3 Reasons SaaS Founders Should Embrace Debt

We would argue that there’s nothing wrong with debt if it’s used wisely. Tens of millions of families have mortgages, for example. And they’re able to meet their monthly payments. That’s a far cry from someone who takes on multiple mortgages to flip houses and ends up getting burned when the housing market softens.

It’s the same with SaaS businesses: Debt to grow a company can be done wisely, and it can take your company to the next level.

With this in mind, here are 3 reasons you should consider venture debt if you’re running a growing SaaS business.

1. Fears of Recession Have Made Equity Capital Difficult to Obtain

You’ve seen the headlines and read the warnings. Economists believe there’s a decent chance the U.S. economy is headed for a recession due to the Federal Reserve’s inflation-fighting interest rate hikes. Fears of a recession naturally make providers of equity capital nervous. Valuations across the tech sector have declined, particularly for start-ups, and Venture Capital firms are far more conservative than they were when the good times were rolling.

So, if you’re a SaaS CEO/CFO and you’re looking to raise equity, the odds are that many sources of funding have dried up.

But all is not lost. With venture debt, such as revenue-based financing, you can still find the capital you need to grow. At Element Finance, we offer fixed-rate term loans that are easy to understand and come with no onerous terms and conditions buried in the fine print.

2. Venture Debt Doesn’t Dilute Your Stake

It’s not just that equity finance is tougher to find amid talk of a recession. The slump in the stock market has seen tech sector valuations take a big hit, and this of course has impacted the valuations for start-ups, too.

What this means is that founders who do raise equity now will have to do so at a lower price than they hoped for, and that means higher dilution.

The good news with revenue-based-finance and venture debt, on the other hand? Your SaaS business can get the financing it needs, and you don’t have to see your share diluted in the process. Here at Element, for instance, we don’t require equity warrants when we lend to growing SaaS companies.

3. Stay in Charge with SaaS Debt

One problem with taking on outside equity investors is that they will want a say in how your business is run. In addition to board seats, they may want an effective veto over certain important decisions that otherwise would be yours. Before long, you may come to regret taking their money—and realize that the control you’ve ceded renders it their company in the end.

It doesn’t have to be this way. Straightforward debt finance can give you the runway you need to sustain operations as you burn cash—without giving up control of the company you’ve worked so hard to get off the ground.

When we extend term loans to companies like yours, we’re happy to give out input about the best way forward for your business. But we don’t ask for board seats, because when it comes to your product and market, you know best.

Looking for venture debt in an environment where equity finance is drying up? Give us a shout, anytime. We’re always thrilled to meet founders, and maybe we’re a match for each other.

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