Funding is a crucial but often challenging point in the development and growth of a SaaS startup.
So how should you go about it?
When should you start looking for investment (if at all), and what kind of investment is right for you?
Raising money means answering to people and losing your independence—or, at the very least, going on a different journey than you originally planned in terms of growth, returns, and expectations. But good investors will guide and prevent you from making mistakes.
So should you be raising, or not?
There is no definitive ‘yes’ or ‘no’ answer to the dilemma, but a common starting point is looking at what you currently have.
Scenario A: You have a concept for a Minimum Viable Product (MVP) but can’t develop it without funds.
Scenario B: You have an MVP and a plan for growing it.
Scenario C: You cannot grow further on your own.
VC funding is a lot of work. It might take well over 30+ meetings to find an investor you click with, who is excited enough about your SaaS to consider getting involved. Here are some of the questions you’re going to need to answer during these initial stages:
Also remember that VC funding comes with an expectation that you will grow your team and business significantly, and that their stake will increase 10x in value. There will be specific goals and metrics that investors will look at to see if you have been successful in making your company more valuable and, in turn, allow them to realize significant gains. If you haven’t reached agreed upon metrics, you might not be able to raise money again or, at the very least, it will not be on the terms you're expecting. You could experience what VCs call a ‘flat’ or ‘down round’, meaning you raise at a valuation lower than your previous one—which is a near-death experience for your company.
If you’re at the early stage, lack of exposure or experience can work against you. Make sure you get proper advice and mentoring when you are thinking about funding (start by watching the video below and going through the resource list at the bottom of the page) and consider angel investors over VCs. Angels are more likely to invest at an earlier stage, be personally involved, and introduce you to their extended network. Similarly, accelerated programs and incubators (
You can also consider an additional model: revenue-based financing (RBF), where investors inject capital in the form of a loan that gets paid back over time with a markup. Unlike taking on investors, in an RBF scenario no equity is given away and once the loan is repaid the business remains entirely in your hands.
US-based VC firms have been around much longer than European ones, and the angel investor system is both quantitatively and qualitatively more established. While top VC funds and angel investors in Europe have been catching up fast, seed rounds (that is, rounds of funding for early-stage, growing companies) in the US are still generally larger, reaching up to 2 or 3 million dollars.
US investors will not be opposed to investment in Europe by default (one famous example is Tim Draper); it helps if you've incorporated in the US before and use the standard Silicon Valley investment boilerplate, as opposed to more localized investment documents. But if you are a very early-stage European startup looking for funding, the chances of raising money from a US investor are slim. Approach your local or national investor ecosystem instead, and look at cities in Europe like London, Berlin, Stockholm, or wherever is nearest to you. Review this list of European (and US) based investors as a starting point.
Useful recommendation: check out Stripe Atlas, an invite-only program that helps international tech companies incorporate in the US, and deals with payment processing after incorporation is successful.
We cannot stress this enough: no matter which route you go, do not underestimate the amount of work you will need to put in when you are trying to raise funds. It will be immensely time-consuming and likely to cause significant and prolonged periods of stress, especially as you inevitably face round after round of re-work and rejection:
We got the pitch deck ready in November and closed the round in March. From January to March, I was stressed. I started smoking again. Every time we thought we were there, I’d wake up in the morning and there was a new email from another lawyer who was just saying “Look, we want to change these terms.” At the time, I kept asking myself why am I doing this? Why am I putting myself through this?
Alex Theuma
Co-Founder at SaaStock
Remember that you will be kept away from your business at a delicate time as you prepare one-pagers, pitch decks, investor decks, business plans, financial projections—and that’s before you even start having actual conversations with potential investors. You also cannot afford to neglect your business while you are in fundraising mode: any decline in growth will show up in your due diligence, and that might deter investors from investing altogether.
Why Bootstrapping Our Startup Was One of the Best Decisions We Ever Made,
How We Raised $700,000 for Our Startup Without a Product, Funifi
Saas Funding Napkin, the 2017 Edition, Christoph Janz
Fundraising? Why You Shouldn’t Just Copy Sequoia’s Pitch Deck Template, Scott Sage
The Epic Guide to Bootstrapping a SaaS Startup from Scratch — By Yourself (pt. 1), Clifford Oravec
Startup Pitch Decks, Product Hunt
Building a $100 Million ARR SaaS Business Without VC, Peter Coppinger
Going from $0 to $300K MRR as a Self-funded SaaS Business, Emeric Ernoult
SaaStock on Tour, London: UK vs US Funding Environment & How to Build a Strong Sales Team
How We Raised a $2.75 Million Seed Round, Olivier Pailhes
XAwards: Funding Panel, Christian Thaler Wolski, Josef Calleja, and Alex Theuma