According to our friends at Blossom Street, a leading software venture capital fund here in Dallas, every software company, regardless of the scope, wants to garner success in terms of clients, leads, and brand prestige. They hope to accomplish these goals, such as customer retention, increased monthly buys, reduction in waste, customer information, business expansion, and more. These plans collectively contribute to overall business health.
According to Blossom Street, the SaaS venture capital market is expected to top $215 billion by 2025. To get noticed and be cash-positive in this rapidly growing market, SaaS businesses have to develop and ship relevant products to users while optimizing their processes and managing their own risk. The fall of the SVB proves this.
When it comes to lending to small SaaS businesses that are generating mild revenue, venture capital funds like Blossom Street seem to be the best option. They usually offer funds to support startups and SMEs that have long-term growth potential.
In this post, we will specifically talk about VC firms that invest in US-based SaaS businesses.
But first, let’s understand more about VCs and their interest in funding businesses.
What’s in It for the VCs?
Venture capitalist firms have a keen interest in investing in companies that have the potential to generate excellent ROI. With the SaaS industry growing at the rate of 500% over the last seven years, cloud-based systems are likely to take over the on-premise software for good.
VCs prefer SaaS because of the following reasons.
1. They Are Capital-Efficient
If a SaaS company utilizes the capital to develop a product methodically then its chances of gaining profitability are greater. In fact, Sarah Nöckel, seed investment manager at VC firm Northzone says it is possible to build a profitable SaaS business with funding of less than $10M.
2. They Offer Recurring Revenue
The SaaS business model follows a recurring pattern. It focuses on selling a monthly subscription plan to customers while providing them access to desired features.
Further, if any customer wishes to use additional features, they can subscribe to a premium plan.
In other words, customers are renting the software on a monthly or yearly basis instead of buying it. This ensures constant and growing revenue flow through the month.
3. They Cater to Growing Customer Demand
Instead of investing a large sum in one software and using it for years, customers are now drawn to more flexible options. The subscription-based payment model and regular feature updates make it easy for customers to have access to the latest version of the software without any hassles. No wonder, customers are preferring SaaS over traditional on-premise software.
With SaaS becoming the heart of the software industry today, VC firms have realized its potential to capture the market and earn the best ROI.
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