Top 10 SaaS Startup Funding Issues You Need To Tackle
SaaS startups are receiving top funding in the technology world today. SaaS companies’ scalability and business model have given them a required boom in the market that has been attracting venture capitalists and investors from across the world.
The top-rated SaaS companies got seven out of 10 venture capital deals. From monitoring, security to analytics and customer relationships, SaaS is being applied to all verticals. That’s what gives it a much-needed thrust among the investment opportunities. According to the market predictions, SaaS companies will grow by 17% generating $85 million annually in a few years.
Even though the SaaS companies are getting enough funding, there are challenges that they need to overcome. It is easy to trust a well-established business, but it is not the same with a startup. When it comes to SaaS startup funding, there’s a lot that needs to be understood.
It is essential to stand out from the rest of the crowd, and that can be done only when all the obstacles are clear. These issues might seem small but can greatly impact the funding approaches.
Here we have mentioned a few crucial issues in SaaS startup funding that are common but need immediate attention.
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#1 Efficient Investor Pitch Deck
The process of raising capital from an investor can be challenging and time-consuming. With intense competition, SaaS startups have to tread an extra mile to prove their point. Creating a compelling and interesting pitch deck is highly essential to get a head start. It creates a lasting impression on the investor that makes the job further easier. Most of the start-ups fail to create an effective pitch deck that hinders their reach.
#2 Attracting Angel Investors
Angel investors are the ones who help in funding during the early stages of a startup in exchange for ownership. It is true that attracting angel investors can be quite tough as they are looking for a quality team and creative ideas. Often SaaS startups are not able to attract angel investors that make them lose some great opportunities. It has become one of the biggest challenges in SaaS startup funding that need attention.
#3 Venture Financing
Just like angel investment, venture financing is important for SaaS startups. Venture capitalists have set their standards high for selecting SaaS startups. It is often challenging to meet their expectations and prove their potential. The abundance of SaaS startups has further made the competition fiercer with respect to funding. Driving venture financing can bring a lot of benefits to the company and provide a superior edge in the market.
#4 Showing Substantial Market Opportunity
Be it angel investors or venture capitalists, every investor is looking for startups that have big opportunities and the scope to grow in the market. SaaS companies should be able to demonstrate their market position and future prospects that will depict their sustainability. Without proving their worth in the market, SaaS startup funding would not be possible. Extending market potentials is important to prove your worth.
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#5 Business Model Issues
There are inherent business model issues in SaaS companies that have always been in existence. What is the sales model’s duration, how different is your SaaS company, how user-friendly are the services? These and many such questions arise regarding the business model that may hinder the funding process.
#6 Technology and Intellectual Property Issues
Not only issues with the business model, but there are issues regarding intellectual property and technology. Venture capitalists and angel investors are looking for companies that are using the latest technologies and possess all the intellectual properties. Investors will ask about the uniqueness of the software, key intellectual properties the company has, and how easy it is to replicate the technology. It is important to handle these questions and emerge as a promising startup.
#7 Understanding SaaS Competitive Landscape
Competitors will always pose a threat to SaaS companies. While it is a far-fetched dream to reach the level of globally reckoned SaaS companies, it may become difficult to match with some successful startups. SaaS companies should be able to understand their competition and know exactly how to get ahead of them. VCs are looking for such zealous entrepreneurs who can overcome difficulties and competition.
#8 Lack of Traction
The early traction gives a superior edge in front of the investors. The lack of traction can become a severe issue in SaaS startup funding. It is important to create strategies that can accelerate customer engagement and provide investors with something to trust. An investor will first look into the successes that the company has driven so far. Not only verbal ideas but actionable figures are important in funding.
#9 Realistic Financial Projections
Many startups fail to make a wise financial projection of their company. Instead of saying the company will make $500 million in three years, VCs are interested in investing in companies that can guarantee $3 million in three-five years. It is highly important to make realistic financial projections instead of hollow promises. Such instances can leave a negative imprint on the company, thereby damaging its reputation.
#10 Legal Issues in SaaS Startups
One of the major issues in SaaS startup funding is the legal complexities. Investors will look deep into the legal parameters of the company before making a funding decision. Even a slight mistake from a legal perspective can cost the company its credibility. Compliance with the applied laws, cyber-security guidelines, confidential agreements, etc., should be rightly met in order to clear the obstacles.
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The Bottom Line
SaaS companies are making huge profits that have given them a sustainable position in the global marketplace. Evidently, acquiring funds will become effortless, but still, there are challenges that budding startups may have to face. The above mentioned were a few common issues in SaaS startup funding that require immediate attention from the entrepreneurs.
If you need staunch support from venture capitalists, it is necessary to address these issues and overcome them. Make notes of these key points that will help you handle your funding approaches.