Embarking on the entrepreneurial journey – taking an idea and turning it into a growing business – takes guts. This long road to success is not as glamorous as the average person might assume. In fact, it’s often a rollercoaster ride filled with ups and downs, amidst a sea of stress and unknowns. And for the software-as-a-service (SaaS) entrepreneur seeking funding, all this gets compounded by the reality that most banks won’t fund SaaS companies.
That’s because SaaS companies don’t have the usual forms of collateral that banks recognize as valuable. In a previous blog, we explained:
"Say you’re a SaaS company looking for a loan. Like most SaaS companies, you have pre-paid subscription-based revenue streams. Sounds great, but it’s meaningless to a bank.
Do you have inventory? Nope. AR? Nope. Other traditional hard assets like property, equipment, or raw materials? Virtually none.
If you’re thinking, “But we have IP!” then kudos for thinking like an entrepreneur, but to a bank, IP is hard to value and nearly impossible to liquidate. The bankers will smile and politely refuse to lend against it."
So, what’s an enterprising SaaS founder to do? Is there a bank with open arms and the financial tools to help pre-VC tech startups grow? What is the best tech bank for financing startups?
These are all important questions that we’ll clear up, putting your mind at ease when it comes to funding your startup.
Which Banks Can Tech Startups Turn to for Financing?
One option is to turn to people like us at Lighter Capital – alternative financing lenders that do things a little differently. We provide tech startups with quick access to non-dilutive growth capital. Our entrepreneur-friendly startup financing solutions range from revenue-based financing to term loans and contract loans, with the aim of helping startups grow without taking equity or requiring personal guarantees.
But what if you’re still interested in working with a tech bank in the early stages of growth, or if you’ve already got venture funding and need a bank that understands your business?
There are a variety of tech banks out there that are friendly to SaaS startups – or at least that are trying to be – but the banking world still feels relatively hostile to SaaS founders.
There’s a reason so much attention is placed on raising startup seed money from angel investors and ultimately raising a Series A round from venture capital investors: Funders of this type have stepped in to fill the void left by banks in the technology industry. (They also have scads of money, and they can turn startup founders into millionaires, in exchange for equity, but that’s a topic for another post.)
SaaS-Friendly Tech Banks
One tech bank paved the way in this niche, which was once a barren landscape: Silicon Valley Bank (SVB).
Silicon Valley Bank, a tech-focused financial institution founded in 1983, redefined the way banks fund startups. The concept was conceived over a hand of poker, when founders Biggerstaff and Robert Medearis, formerly Wells Fargo execs, discussed the lack of banks willing to lend to Silicon Valley’s burgeoning group of tech startups. SVB’s founding CEO, Roger Smith, guided the new institution into a practice of lending based not on assets and profits but, instead, on “innovation, dedication, and intelligent risk-taking.”
Fast forward three decades and SVB had $60 billion in assets, made $29 billion worth of loans, and had $141 billion in deposits and investments. In 2018, had funded half of all venture capital-backed tech and life science companies in the U.S. and 67% of all U.S. venture capital-backed companies that offered an IPO.
What Benefits Do Tech Banks Offer SaaS Startups?
So, what can a tech bank offer you, the intrepid tech entrepreneur looking for a little capital?
Tech banks provide access to financial tools that help jump-start a business, including a checking account, business debit card, online banking, several wires each month, unlimited incoming ACH payments and more.
Tech banks like SVB have historically targeted high-growth companies, particularly those that have already raised venture capital funding. So earlier-stage startups and founders may still find alternative financing from lenders like Lighter Capital fits their needs and goals better.
The good news for any fast-growing tech company, even those with venture funding in the bank: you’ve finally got more founder-friendly financing options!
Raising Capital for Tech Startups
Today, tech startups have more capital solutions to choose from than traditional debt financing and equity financing via angel investors and venture capitalists.
Of course, with more options comes the difficulty of navigating a wide field of complex financial instruments and different types of investors, while knowing every decision you make will impact your future.
Lighter Capital’s Raising Capital for Tech Startups is a 20-page guide designed to help founders build a fundraising strategy that maximizes your company’s growth and your ownership value.