic advice as well as providing growth funding for your business.
NIBC acknowledges the value of successful software businesses with high levels of recurring revenues and low churn rates.
Arwolt van Mameren – Managing Director M&A, NIBC
Lionel Uijttenhove – M&A Vice President, NIBC
Vitali Abranin – Associate Director Technology, NIBC