Finding the right investors for your SaaS company
At a Glance
While the increasing number of investors bodes well for SaaS enterprises, it presents a unique problem for the founder, i.e. selecting the best investors. Selecting an investor is much more than just raising the money; the decision’s scope also expands to the knowledge and value addition on offer.
Something that potential investors must understand, we do not chase revenue as the primary driver of our business. Shopify has been about empowering merchants since it was founded, and we have always prioritized long-term value over short-term revenue opportunities. We don’t see this changing.
Tobias Lutke, Co-Founder, Shopify
You’ve done your research, and know that you need to get your game to the next level. It’s time to go the funding route or so you believe. Many who’ve started their ventures with you have been able to scale to another level. So now you really think that there is a need for you to take that same road. What’s that road you ask? Well, it is to get investors on board so that you can grow your business. But is it really time to do that?
Going for the perfect investors does not always mean running behind big angel investors with loads of cash. Well, the money matters for your SaaS business, but it is not all that matters to expand your company and build a good reputation. Thorough investor research to find out the best investors for your company should mean sharing a common goal and mutual understanding. Every company has a different goal providing different sets of solutions to their target audience. This means if Company A is landing a bunch of big angel investors or venture capitalists, that does not mean they are ideal for Company B as well. So, you need to know what type of investors are best for your SaaS business before getting in bed with them.
If your company does not share any common grounds or interest with the investors, everything will start to fall off after the money is off the table. So, let us have a brief look at all the checkpoints to select and preach the appropriate investors for your SaaS business.
How To Choose The Best SaaS Investors?
The basic points that you should never forget before preparing the investors list for your SaaS enterprise are as follows: –
1. Selecting the right investor
Like we mentioned earlier, everyone with a pocket full of cash is not the right investor for your company. First, decide the right type of investor (whether an angel investor or venture capitalist) is suitable for your SaaS business because when you are looking for investors to fund your company, you have certain goals. The investors should be on the same page with you. If they are not even interested in your product or what you are trying to do and investing for the sake of pouring money, politely decline.
2. The ability of funding
Run a quick background check about your investors before taking the next step and bringing the wrong people on board. Background check means taking a look at the investment history of the investor. Some of the important points to be considered are the number of funded companies, investment domains, and the last 24 months’ funding history. If you find, the investor has not funded a single company in the past few months; then it is a clear no. Moreover, the investors should have strong financial fundamentals and should be able to invest extra money to fuel the growth.
3. Funding next rounds of investment
If you are planning to find new investors for every funding round, that is not a great idea. You will not have the resources to find and pitch to new investors for every round for a young SaaS business. Even if you have adequate resources, it is not wise to invest in finding new investors every time. When you are communicating with your potential investors, try to bring those on board who are interested in a long-term investment. This will save your energy and help build good long-term business relationships with the investors.
4. A diverse group of investors
Diversification is crucial for picking up many investors who have a strong reach in various fields. If you bring investors onboard from different domains, they have access to resources you could not get if you focus on a single type of investor. For example, while conducting a portfolio search, you find some interested investors who invest heavily in modern tech companies but at the same time try to expand your research to pick investors who invest in fields like big investment banks, marketing agencies, etc.
5. Pick up a lead investor
A lead investor is one who invests more than 15% of the total capital you want to raise from a single funding round. So, other small investors are likely to follow him or her if you can catch this big fish. It is more like a confidence boost for the small investors, which gives them an amount of certainty to take the chances.
6. Influence in the market
Generally, some of the big venture capitalists who have been investing in a specific business field for a long time happen to hold a firm grasp on the market. These big investors will help you with other channels like media, marketing, HR, etc. if they have a good influence in the market. Though it’s hard to get hold of such big visionaries if you are an early-stage SaaS business, your message should be a strong and unique one.
7. A good workable community
Your investors should establish a good and trustable relationship not only with you but all your team members. The investors should have respect for your business and try to constantly criticize it so in the end; you sell it over to someone. So, you should be smart enough to smell the intentions of your investors before bringing them onboard.
Difference Between Angel Investors And Venture Capitalists?
The points mentioned above are very vital to create an investor profile checklist for your SaaS enterprise. But, before you go on a hunt to land all the potential SaaS investors for your business, you should know who to approach.
Angel investors are true “angels” as these are the investors who are willing to invest in your SaaS business at a pre-revenue stage. So, they invest in businesses at a rather risky stage, and they fund you with their money. The funding offered by SaaS angel investors can run into millions of dollars, for which they will get anywhere between 5% – 15% of your company’s equity. On the other hand, SaaS venture capitalists work with startups who have high growth potential or are currently showing good results. They invest much more than angel investors but tend to invest in enterprises where the risk factor is lower.
Selecting the right investors for your SaaS enterprise is extremely crucial as it will not only provide you with the necessary money but open up the doors of opportunities for you as well. So, make an informed decision after careful consideration of all essential aspects.