Debt Financing Advantages and Disadvantages for Startups

TK Kader
26 May 202118:42

Summary

TLDRThis video script discusses strategies for SaaS business growth, highlighting three funding options: raising venture capital, incurring debt, and a third innovative approach through Clearco. Clearco offers growth capital without equity dilution or debt covenants, basing funding on a company's recurring revenue. The script emphasizes the importance of a solid go-to-market strategy for effective growth capital utilization.

Takeaways

  • 🚀 To grow a SaaS business faster, you can either increase spending on marketing or sales, necessitating more free cash flow.
  • 💵 If lacking free cash flow, options include raising venture capital or taking on debt, but these come with strings attached.
  • 🌟 A third option for funding growth is emerging, which doesn't involve giving away equity or taking on traditional debt.
  • 🎯 The third option is particularly beneficial for SaaS businesses looking to scale without diluting ownership or incurring high-interest debt.
  • 📈 The script introduces Clearco as this third option, which provides capital based on a company's recurring revenue without taking equity or requiring debt covenants.
  • 💼 Clearco's model is attractive because it doesn't come with the high-pressure growth expectations that often accompany equity and venture debt.
  • 🔑 A prerequisite for considering any funding option is having a solid, scalable go-to-market strategy that demonstrates predictable revenue growth.
  • 📊 Clearco's process is AI-driven, making it efficient and less reliant on traditional banking interactions, which can be time-consuming and complicated.
  • 🤝 Clearco's revenue share model allows businesses to use their future cash flows as an asset to secure growth capital, without the risks associated with debt.
  • 🔗 The interview with Clearco's CEO provides deeper insights into how their financial product works and the types of SaaS founders it's best suited for.
  • 📚 The video concludes with resources for further learning, including a detailed interview with Clearco and a guide for crafting a SaaS growth strategy.

Q & A

  • What are the three primary ways to fund growth for a SaaS business?

    -The three primary ways to fund growth for a SaaS business are: 1) Spending more on marketing or sales, 2) Raising more venture capital by selling equity, and 3) Raising debt from financial institutions or using personal credit.

  • What is the downside of raising venture capital to fund growth?

    -The downside of raising venture capital is that it can lead to increased pressure to grow faster, dilution of ownership, and it may not be available to every SaaS business depending on factors like market size and the team.

  • What is the risk associated with using debt to fund growth?

    -The risk with using debt to fund growth is that it comes with covenants and personal guarantees, which can become a 'noose around your neck' if the business faces difficulties, potentially leading to bankruptcy or forced liquidation.

  • What is the 'magical third option' for funding growth mentioned in the script?

    -The 'magical third option' for funding growth is using Clearco (formerly Clearbanc), which provides capital based on a company's recurring revenue without taking equity or adding debt or liability to the business.

  • How does Clearco's funding model differ from traditional debt?

    -Clearco's model differs from traditional debt in that it does not involve fixed payment timelines, covenants, or personal guarantees. It is a revenue share agreement, meaning Clearco's return is tied to the company's revenue performance.

  • What is the importance of having a working go-to-market strategy before seeking growth capital?

    -A working go-to-market strategy is crucial because it demonstrates a scalable and predictable method of growing the business, which is essential for investors to see a clear path to returns on their investment.

  • What are the potential drawbacks of giving away too much equity in a SaaS business?

    -The potential drawbacks of giving away too much equity include increased expectations for growth, reduced ownership, and the risk of 'indigestion' where the business may fail under the weight of high expectations and diluted ownership.

  • What kind of SaaS businesses is Clearco suitable for?

    -Clearco is suitable for SaaS businesses that have found repeatable growth and product-market fit, with a CAC LTV payback period of around seven to 14 months.

  • How does Clearco determine the amount of capital a SaaS business can receive?

    -Clearco uses AI-driven underwriting to analyze a business's data, focusing on metrics like recurring revenue, growth rate, and customer acquisition cost to determine the amount of capital the business can receive.

  • What resources does the speaker offer for those looking to grow their SaaS business?

    -The speaker offers two resources: a detailed interview with Andrew from Clearco for understanding growth capital options, and a five-point SaaS growth strategy guide for developing a go-to-market strategy.

  • What is the significance of the annual recurring revenue (ARR) in the context of the script?

    -The ARR is significant because it represents a predictable and securitized stream of income that can be used to raise growth capital without giving away equity or incurring debt.

