Tell us what fast-growth means in terms of a tech and SaaS start-up?
Within the tech and SaaS sector, and at the root of a lot of companies, there is a funding journey. At those times, businesses get a big funding injection into the business. All of the sudden there is forward movement on the development of the product, no longer as an organic process but with much more working capital. At that point there is an influx of funding -that is the difference between a funded and non-funded tech or SaaS business.Instantly, you need a more mature infrastructure in place - marketing, sales, finance, customer care etc. No longer cash constrained, your business accelerates at that point.
How long do most tech and SaaS start-ups take to get through to exit?
It is hard to say – there are lots of variables. I have worked with a few businesses in the last year, both having very different journeys. One built, and sold, the product in a three to four year window.Another is still ongoing, so each business will have a different experience.
It depends on category maturity – the speed of customer adoption will depend on the industry you are in. There are businesses who are finding a new way of doings things rather than generating a new product which can speed things up. Category creation is typically much slower which may mean the journey will be slower and potentially more protracted.
How do you see the tech and SaaS start-up space evolving to? What are the trends?
Right now, we are in a funny period, like a holding space with deals are not going through. Funding is not going the way it was a year ago and valuations are down as well. It was much easier to get a better valuation in 2021 than it is currently. That is where we are at. That being said, there is a huge amount of undeployed capital out there. The VC funds that have undeployed capital aren’t growing while just sitting on the cash. At some point, that money has got to go to work.
Med tech and ed tech have done well, there will be pockets of industry that do less well though. Either way, all businesses need to monitor their costs and runway. The hunt for innovative and tech solutions to abate costs may be on the rise as well as a trend.
Finding employees is a big challenge for most markets, although redundancies are happening too. This is a very relevant challenge ahead for businesses from both perspectives.
What advice can you give from a financial perspective to tech and SaaS businesses looking for investment with all of that in mind?
Firstly, know your business. Start the process early, because it’s taking a bit longer as a result of the inflated values last year.Be aware there may well be a need to take investment at a lower valuation. And explore all options. Things like debt funding can be a very viable option.
What key things are VCs looking for at the moment when reviewing a business that is looking for investment?
Your management team is really important, the ability to show a return on their business model. The financial plan needs to be there to prove that there is a commercial model that can scale up and demonstrate a return.
TAM (Total Addressable Market) is an aspect that is big and there needs to be a piece on that in your investor deck. You need to be saying,``We can demonstrate a sizeable enough piece of that market and it be achievable to service”. And the other is to be realistic on your valuation.
We could go into a lot more detail, but this is the basis of where to get your head at to start.