- Let's say you wanna grow your SaaS business faster.
In order to grow faster,
you either need to spend more money on marketing
or maybe you need to spend more money on sales
if you're not product-led growth.
Either way you're gonna spend more money
and you need more free cashflow.
Let's say you don't have that free cashflow
but you need to grow faster.
What do you do?
Well on one hand,
you can actually go raise more venture capital.
If the market you're in has a big enough TAM
and you have the right team,
then you could raise more venture capital and sell equity.
On the other hand, you can go raise more debt.
And that comes in lots of different ways.
You can swipe the credit card, your personal credit card
to all the way to actually going to a financial institution.
Now used to be that these were the only two ways
you could fund your growth.
Now there's a magical third option.
And in this episode, I'm gonna go through
all three of those options
and walk you through this third new option
and how to think about which is the best way
to actually grow your SaaS business
without giving away a ton of equity.
Intro.
(upbeat music)
What's up, everybody.
Welcome to Unstoppable.
I'm TK.
And on this channel, I help SaaS founders like you
grow your SaaS businesses faster
with an unstoppable strategy.
If you are new to this channel, welcome.
Be sure to hit the subscribe button and that bell icon.
That way you'll get notified.
Every single time I drop an episode with the TK energy.
Now, if you're already part of my SaaS coaching programs,
if you're already part of this unstoppable community,
welcome back.
It's so awesome to see you guys over here.
All right, now, suppose you wanna grow faster.
Now it could be a number of reasons
why you wanna grow faster, right?
It could be that there's a land grab.
It could be that there's certain competitive dynamics.
It could be that you just have that ambition to grow faster.
Whatever it may be, in order to drive that growth,
you have a few different ways that you can actually
raise capital to actually fund that growth.
It requires money to fund growth.
Like there's so many growth acts and optimizations
you can do
but ultimately to really fund the growth.
You need to spend more money on marketing,
spend more money on sales, maybe spend more money on R and D
to add those features.
You can charge customers.
That's what you need to drive growth.
Now it used to be
that you could either have to just give away
a bunch of equity and get diluted
and that was the only way you could raise money
or you actually had to raise a debt.
And there were certain options for that
which were some predatory, some great.
But now there's a third option.
And I wanna walk you through each of these three options,
the pros and cons of them, which one you should go with
and introduce you to this third option in depth.
So if you're excited to dig in,
go to smash our like button
and let's talk about the most favorite way
we like to raise money and actually fund our growth,
which is to sell your equity.
So that's principle number one,
option number one, sell your equity.
This is the most common way
especially for hyper-growth SaaS startups.
Not the only way.
There's lots of bootstrap founders that watch my channel,
that are part of my coaching programs
but this is the most common way
that people tend to think of when they think,
I need to grow faster.
How do I grow faster?
Well, I can go sell my equity.
Now the obvious problem with this
is the more you sell your equity,
the more you raise, number one,
the higher the requirements for you to grow faster.
The pressure's on.
You also own less of the company
and also it's not available to every SaaS business
because of the market you're in.
Maybe the TAM's not big enough.
And all of these complicated factors make equity
while it's more available than ever before
maybe not the best way for you to fund your growth.
So that's principle number one
which is you could just go raise more money.
If you want to fund more growth.
If you're able to.
Now the biggest pitfall around this is that very quickly,
very easily, the expectations can actually be raised
with every equity round you raise
and the ownership can actually go lower.
And on top of that,
most companies don't die because they ran out of money.
They actually die of indigestion.
So the more equity that you raise,
the more expectations get raised, the less you own.
You can actually die of indigestion.
That's the biggest risk
of continuing to fund your growth with just straight equity.
Is it the only way?
No.
Is it the best way?
No.
It just depends.
And those are the things to think about.
So that's equity.
Let's talk about debt.
So principle number two is you can go raise debt.
If you wanna grow faster
you wanna spend a bit more money on marketing.
You wanna spend a bit more money on hiring a few more reps.
You really need more customer success people.
You can go raise debt.
Now there's different ways you can raise debt
and it could be standard debt
or it could be venture debt.
Now, a couple of things to understand here.
Like one way to raise the debt is to literally go
to a financial institution and say,
"Hey, I need to borrow some money."
And in some cases there are some financial products
out there
that understand that you have a SaaS business
and they can make a special product for you.
