A VC in Vacationland

SaaS based software companies have unique funding requirements.  Although many sign long term (read:3 to 5 year) deals with customers, they generally bill monthly for their services.  Unlike perpetual license software providers who collect most of their license fees up front, SaaS companies must wait years to get the equivalent of a perpetual license payment.  The result?  SaaS companies are often squeezed for cash in their early years, requiring a higher amount of capital to make themselves successful in their markets, as cash flow trails their bookings.

Saas Capital, Inc. promises to help solve that problem for SaaS companies by lending them money against their contract booking, allowing successful SaaS companies to borrow 3 to 5 times the normal amount against A/R receivables.  Unlike venture debt, SaaS Capital does not have any equity ownership in the company as part of a loan deal. Founders can keep more equity under such arrangements as well as have more control over company operations, since more VC’s are not added to the Board.

SaaS Capital is not alone in this space.  Lighthouse Capital Partners, Silicon Valley Bank Financial Group and Hercules Technology Growth Capital all offer similar loan deals.  SaaS Capital is apparently willing to be a bit more creative than some of the traditional lenders, not requiring warrants as part of a deal and lending to successful software companies who want to convert to a SaaS business model.