Outlines

00:00

🚀 Growing Your SaaS Business: Strategies and Capital Options

The paragraph introduces the challenge of growing a SaaS business quickly and the need for increased cash flow to fund that growth. It outlines the traditional methods of raising capital: increasing investment through venture capital by selling equity or taking on debt. The speaker highlights a third, 'magical' option and previews a discussion on the pros and cons of each method, focusing on how to grow without giving away too much equity.

05:03

💼 Equity vs Debt: The Traditional Capital Raising Methods

This section delves into the details of raising capital through equity and debt. It discusses the pressure and dilution of equity that comes with selling shares and the risks associated with debt, such as covenants and personal guarantees. The speaker emphasizes the potential for 'indigestion' from raising too much equity or the chokehold of debt covenants, suggesting that neither might be the best way to fund growth for every SaaS business.

10:04

💡 Introducing Clearco: A Third Capital Option for SaaS Businesses

The speaker introduces Clearco, a company that provides capital to SaaS businesses without requiring equity or debt. Clearco offers capital based on a company's recurring revenue line, which means no equity dilution or debt covenants. The paragraph discusses the benefits of this approach, including maintaining ownership and avoiding the pitfalls of traditional funding methods.

15:05

🔍 The Future of SaaS Financing: Clearco's Revenue Share Model

This part of the script features an interview with Andrew D'Souza, CEO of Clearco, explaining the company's revenue share model. It contrasts equity and debt financing with Clearco's approach, which is positioned as a middle ground that shares risk without the high cost or strict terms of traditional financing. The discussion highlights the importance of a solid go-to-market strategy and how Clearco's model allows businesses to leverage their future revenue as an asset for growth.

🌟 Recap and Resources for SaaS Growth

The final paragraph wraps up the video by recapping the three ways to fund SaaS business growth: raising equity, taking on debt, and partnering with Clearco. It also directs viewers to additional resources for further information: a detailed interview with Andrew about Clearco and a five-point SaaS growth strategy guide. The speaker encourages viewers to subscribe for more content and to share the video with others who might benefit from the strategies discussed.

Mindmap

Keywords

💡SaaS

SaaS stands for Software as a Service. It is a software distribution model in which a third-party provider hosts applications and makes them available to customers over the Internet. In the context of the video, SaaS refers to the type of businesses the host is addressing, focusing on strategies for their growth and funding.

💡Growth

Growth in this video refers to the expansion of a SaaS business in terms of revenue, customer base, and market share. The script discusses various methods to accelerate this growth, such as increasing spending on marketing or sales.

💡Free Cash Flow

Free cash flow is the cash a company generates after accounting for capital expenditures. In the video, it's mentioned as a necessity for funding business growth, with the host suggesting ways to increase it or alternative funding methods when it's insufficient.

💡Venture Capital

Venture capital is funding given by venture capitalists or firms to startups with perceived long-term growth potential. The video discusses raising venture capital as one way to fund a SaaS business's growth, particularly if the business has a large market potential and the right team.

💡Debt

Debt in the video refers to borrowed funds that a business must repay, with interest. It contrasts with equity financing and is presented as another traditional method for funding growth, with its own set of risks and considerations.

💡Equity

Equity, in the context of the video, refers to the ownership interest in a company. Raising equity typically involves selling a portion of the company to investors, which can lead to dilution of the existing owners' stakes.

💡TAM

TAM stands for Total Addressable Market. It represents the total market size available to a particular product or service. The script mentions that if a SaaS business operates in a market with a large TAM, it may be more successful in raising venture capital.

💡Bootstrap

Bootstrapping, in the video, refers to starting and growing a business primarily using personal finances or the company's operating revenues, rather than external funding. The host mentions bootstrap founders who might consider different funding options.

💡Go-To-Market Strategy

A go-to-market strategy outlines how a company will reach its target customers. In the video, having a working go-to-market strategy is deemed essential before considering any form of funding to ensure that investment will effectively drive growth.

💡Clearco

Clearco, previously known as Clearbanc, is a company that provides growth capital to businesses based on their recurring revenue. The video highlights Clearco as an innovative funding option that doesn't involve giving away equity or taking on traditional debt.

💡Revenue Share

A revenue share is a funding model where investors receive a percentage of a company's revenue until their investment is repaid. The video discusses this as a component of Clearco's offering, positioning it as a middle ground between equity and debt.