That loans you money at a crazy interest rate
or some sort of requirement.
The biggest thing about debt.
I remember in my board meetings,
like we just didn't wanna do debt.
None of my investors wanna do debt.
And the biggest problem with debt
is because,
is that debt comes with covenants.
Covenants are essentially requirements that are associated
with the contract that you're signing.
It says that you have to make sure
that you meet certain criteria.
You continue to grow at a certain point.
Sometimes in order to raise that debt,
you actually have to give a personal guarantee.
Sometimes you're raising debt without realizing it.
You're paying a 25% interest rate
on your personal credit card.
And you're funding it through debt
even though you may not think about it that way.
And the problem is when you're raising debt,
the biggest thing is it can very quickly,
these covenants can become a noose around your neck.
Meaning, if things are going South,
let's say you put in a growth bet
that didn't quite work, right?
If you raised the equity, that's okay.
Your investors are still with you.
Maybe they'll do a follow on round
but they're still in it with you to say,
"Hey, let's go figure this out
because we're all owners here.
So let's figure out how to make it work."
In the case of debt, it's actually a noose around your neck
because as things are not working,
things will actually not work even faster
because the bank will come in
or the financial institution will come in and say,
"Hey, you really need to make these interest rate payments
or these debt service payments
or you're breaking these covenants
and therefore you have to pay the ramifications
and pay the fees."
And all of a sudden it makes a bad situation even worse.
Now, while there are lots of healthy ways to use debt
for the good scenarios.
In case there's a bad scenario, you'll get hurt.
And there's also plenty of cases
where there are good scenarios
and the business is doing well
but the interest rates can actually kill you.
When the interest rates can be absolutely terrible.
This is why a third new option has emerged,
which can completely change
how you actually can fund the growth of your SaaS business.
And before I go into this third option
and principle number three,
let me just pause here for a second.
One of the core things that you absolutely need to have,
whether you are gonna go raise equity,
or you're going to actually raise debt,
one of the core things that you absolutely need to have
is a working go-to-market strategy.
And hopefully you're starting to see the pattern.
This will be the case for the third one also, right?
The working go-to-market strategy means
that you actually have a scalable go-to-market strategy
that's helping you grow your business
and you can see the metrics,
you can see the channels, you can see the messaging working,
you can see the process working
and you can say, "You know what?
I've now got this go-to-market strategy.
And I'm now got this go-to-market machine
where if I put in one extra dollar
then I'm going to get $2 more on the other side."
And that's really the thing
that's a prerequisite for growth.
So if you start to see the power in this,
you're starting to see the power of look,
first we need to get to that go-to-market strategy
and that machine, then we can actually have these options
to fund that growth so we can grow faster.
This is like under the hood,
like the core things that really come together.
So this is the power of this.
Can I just get a yes in the comments below?
Also, smash that like button for that YouTube algorithm.
Really likes it when you do that.
Now I do have a resource for you that I wanna link you to.
It's my five-point SaaS growth strategy guide.
It goes into way more details on how to drive growth,
how to think about these funding options.
I'll tell you about it at the end of this video,
but let's go to the most important part about this video,
which is this third option.
This third option is Clearco.
Clearco is a company
that they used to be called Clearbanc
and now they're Clearco
because they've really gotten bigger,
they've raised a big round and incredible company.
And what they specialize in is actually partnering with you
and not taking equity
but actually giving you capital to grow
based on your recurring revenue line.
This is super, super powerful.
So it's not equity, right?
In order to grow, you can get capital,
you can get gross capital.
The first thing is they're not taking any equity
so you don't get diluted.
You get to hold onto your equity.
Which is super important, super powerful
because if you give away all your equity,
then you know, things are not gonna work.
Like you may have a successful company
but you won't have much equity.
And you know, it's debatable on what that looks like.
The good case and bad case, but it's something
to be very, very careful about.
Now on the other hand
and because you're not giving away equity
and you're not doing another institutional round,
the expectations around growth, aren't completely shifted.
There's no like, hey, we're gonna grow our growth rate
by this much otherwise we're gonna be in a lot of trouble,
it's none of that.
So the money doesn't come with the strings attached
that you would normally get with equity.
The second thing is it's not debt either.
This is very important.
It's an important distinction.
It's not debt because it doesn't come with covenants.
It doesn't come with a personal guarantee.
And the most important thing about this
is it's not like venture debt.
