SaaS Brief

Fundraising Tips and Best Practices for SaaS CFOs

Successful Finance Meeting

Reliably securing funding is an indispensable component of any SaaS CFO's job. And now that the SaaS market has begun to follow suit with the broader economic trouble brewing at the moment, this is more true than ever. 

Among other essential benefits, successful fundraising gives you:

  • The gift of having choices. Having more money at your disposal gives you more flexibility when mapping out ideas for the coming months and quarters. When market conditions become less favorable, many companies automatically shift to a more defensive stance. 
  • R&D budget for new markets and products. In line with the point above, successful fundraising opens the gate to R&D. This will give you a substantial competitive advantage.  Move forward while others are retreating.  
  • Clout for future fundraising rounds. When investors see that you've been able to raise large sums of money in the past, it acts as a powerful form of social proof. In other words, if your company raised so much money in the past, it must be worth investing in.

All of these are critical aspects to fueling growth in tough times, which is a large component of what fundraising is about. 

Think of your SaaS company as a castle. The more capital you can raise through effective fundraising rounds, the wider and deeper your castle's moat will be. 

4 highly effective fundraising strategies for SaaS

Here are 4 of the most effective fundraising strategies for creating an impenetrable moat.

1. Prove your SaaS revenue model's effectiveness 

Creating a sense of confidence in your investors and financial backers is an all-important aspect of effective fundraising. 

One of the best ways to do this is to prove that your revenue model is humming along like a well-oiled machine, generating solid returns. In particular, be prepared during fundraising presentations and similar events with your: 

  • Recurring revenue. A strong monthly recurring revenue (MRR) and annual recurring revenue (ARR) are two of the most reliable signals to SaaS investors that a company has what it takes to succeed in the marketplace. These are the building blocks of your company's financial feasibility, in general and as an investment. 
  • Customer lifetime value. A company's customer lifetime value (CLTV) shows the average amount of money each customer contributes to your bottom line before they churn. The higher this figure is when presenting your metrics and financials to investors, the better.  
  • Customer acquisition cost. Your customer acquisition cost (CAC) measures how efficiently you generate new signups. A low CAC helps demonstrate to potential donors and investors that your revenue model is attractive to customers and feasible for the long haul. 

Once you've successfully made your case for your SaaS revenue model, your work has still just begun. It's time to move on to churn. 

2. The key question: Are you desirable? 

We know, we know. It's a blunt question. But when it comes to keeping on top of churn, that's really what it all boils down to. 

A low churn rate makes you attractive to investors and makes fundraising easier because it proves that you're desirable to your customers. 

It also signals that your company is geared for long-term growth because low churn equates to higher net revenue retention (NRR)

A strong NRR also implies that a company will have more capital at its disposal to weather any economic storms that might push its less affluent competitors out of the market. This is a huge selling point during fundraising rounds.

3. Generate flawless reports about SaaS metrics 

Be sure you have accounting software that can generate accurate reports about the following essential SaaS metrics

  • SaaS churn rates. Churn rates offer valuable insights into how many individuals are unsubscribing from your services each month. Be sure to track both types. Voluntary churn occurs when a user purposely decides to stop using your software. Involuntary churn can occur due to various payment processing issues and is not an intentional choice. 
  • Customer acquisition cost. Customer acquisition cost (CAC) measures how much money you spend to acquire each new subscriber. When raising capital, a low CAC indicates an effectively-run company that has chosen its market well. 
  • Customer lifetime value. Customer lifetime value (CLTV) shows you how much money your customers spend with you before churning. 

 

 

Effective reporting is only part of the picture, however. Let's examine the fourth and final strategy on our list.

4. Give yourself a revenue crystal ball 

Alongside reporting, forecasting is one of the most crucial elements of generating investor confidence and the accompanying fundraising capital. 

Investors (and especially tech investors) live and breathe in a fabric of uncertainty. They're conditioned to it. But here's the thing: as a result, they're constantly looking for ways to reduce their level of financial risk. 

This is what makes forecasting an imperative component of fundraising successfully. Investors need to see critical data that proves your SaaS company is on a strong trajectory.

In particular, a few of their top priorities include: 

  • Quick recovery of CAC. Your CAC recovery measures how quickly you recoup the money you spent acquiring each one of your customers. Accounting software will allow you to track your CAC recovery with pinpoint accuracy and even show investors how your recovery trajectory will improve in the future.
  • Steady strides in MRR expansion. Your expansion MRR measures how much revenue you get each month from customers upgrading their subscription. Like your baseline MRR, it's a critical factor in bolstering investors' confidence in you.

 

 

What makes all of this forecasting magic possible, though? It's the power of automation. Companies embracing a streamlined workflow will waste less time and money on tedious accounting tasks and more on strategic fundraising objectives.

Take your SaaS fundraising to the next level

All SaaS CFOs should instinctively understand the importance of fundraising and how forecasting, reporting, and automation play a vital role in the VC process. 

Are you ready to level up your fundraising efforts? Click here to learn more.

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