Raising Capital for the First Time as a SaaS Startup During Recession
Guest post by Houman Asefi
The answer is try not to!
As crazy as it sounds, if you are a first-time SaaS founder and thinking about raising capital, just don't do it now.
The market is in a downturn.
No question that we are in a recession.
After 14 years of a global bullish market, we are now experiencing a situation that is very close to GFC in 2008 (they call it soft landing now!).
The valuation dropped a lot.
Sometimes even more than a half.
Also, the risk tolerance is not that high as a year ago anymore.
Meaning, investors and VCs try to stay away from risky investments. A.k.a first-time founders.
In nature, I agree that SaaS is a sexy business model.
The predictable nature of this business model makes it very compelling for investors.
However, not in this climate.
It is almost twice as hard to raise capital with the half valuation.
This is a spring for investors and winter for founders.
Many founders asked me: Houman, do you think we can raise money?
My answer is: Let's not think about it now.
However, with every crisis comes opportunity.
Investors are always looking for STRONG startups.
Simply, this means they want to see strong traction and growth percentage.
If you can show them these two factors in your startup, should be relatively easy to raise capital.
This means you must focus on one single goal: Make Sure You’re Investor Ready.
When it comes to investors, you get one chance – so make sure you’re ready.
Get your financial modelling right (Lior can help with this).
For founders, robust financial modelling allows you to test the commercial validity of your business and its sources of revenue.
This gives investors a much clearer picture of your growth model and their potential return on investment over time.
In case you have to inject capital, look for creative financing options out there.
There are lenders out there that are happy to lend you money against your future revenue in the SaaS space.
Plus, you are not sacrificing equity at all.
Get your products and services in line and go out there and hunt net new customers.
Build.
My recent experiences have shown that traditional capital raising rounds are proving difficult, with lower valuations.
You do not want that to happen to you now.
Be confident.
See where you can make cost savings -- and please do not think about letting your people go.
It is already a tough time for people to find a job.
Don't be that startup.
BTW, now that your competitors are making people redundant, this means they pay less attention to their customers.
This is your chance to steal their customers.
Make your startup even stronger.
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