Venture debt is only accessible
if you've already raised equity.
So if you're bootstrap, this option
is just as much available for you.
So it's super powerful.
Now I wanna tell you more about Clearco
but I wanted to make sure I did it properly.
This is why I got my old friend, Andrew D'Souza,
who is actually the CEO of Clearco to get on a call with me
to explain exactly what this financial product is
and how you can use it for growth capital.
Let's switch over to Andrew and the call that we had
where we go a little bit deeper
and exactly how Clearco comes together and fits it.
- If you think about equity capital
being your most expensive source of capital,
you wanna fund R and D and product development
in the high risk parts of your business
but the repeatable parts of your business sales,
marketing infrastructure,
customer acquisition, we can fund you without taking equity
and without putting debt or liability on your business.
- Now, that one was the interesting part
especially in our pre-show.
I always thought that it was like,
oh, this is like a unique debt product for SaaS founders.
But you were saying, it's not debt.
It's a rev share.
What's the distinction on that?
Why do founders care about that?
Like tell us a little bit about that part.
- Yeah, so every sort of capital,
you think of a spectrum of risk
versus cost of capital.
On one end of the spectrum you've got equity
that is the most expensive
but you're offloading risk, right?
You may never have to pay your equity investors back.
They really can't do anything to you
if you never pay them back, if you never exit.
There are along, you know, they're on the ride with you.
On the other end of the spectrum we've got debt
and debt is low cost.
You'll go to a bank,
they'll give you debt, but they need assets.
And so they'll take maybe a personal guarantee
or they'll take the enterprise value of your business
or they'll basically say, look, we're gonna take security
in the business.
So we're gonna add leverage to your business.
And if you're very confident,
if you know exactly what's gonna happen tomorrow,
debt can be an effective way to grow your business.
But if you miss a payment,
if you don't, if you can't, you know,
come up with the money when the debt comes due,
they can basically force you into bankruptcy,
take your business and force you to liquidate.
And so what we've tried to do is design a product
that sits in between, which is a revenue share.
So we have no fixed payment timelines.
We ride up and down the sort of journey and revenue journey,
and trajectory of your business.
There's no way we can force a business into bankruptcy.
And so, we may, you know, it can take as long as it takes
to get our capital back
and we just continue to ride it with you.
So we do a lot of the,
we offload a lot of risk in the same way that equity does
but we're far lower cost in equity.
And so it really just depends on sort of the risk
versus how much leverage you wanna add to your business
and where along the spectrum you wanna work,
who you wanna work.
- Yeah, I remember having board discussions
around raising even venture debt
and even our particular investors
and board members were averse to even venture debt.
Because they're like, if,
because of the covenants that come with that,
it's almost a noose around your neck
if things go South, it goes South even faster with it.
- Exactly, exactly.
It's like buying a house in a volatile market, right?
You can have a big mortgage
but if your house value drops by 20%,
which is what I think for some people we saw
in the pandemic last year
is when banks get nervous,
they may pull the line,
they've got material adverse risk clauses.
There may even be nothing wrong with your business
but if the market changes, they can pull your,
they can call your capital.
And certainly if your business doesn't meet covenants,
you can trip those things up.
And you know, many good banks are easy to work with there
but then you're sort of, you're at their mercy.
They've got things like warrants
so they still get equity upside.
So I think sometimes you can get a debt offering
that feels or looks very low cost,
but the actual cost comes in the terms
and things like warrants and additional fees
that are sort of hidden there.
- What has been the sweet spot of the type of founder?
Is it traditionally a bootstrap founder
that's going for the product?
Is it all kinds?
Like what do you see as the archetype
of the perfect ideal SaaS founder
that you would love to have using your product?
- Yeah.
I mean, we've got companies that are doing
their first few thousand dollars a month up to,
you mean our largest companies on the e-commerce side
will do 500 million this year.
Probably on the SaaS
it's maybe around 50 to a hundred million.
So we can scale with companies pretty meaningfully.
I think what we're really looking for
is have you found some version of repeatable growth
and product market fit?
Can you spend a dollar and can you get out more?
Are you an economics (indistinct) set up.
Is your CAC LTV rights set up
within a reasonable time period, right?
We're looking anywhere from probably seven to 14 months
of CAC LTV.
And then if you have that or a payback period
and if you have that, we can kind of fund you indefinitely.
