Entrepreneurs in SaaS: 6 best practices for successful fundraising
SaaS has become one of the main themes within European funds. Everyone now has real expertise on the subject. Some are even dedicated exclusively to it. Chausson Finance has successfully completed fifteen fundraising events for SaaS publishers over the past three years alone. I wish here to share the best practices observed.
1 / A pure model. SaaS, SaaS, nothing but SaaS.
It’s up to you, entrepreneur, to integrate this idea into your story telling. If your solution includes a significant portion of services, consider how to reduce it over time.
The open-source positions or those coupled with hardware are not eliminatory but will cool some. Here again, substantial work must be done on the story to be told.
2 / Comply with the main metrics of the sector
Venture funds wish to invest in markets larger than 1 billion euros. Demonstrating it turns out to be complicated when working in an emerging market or almost. The best technique is to take the potential annual turnover per customer and multiply it by the number of potential customers:
Potential annual turnover per customer * Number of potential customers> 1 billion euros
Then, you have to make sure that the sales effort is worth it in relation to the turnover generated. As Andreessen Horowitz wrote, the marketing of SaaS publishers still requires the recruitment of sales representatives or even pre-sales with a few exceptions: Box and Efounders models on the SMB. So it’s up to you to calculate your acquisition cost per customer (CAC). The market standards are as follows:
CAC <3 to 4 times the LTV (Life Time Value, which is what a client will earn in total).
CAC <0.5 times the turnover of the first year.
The net churn, ie based on turnover and not on the number of customers, must remain limited. Any breach of this rule would show dissatisfaction with your customers. The investment would be used to fill a broken basket.
Net churn <10% per year on rounds A and B
The MRR must experience regular and constant growth (see: excellent post from Point Nine on this subject). It is even the first ratio that certain funds look at in a teaser.
MRR growth> 15-25% per month on Round A
MRR growth> 10-20% per month on Round B
A CEO of SaaS editors must, like an aircraft pilot in his cockpit, constantly monitor his business via his dashboards. The slightest variation can lead to changes with unfortunate consequences. His responsibility will therefore be to constantly “fine tune” the model to determine the best possible route.
3 / Commercial execution already demonstrated
Here the object of the game is to prove that your model is easily replicable. Several ways coexist:
Show that your solution has already been sold by ordinary salespeople. By lambda, I mean any salesperson who is not associated with capital, with a cost corresponding to standard market practices and whose profile is easy to find.
Show that your solution has already been chosen against leading competitors. This will reassure the investor about your competitive differentiation. It’s even better if it’s not based on price.
Show that your solution can be sold by partners. Easy in theory, it turns out to be difficult. Partners need to understand your product and be encouraged to sell it. Initiating a relationship usually requires feeding them leads. Few of the successfull editors have started indirectly.
4 / A SaaS-oriented company DNA
I am regularly surprised at the lack of SaaS culture among entrepreneurs in the sector. Everyone should know the difference between ACV (annual contract value) / ARR (annual recurring revenue) or even churn net / churn gross. Mastering this semantic field allows you to earn points with venture funds.
Since a SaaS business requires the mastery of a large number of metrics, the savvy entrepreneur will equip himself to capture and analyze the data. The investment will materialize in technology and HR. Analytics tools and the hiring of a CFO and / or business analyst who guarantees the figures.
5 / An easily integrated techno
Multiplying sales and eventually ending up with a bottleneck in techno would be unfortunate. Your technology must therefore be natively designed to require the minimum of integration (carried out internally or by partners).
Technology holds a special place in your fundraising. It must remain a secondary subject showing investment funds that the techno risk is behind you. At the same time, the techno road-map should make you dream and show which real market you are targeting in the long term. This generally requires substantial investments.
6 / Bonus points: the “secret sauce”
Entrepreneur, have you checked all of the above boxes? Wait before starting a lift. You are missing the essential, namely one more “trick”, a sort of “secret sauce”. Here are some examples that have enabled our latest SaaS clients to achieve great fundraising:
Important upsell. because business-model linked to the volumes of data produced in the company
Ease of setting up a POC and converting it. Proof of concept (POC) carried out in 2 days versus 40 days for competitors. + conversion of 100% of them by playing on psychological levers
Solution showcased by customers. Customers show the solution to their ecosystem. What encourages these actors to equip themselves as well
Sales strategy with a pincer grip. Ability to simultaneously address and interest the Executive Committee, the businesses and the IT Department
Prescription by the referent actors of the sector. Whether these referents are IT services companies, consulting firms or advertising agencies. The must is to become a “label”
Pattern with network effect. Solution whose efficiency increases with the number of customers equipped
Freemium model. Let customers use the solution on a limited sample and / or with degraded features to test the solution in real life
Entrepreneur, if you want to talk about your “secret sauce”, do not hesitate to contact Frenchweb or contact me via Linkedin.
Romain Dehaussy is the director of Chausson Finance, specializing in fundraising in venture capital and development capital.
Read also: Is Saas a killer of change?
6 truths to know for successful fundraising