Scaleworks Venture Finance Evolved: Introducing Element SaaS Finance

by John Gallagher, CEO Element SaaS Finance

Since January of this year, I’ve taken the lead on the Scaleworks Debt Fund and I’ve gotten to speak to quite a few companies in the B2B SaaS space. While they’re all quite different, one thing that they have in common is that they were actively looking for, and struggling with, new and better ways to finance their companies.

From customer engagement platforms, developer tools, to remote management tools, these companies have built fantastic businesses, have seen growth, have revenue and want to scale their vision. Until recently, debt financing wasn’t something that was on the radar of these companies, mostly because banks aren’t keen to lend to companies who “only have code” as an asset.

Each time we’ve spoken to a company we’ve learned about the growing needs of a SaaS businesses. One of the main things that stood out to me is that the more flexible we can be around loan terms, the quicker the company can get the funding and stay focused on their growth and not legal and business diligence work for a banker.

Too often, these entrepreneurs were spending all of their time setting up talks with VCs or banks, only to get no after no, or a yes that didn’t feel right because they’d have to give up too much of their company and/or have misaligned incentives – like growth at all costs above sensible growth. 

We’ve done a total of 16 loans to date, averaging nearly $1M.  We’ve done loans anywhere from $200k to $3M, some of which have already been repaid.

The companies that we loan to:

  • are B2B SaaS companies
  • have a track record of growth
  • have lots of happy paying customers
  • have strong founders and/or management teams
  • are confident of their plan to keep growing the company
  • wanted to use debt to grow at this time
  • are well managed financially
  • might have had some cash burn, but it wasn’t off the charts

These indicators, along with the fact that we see recurring revenue as an asset (one that we actually see as strong), gave us even more of an appetite to build out our offerings.

Having heard so much of the same thing this year, we’ve decided to scale our own operation and spin out Scaleworks Venture Finance into a new company. A company that can grow with our offerings over time, try new things and put entrepreneurs in the position to win…without giving up a piece of the company they worked so hard to build.

Introducing Element SaaS Finance

Element, first and foremost, is a provider of growth finance to B2B SaaS companies. When growing their customer base and revenue, our clients need to invest in marketing, sales, onboarding etc before they convert customers and start seeing payback on this investment. We call this the SaaS Growth Funding Gap.

These companies are extremely underserved by the banking industry, which doesn’t understand the nature of upfront customer acquisition costs being paid back handsomely over time from high-margin SaaS revenue. 

We value the recurring nature of SaaS revenues and want to give companies options on how they can finance their needs. 

Element’s main product, which is a term loan, can now be flexed to be taken in different ways, which is an advantage of ours — maybe it’s a situation where a company needs a loan of $1M but we agree to a schedule of draw downs that work for company over time. Or a company might only need $275K in short-term cash, which they can repay it quickly, in say 60 days and use the facility as needed. 

Point being, since we understand the ebbs and flows of the SaaS world, we can get creative with how we lend based on that experience.

Most importantly, we provide this capital in a way that the owners of the company keep control – no personal guarantees, board seats or warrants. They want, and need, straight-forward finance to continue growing their business. 

With a little help from our friends… 

Additionally, to take our offerings to the next level, it was important for us to bring on fantastic partners. We’re excited to share our official launch partner, TransPecos Banks. Based in San Antonio, TransPecos Banks was founded in 1924 and has provided banking services that put people first ever since. With their support, we aim to offer flexible solutions that SaaS companies can benefit from in a meaningful way. Their investment in us will absolutely make for great outcomes.

The market for financing SaaS companies is growing exponentially as more and more early-stage SaaS companies become stronger in customer numbers and revenue. No longer do they solely have to be reliant on raising money from investors.

So as we close out 2019, we look forward to sharing our journey with you, providing you with some learnings and tips along the way. We will be scaling our team here at Element, expanding our offering and providing more loans to growing companies. While we do this, we will check in along the way with our learning and how we see SaaS companies winning in different ways.

Elements of Finance

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