And so, you know, if you have a very, very long LTV
to payback, you know, if it's outside of a year and a half,
two years, then we'll probably try,
we can try and help you there.
We can supplement part of that,
but we probably,
you're probably still gonna need
to raise some sort of equity
to get there.
- The coolest thing about this is all of a sudden
you can actually use your recurring revenue.
The contracts that you have.
The revenue that you're already promised
by the customers you have as an asset.
It's almost an asset.
Those future cash flows become an asset for you
which you can get the growth capital around.
Which is super powerful and really amazing.
And the best part of this is it's AI-driven
meaning there's no weird banker to go talk to
and smooths with.
Literally you plug in your systems
and they analyze their data
and they have AI-based underwriting.
There are very few things that are truly AI in this world
but this one really comes close
and will actually underwrite your offer for you
so you can see very clearly what they're offering.
If you wanna dig more into this
and understand exactly how this all works together,
the full video interview with Andrew and I is available
along with details on how to think about this.
If it's the right fit for you
and how to get started with Clearco.
All you need to do is just go to tkkader.com/clear.
tkkader.com/clear and I'll give you all the details
in there.
You don't have to go yet.
I'll link to it below.
Let's start to wrap up a few things and recap.
So if you've got that quality go-to-market strategy
and that quality go-to-market machine
where you're starting to see that predictability
in the business, now you wanna grow faster,
there's three ways you can fund that growth.
Number one, you can raise more equity if you can.
If you're in the right market,
if you have the right traction,
if there's enough upside, then you can go raise equity.
But you will get diluted.
The second option is you can go raise debt, right?
But it does come with covenants
and may come with personal guarantees.
Interest rates might be crazy.
And the third option is you can actually partner
with Clearco for growth capital.
So this is super exciting
because this is just part of the evolution of SaaS.
This is the part of evolution of SaaS
because it's super important
because even the financial markets
are starting to understand the value of your ARR,
your annual recurring revenue.
And because everything is instrumented,
we can start to understand DRR and churn.
All the things that we talk about on this channel,
it can actually be securitized.
And based on that, you can raise growth capital
to fund your growth.
That's what's so amazing about it.
Now, if you were in that stage
where you are actually trying to figure out
your go-to-market strategy
and you're trying to figure out like,
"Well, how do I get to that predictable machine?
So I can actually take advantage
of any one of these growth options,"
then what you should also do
is go to getunstoppable.com/strategy.
It's completely free.
It's my five-point SaaS growth strategy guide.
Inside of that guide I walk you through exactly the things
that you need to understand to craft that growth strategy
so you can get to that point
where you have a go-to-market strategy,
you have a skill over the marketing machine.
And then from there, you can start to take advantage
of all the capital that's out there
and all the different ways with its pros and cons
to actually drive that growth
and feed more into that machine
so you can scale faster.
There's two resources that I mentioned in this video.
One is all the information
and the detailed interview with Andrew about Clearco.
So to get access to that, go to tkkader.com/clear.
If you already have that predictable machine
that you're now ready to raise funding and capital around
to actually fund and you wanna actually choose the right one
that's right for you,
got tkkader.com/clear, and you get access
to the full interview and also details
on how to talk to Clearco plug in your data
and understand what they have to offer.
The other option is if you're not quite there yet,
in terms of your scalable go-to-market machine,
you wanna build one
and then go download my five-point SaaS growth
strategy guide.
For that one, just go to get on getunstoppable.com/strategy.
I'll link to both of these resources below.
You can check both of them out,
figure out which one is the right fit for you.
If you got value from this video
be sure to smash that like button
if you haven't already.
Also, if you have a fellow founder
or a team member that would get value from this,
please share this video with them.
It would mean the world to me and my team.
Also share with your investors.
They should be aware of the alternative ways
that you can continue to drive growth.
Because if you're saving equity,
they're gonna be saving equity as well
if you can use an alternative way to fund the growth
of your SaaS business.
Lastly hit the subscribe button and that bell icon.
I'll drop an episode like this two to three times a week
every week with actionable strategies
and ideas to grow your SaaS businesses faster.
And lastly, remember, everyone needs a strategy
for their life and their business.
When you are with us, yours is gonna be unstoppable.
I'm TK.
I'll see you in the next episode.
(soft music)
Shall we?
Let's do that.
(laughs)
That was a little awkward.
Maybe just.