💡CAC LTV

CAC LTV refers to the ratio of Customer Acquisition Cost to Lifetime Value. The video uses this term to describe a financial metric important for SaaS businesses, indicating whether the cost of acquiring a customer is less than the revenue they generate over their lifetime.

Highlights

To grow a SaaS business faster, you can either spend more on marketing or sales, which requires more cash flow.

If lacking free cash flow, raising more venture capital or debt are traditional options for funding growth.

There's a third option for funding growth without giving away equity or taking on debt: Clearco.

Clearco provides capital based on your recurring revenue line without taking equity or adding debt.

Raising venture capital can lead to increased growth pressure and ownership dilution.

Debt funding comes with covenants and can become a burden if business conditions deteriorate.

Clearco's funding model is based on revenue share, not debt, and is accessible to bootstrapped businesses.

Clearco's revenue share model does not force fixed payments and adjusts with business revenue fluctuations.

Having a scalable go-to-market strategy is a prerequisite for considering any growth funding options.

Clearco's AI-driven underwriting process eliminates the need for traditional banking interactions.

Clearco is suitable for businesses with repeatable growth and product-market fit, not just bootstrapped founders.

Clearco can fund businesses from a few thousand dollars a month to hundreds of millions in revenue.

The ideal SaaS founder for Clearco is one with a clear CAC LTV and payback period.

Clearco allows using future cash flows as an asset to secure growth capital.

The financial markets are evolving to understand and securitize the value of ARR and other SaaS metrics.

TK offers a free five-point SaaS growth strategy guide for businesses looking to build a scalable go-to-market machine.

There are two resources provided: one for understanding Clearco and another for building a SaaS growth strategy.

Sharing this information with fellow founders and investors can help in making informed decisions about funding growth.

Subscribing to TK's channel provides consistent strategies and ideas for growing SaaS businesses.

Transcripts

play00:00

- Let's say you wanna grow your SaaS business faster.

play00:02

In order to grow faster,

play00:03

you either need to spend more money on marketing

play00:06

or maybe you need to spend more money on sales

play00:08

if you're not product-led growth.

play00:09

Either way you're gonna spend more money

play00:11

and you need more free cashflow.

play00:13

Let's say you don't have that free cashflow

play00:15

but you need to grow faster.

play00:16

What do you do?

play00:17

Well on one hand,

play00:18

you can actually go raise more venture capital.

play00:20

If the market you're in has a big enough TAM

play00:23

and you have the right team,

play00:24

then you could raise more venture capital and sell equity.

play00:27

On the other hand, you can go raise more debt.

play00:29

And that comes in lots of different ways.

play00:30

You can swipe the credit card, your personal credit card

play00:33

to all the way to actually going to a financial institution.

play00:36

Now used to be that these were the only two ways

play00:39

you could fund your growth.

play00:40

Now there's a magical third option.

play00:41

And in this episode, I'm gonna go through

play00:43

all three of those options

play00:45

and walk you through this third new option

play00:48

and how to think about which is the best way

play00:50

to actually grow your SaaS business

play00:53

without giving away a ton of equity.

play00:54

Intro.

play00:56

(upbeat music)

play01:03

What's up, everybody.

play01:03

Welcome to Unstoppable.

play01:05

I'm TK.

play01:06

And on this channel, I help SaaS founders like you

play01:09

grow your SaaS businesses faster

play01:11

with an unstoppable strategy.

play01:12

If you are new to this channel, welcome.

play01:15

Be sure to hit the subscribe button and that bell icon.

play01:17

That way you'll get notified.

play01:18

Every single time I drop an episode with the TK energy.

play01:23

Now, if you're already part of my SaaS coaching programs,

play01:25

if you're already part of this unstoppable community,

play01:26

welcome back.

play01:28

It's so awesome to see you guys over here.

play01:30

All right, now, suppose you wanna grow faster.

play01:32

Now it could be a number of reasons

play01:33

why you wanna grow faster, right?

play01:34

It could be that there's a land grab.

play01:36

It could be that there's certain competitive dynamics.

play01:38

It could be that you just have that ambition to grow faster.

play01:41

Whatever it may be, in order to drive that growth,

play01:45

you have a few different ways that you can actually

play01:47

raise capital to actually fund that growth.

play01:49

It requires money to fund growth.

play01:51

Like there's so many growth acts and optimizations

play01:54

you can do

play01:54

but ultimately to really fund the growth.

play01:56

You need to spend more money on marketing,

play01:58

spend more money on sales, maybe spend more money on R and D

play02:01

to add those features.

play02:02

You can charge customers.

