There are more investors ready to give you money for your startup than ever. What was once scarce is now abundant. Who you take funding from and why is the real issue at hand.
This is not a technical analysis with spreadsheets and charts and fancy metrics. It’s more of a strategic analysis to help you think through what’s out there and which option best aligns with your goals.
Given that there’s an abundance of capital providers today, the differentiators are then (1) terms (obviously) and (2) “value add” perks and benefits.
Those value add benefits can include:
Given I'm a marketer at heart, that last piece is especially interesting to me.
It’s a bit baffling that this hasn’t been a major consideration I’ve heard talked about extensively before, but since a business’s primary goal is to grow revenue, wouldn’t it make sense to partner with investors who can not only provide capital, but also directly help you acquire customers to grow?
It's beneficial to think of investors more as “partners” rather than check-writers.
I've split up my favorite SaaS funding options into two sections — Not VC and VC — and do my best to highlight the best of each of them.
Some companies just inherently require much more capital than others. You have to take a big swing to tackle a consumer, marketplace, or hardware startup. On the flip side, not every startup needs the level of funding that traditional VC provides.
More ownership = better. Capital efficiency should always be the goal.
Calm Company Fund (previously Earnest Capital) is run by Tyler Tringas. Tyler built and sold Storemapper and then worked with the bootstrapped SaaS community to forge a new financing structure called a Shared Earnings Agreement (SEAL). The SEAL is typically used as a substitute for equity-like structures like a SAFE, convertible note, or equity. It is not debt, doesn’t have a fixed repayment schedule, and doesn’t require a personal guarantee. A “Shared Earnings” percentage is agreed upon and once the Shared Earnings Cap (2-5x initial investment) is met, Shared Earnings stop and what’s left is a residual Equity Basis. In plain English, you can “buy back” equity from Calm Fund with payments from your profits that are capped at a certain multiple. The magic here is that you get the benefit of the early-stage capital without having to give up a huge amount of equity long-term. Especially if your eventual goal is to exit in a sale, you get to buy back equity with the profits of your business, which puts more money back into your personal pockets when there's an exit event. Consider Calm Fund if you’re between $2-50k MRR. They’ve also got an active community of mentors and advisors. All terms vary and are negotiable, but $30-200K for 5-15% equity is a fairly standard range to expect. Calm Fund also buys secondary if you’ve reached a level of maturity and want to take some chips off the table when you’ve got a large, profitable business.
TinySeed is a remote accelerator designed for early-stage SaaS companies run by Rob Walling and Einar Vollset, both serial entrepreneurs. TinySeed invests $120,000 for your company’s first founder and up to $60,000 per additional founder. They do take a permanent equity stake in your business of 10%-12%, although they do not take a board seat or hold any voting rights. TinySeed gets paid when you (the founder) get paid through an exit or dividends. TinySeed has an extensive network of mentors and advisors with a wealth of experience. Plus, Rob Walling is the host of the Startups For The Rest Of Us podcast, so you can expect some exposure there.
WeFunder and Republic are equity crowdfunding platforms that allow you to raise a round of funding from friends, customers, partners, and fans — unaccredited and accredited alike. The magic of a crowdfunding round is that you can build an army of investors who can also act as advocates and evangelists for you. If customers invest, they're far more likely to stick around. If partners invest, they're more incentivized to do co-marketing initiatives and integrations together. Thanks to some recent regulation changes, startups can now raise up to $5M. Gumroad and Customer.io are two interesting case studies to study. One of the other unique advantages is that you (the founder) get to set the terms. Unlike traditional fundraising where a VC or institution would set a valuation, with crowdfunding, you set the valuation yourself based on your goals and benchmarks.
AngelList offers Roll Up Vehicles (RUVs) and Syndicates for raising a round from angel investors. With Roll Up Vehicles, you get a single link that allows investors to commit and send funds online, and then AngelList takes care of the rest. Similarly, Syndicates allow fund managers to raise on a deal-by-deal basis. This is best if you have a lead angel who can recruit and raise an angel round for you. An angel round is a great first funding round option if you're not keen on Calm Fund or TinySeed, and a great second funding round option if you've already taken funding from Calm Fund or TinySeed.
Pipe and Capchase offer revenue-based financing where you can receive capital upfront in exchange for future MRR from customers. Instead of raising a Series A or Series B, you can finance yourself with non-dilutive growth capital. Pipe functions more as a marketplace to securitize customer contracts whereas Capchase functions more as a true lender and also has specialized offerings for large expenses. The main benefit of revenue-based financing is that you don't have to give up more equity to grow the business. When used properly, it's an amazing tool for growth.
High Alpha Studio partners with founders to conceive, launch, and scale new SaaS businesses. High Alpha is primarily a venture capital firm, but they have a Studio arm as well for early-stage companies. There are many studios out there, but High Alpha has a truly exceptional team and track record. Given that they essentially act as a co-founder, they'll take a considerable amount of equity but also provide a considerable amount of capital, personal help, and resources.
Collab Capital focuses on investing in innovative, early-stage, Black-owned companies building products and services for the future of work, future of learning, and future of care. Like Calm Company Fund, they've engineered a new financing vehicle called a SPACE agreement (Shared Profits and Collaborative Endorsement). They write first checks between $500-750K and follow on investments up to $2M. However, if the business doesn't warrant a follow-on investment and can become sustainably profitable, the fund will take dividends instead. For every multiple on investment returned, the fund's equity ownership goes down by 1 percentage point, all the way to an agreed-upon floor across an agreed-upon period of time. Personally, I love this structure because it allows founders to take a big swing early on without having to shut down the company or forcefully exit if it's not the next billion-dollar unicorn darling.
Zell Capital is pioneering what they call an "Access Fund" that allows unaccredited investors to become limited partners in the fund. Beyond the innovative fundraising, Zell Capital differentiates itself through offering a mix of equity, debt, and revenue-sharing financing. This allows founders to get the ideal mix of financing to meet their goals without having to be pigeonholed into strictly equity financing.
Personally, I prefer solo capitalists to traditional venture capital firms. The commonality between people like Julian, Sahil, Pomp, Packy, Shaan, Andrew, Ryan, Harry, Turner, Li, Nikhail, Lenny, Josh, Elad, and Lachy is that they've got big followings and even bigger networks. If you're in crypto or DeFi, you want Pomp, Packy, and Shaan on your cap table. If you're in enterprise SaaS, you want Harry, Turner, Elad, and Lenny on your cap table. And so on. Shaan has a top 10 business podcast, Lenny has the #1 business SubStack, and Sahil has 200K+ Twitter followers — they can move the needle for your business.
Before you reach out to any of these people or funds, I'd be happy to:
I’m a scout for a few, a friend of several, and a fan of them all.