Finding the right SaaS financing during an economic downturn can be a tough balancing act between drastic short-term compulsions and long-term growth prospects.
The realities of the post-pandemic economic landscape are in sharp contrast to the conditions that fostered the 2020 SaaS boom. However, there are silver linings to the challenges of this period - in the form of unique opportunities for SaaS companies to not only survive but also grow and prosper.
SaaS funding gaps caused by the economic downturn
Without an effective resilience strategy to fall back on, the industry is faced with several gaps with regards to funding.
Healthy market opportunities
The post-pandemic workplace is a radically different setting, with high expectations in terms of employee experience and collaboration. SaaS companies, especially those in the B2B space, need to show they can create value in these altered circumstances to attract investors.
AI and cybersecurity challenges
The recent ChatGPT breakthrough has raised the demand for AI and machine learning capabilities in SaaS products. There is also a higher bar for cybersecurity requirements like multi-factor authentication, end-to-end encryption, and access controls.
Business model viabilityAccording to a RevOps survey, more than two-thirds of SaaS companies failed to meet their sales targets in both halves of 2022. As a result, questions like how different your company is from the competition, the duration of your sales model, and what value-added features you provide are vital to attracting funding.
Biggest challenges for SaaS companies in 2023
Maintaining financial stability is the preeminent challenge for SaaS companies as they negotiate the ongoing downturn. This is true for both startups and those that hold commanding positions and market share.
There are three headwinds that the SaaS industry as a whole needs to overcome:
Although SaaS companies seem well-placed to buck the slowing trend in market investments, the funding outlook for 2023 remains tentative. The appetite for risk is low among both angel investors and venture capital funds and is expected to remain so for the foreseeable future.
DemandThe downturn has impacted purchase budgets and habits across the business world, with decisions being made on a stricter need basis. As customers become more and more cost-conscious, the pressure on SaaS companies to deliver higher-value products and innovative solutions at fair prices is rising.
The effects of a downturn are multiplied severalfold when you factor in inflation. For companies, this translates to an erosion of purchasing power, rising operational expenses, and higher borrowing costs. Add to that the increasing demand for higher compensation from the workforce!
Strategies for SaaS companies to overcome the downturn
Downturns can be daunting for any business! Budget freezes, cost cuts, and layoffs are often the standard response, but they may not be nearly enough to meet the unique propositions of the SaaS industry.
Here are three strategies that can help you turn the tide for your SaaS business during an economic downturn:
Sometimes, external pressures demand internal readjustments. Redefining your business attitude can help you overcome several challenges of a downturn. This can include redesigning or upgrading your USP, revisiting your marketing channels and priorities, or creating a flanker brand to target a different set of customers.
Focus on reducing your expenses to increase your runway. Cost optimization can include cloud cost optimization, laying off workers, and redirecting your marketing budget to methods that have a faster payback period.
Alternative funding sources
If you’ve relied on venture capital in the past, it’s time to look at different ways to access cash. This can include venture debt or even revenue-based financing.
At Float, we help SaaS companies with annual recurring revenue of €100k-10M access loans without dilution of the founders and other shareholders' equity. Our process is quick - takes 3-5 days from start to finish - and transparent. Sign up today!