February 22, 2022

Raising capital while saving time, with programmatic funding

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When you’re trying to grow a SaaS business, the number of challenges you face can feel endless. Unlike running hurdles on a track where your obstacles come sequentially, these growth challenges come all at once. Finding product-market fit (PMF), recruiting, signing early customers—these are all issues that must be addressed simultaneously for successful growth. Your time is painfully limited, so you must constantly make trade-offs on how and where you focus your energy. 

Fundraising is yet another area that can eat up a huge amount of your time and attention. Not only is it resource-intensive, but it’s also time-sensitive. Many SaaS businesses with viable products fail because they’re unable to raise funds at the right time to address their needs. 

Fortunately, there’s a way to substantially reduce the pain of raising capital. Programmatic financing is a form of funding that allows companies to access capital on a recurring basis while eliminating the time-consuming nature of the traditional fundraising process. In turn, founders' time is freed up, allowing them to focus on what they do best, which is scaling growth.

What is programmatic financing?

When you're just beginning to build your business, venture capital is often your best bet. SaaS founders should pursue an initial round of VC funding to get the business off the ground and find PMF. But it is imperative that you only obtain as much capital as you truly need at that stage of your business. Once you achieve PMF and have that recurring revenue on the books, it’s important to realize there are less costly, more efficient funding options (like recurring revenue loans). You can think of VC funding as the foundation of a more comprehensive, dynamic financing strategy that, in later stages, should also include programmatic financing. 

Programmatic funding is a form of flexible and non-dilutive financing for companies with recurring revenue. It operates like a hybrid revolving line of credit where you can draw against your annual recurring revenue (ARR). In addition, and unlike a term loan or traditional debt instrument, the available capacity scales up on a monthly basis as your revenue grows. 

Programmatic financing’s revolving structure gives you the flexibility to only pay for the capital that you use at any given time. As opposed to venture capital or traditional debt, you don't have to take more capital than you need upfront and pay for money that sits, unused, in your bank account. This allows you to lower your cost of capital and maximize your ROI because every dollar that is drawn can be deployed on a day’s notice to generate returns. 

Traditional venture debt providers—while advertising their capital as non-dilutive—often have numerous hidden costs (origination fees, facility maintenance fees, equity warrants) and restrictive terms (covenants, concentration limits, all asset security interest) embedded in their loan agreements. In contrast, programmatic financing is 100% non-dilutive and extremely simple from a contract perspective. With a fixed annualized discount rate that is amortized over the course of the term (in fixed monthly installments) on a per-draw basis you know exactly how much you will pay every time you draw on your facility, without any surprises in closing fees, covenants, warrants or security interest. 

Compared to venture capital or bank debt which usually takes months to close, accessing programmatic financing can occur in a matter of days. It’s because of this that programmatic funding can be a great way to tap into flexible, and scalable non-dilutive capital on top of an equity round, or completely independent of it, depending on your current needs. This allows you to spend less time fundraising in general and more time on what matters the most—growing and building your business.

An alternative funding strategy that's as dynamic as your business

Programmatic funding becomes a viable solution and a path forward from an alternative financing perspective once you have committed recurring revenue on the books. In order to get there, you will likely need an initial capital infusion (either self-funded or from outside sources).This is why an early VC round can make sense for startups to invest in PMF, build your team, and acquire those initial customers.

But once your business is post-PMF and experiencing high growth, your business funding needs and options will dramatically change, for the better. Rather than go back for additional rounds of VC funding every 6-8 months—which will cost you more cash and further dilute your ownership—programmatic funding is an ideal choice.

With such a combined strategy, founders typically see about half the financial dilution as those who pursue a pure equity approach. What’s more, your stronger financial metrics typically mean a much higher valuation down the road because you’ve spared yourself dilution and you’ve grown more efficiently. 

Your SaaS business is dynamic and recurring by nature so you need a business funding strategy that matches it. Ready to learn what a programmatic funding strategy can do for your SaaS business? To get started, visit Capchase or contact the team. Ramp customers get 10% off in their financing rate.

As a startup founder, drafting a mission statement is one of the most impactful exercises you can complete early on in your journey. To help, we created a mission statement generator to inspire your own.

Co-founder & CEO, Capchase

Miguel Fernandez is the co-founder and CEO of Capchase, a provider of non-dilutive growth capital for recurring-revenue companies. Prior to founding Capchase, Miguel was a student at Harvard Business School and played a pivotal role in the growth of Geoblink, a location intelligence company based in Madrid. Miguel is also the founder of HeyDey Brands and was a strategy consultant for Monitor Deloitte. Originally from Madrid, he’s previously lived in Munich & London, and he now resides in New York City.


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