Understanding VC for Startups: Setting Up for Success

When It’s Time to Grow, What’s the Best VC for Startups Solution?

VC for startups

As an advisor to your SaaS clients — whether that’s legal, financial, sales, insurance, growth strategy, or any other capacity — having their best interests as your focus is essential to setting them up for success over the long term. When your clients are ready to grow, you’ll likely be asked your opinion or for recommendations regarding VC for startups.

There are a wide range of growth funding sources that you can recommend to your clients. Perhaps the most common is utilizing firms and partners that provide an equity solution. That might be an angel investor, a private equity firm, or another equity based funding provider. While equity most certainly has its place, a startup has distinct challenges and needs that can be strategically supported and met by using the right kind of growth.

To best support your startup clients, it is most often strategically beneficial for them to utilize venture debt financing. It may seem counterintuitive for an organization to take on debt at such a pivotal time in its gross journey, but there are a wide range of reasons why debt is more advantageous than equity, bank loans, and other means.

Here, we’ll provide an overview of several key reasons why venture debt financing is the better avenue for your startup clients. Let’s dig in.

Why Debt is the Way to Go When It’s Time to Grow

It’s Faster and Less Expensive Than Equity

Equity funding takes time. As one company noted, the difference between equity deal paperwork and venture debt paperwork is measured in inches. That’s a lot of legal reviews, negotiations, due diligence, and other time consuming work. And that all translates into higher costs for your clients. Because venture debt is essentially a loan, the paperwork is greatly reduced and the review process is significantly faster. And this turns into a shorter time to value — and increased revenue.

It Keeps Your Client in Complete Control

During the growth stage, it’s essential that your clients maintain control over their product and their direction. With equity, a good deal of that control will be relinquished to an outside partner in exchange for their investment. Venture debt does not require an equity stake nor does it require a board seat. This ensures that your clients can continue pursuing their chosen growth strategy and building their product as they see fit. 

It Helps to Preserve Profitability During Growth Years

With equity financing, an outside partner takes an ownership stake and is thus entitled to dividends and other financial benefits for as long as they see fit to remain invested. With venture debt financing, your clients can opt to use an interest-only structure that requires them to repay only the interest on their loan for a set time. This allows them to preserve more of their revenue and even reinvest profits into platform development or other needs. Down the road, the loan can be repaid in full or refinanced. 

It Supports Efforts That Accelerate Growth

Perhaps one of the greatest advantages to venture debt is that it’s flexible enough to support faster revenue growth. Whereas other growth capital sources are often expected to be used for business operations and platform development, venture debt is best used to support sales and marketing efforts. Investing in these areas empowers SaaS companies to grow their revenue even faster.

It Enables a Successful Future Equity Partnership

At River SaaS Capital specifically, our venture debt financing solutions are a precursor to equity funding. Often, our clients are able to leverage both — a hybrid financing model — in order to use the funding for very specific purposes. But whether we are working together through debt financing or equity funding, one thing remains the same: River SaaS Capital is committed to partnership with our clients from day one. Our debt clients receive the same level of partnership, guidance, and insights as our equity clients.

Find the Right Solution for Your Clients

River SaaS Capital has been partnering with attorneys, advisors, agents, bankers, and countless other partners to SaaS company leaders for years to help their clients achieve their growth goals. Our venture debt and equity products have helped dozens of organizations accelerate growth processes and make measurable progress toward their targets. If you’ve been exploring options for VC for startups, our team would be happy to meet with you and discuss how we can support your clients. Simply reach out to us when you’re ready, and our investment team will be in touch.