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That's what you need to drive growth.

play02:05

Now it used to be

play02:06

that you could either have to just give away

play02:08

a bunch of equity and get diluted

play02:10

and that was the only way you could raise money

play02:12

or you actually had to raise a debt.

play02:14

And there were certain options for that

play02:16

which were some predatory, some great.

play02:17

But now there's a third option.

play02:19

And I wanna walk you through each of these three options,

play02:22

the pros and cons of them, which one you should go with

play02:24

and introduce you to this third option in depth.

play02:26

So if you're excited to dig in,

play02:28

go to smash our like button

play02:29

and let's talk about the most favorite way

play02:31

we like to raise money and actually fund our growth,

play02:33

which is to sell your equity.

play02:36

So that's principle number one,

play02:38

option number one, sell your equity.

play02:40

This is the most common way

play02:41

especially for hyper-growth SaaS startups.

play02:44

Not the only way.

play02:45

There's lots of bootstrap founders that watch my channel,

play02:47

that are part of my coaching programs

play02:49

but this is the most common way

play02:50

that people tend to think of when they think,

play02:52

I need to grow faster.

play02:53

How do I grow faster?

play02:54

Well, I can go sell my equity.

play02:57

Now the obvious problem with this

play02:58

is the more you sell your equity,

play03:00

the more you raise, number one,

play03:02

the higher the requirements for you to grow faster.

play03:05

The pressure's on.

play03:06

You also own less of the company

play03:08

and also it's not available to every SaaS business

play03:11

because of the market you're in.

play03:13

Maybe the TAM's not big enough.

play03:14

And all of these complicated factors make equity

play03:17

while it's more available than ever before

play03:19

maybe not the best way for you to fund your growth.

play03:23

So that's principle number one

play03:25

which is you could just go raise more money.

play03:27

If you want to fund more growth.

play03:28

If you're able to.

play03:29

Now the biggest pitfall around this is that very quickly,

play03:34

very easily, the expectations can actually be raised

play03:38

with every equity round you raise

play03:40

and the ownership can actually go lower.

play03:42

And on top of that,

play03:44

most companies don't die because they ran out of money.

play03:47

They actually die of indigestion.

play03:49

So the more equity that you raise,

play03:51

the more expectations get raised, the less you own.

play03:55

You can actually die of indigestion.

play03:57

That's the biggest risk

play03:58

of continuing to fund your growth with just straight equity.

play04:01

Is it the only way?

play04:02

No.

play04:03

Is it the best way?

play04:04

No.

play04:05

It just depends.

play04:06

And those are the things to think about.

play04:07

So that's equity.

play04:08

Let's talk about debt.

play04:10

So principle number two is you can go raise debt.

play04:12

If you wanna grow faster

play04:13

you wanna spend a bit more money on marketing.

play04:15

You wanna spend a bit more money on hiring a few more reps.

play04:17

You really need more customer success people.

play04:19

You can go raise debt.

play04:21

Now there's different ways you can raise debt

play04:24

and it could be standard debt

play04:25

or it could be venture debt.

play04:26

Now, a couple of things to understand here.

play04:28

Like one way to raise the debt is to literally go

play04:31

to a financial institution and say,

play04:32

"Hey, I need to borrow some money."

play04:35

And in some cases there are some financial products

play04:37

out there

play04:38

that understand that you have a SaaS business

play04:40

and they can make a special product for you.

play04:42

That loans you money at a crazy interest rate

play04:45

or some sort of requirement.

play04:47

The biggest thing about debt.

play04:49

I remember in my board meetings,

play04:50

like we just didn't wanna do debt.

play04:52

None of my investors wanna do debt.

play04:53

And the biggest problem with debt

play04:55

is because,

play04:56

is that debt comes with covenants.

play04:58

Covenants are essentially requirements that are associated

play05:02

with the contract that you're signing.

play05:05

It says that you have to make sure

play05:06

that you meet certain criteria.

play05:08

You continue to grow at a certain point.

play05:09

Sometimes in order to raise that debt,

play05:12

you actually have to give a personal guarantee.

play05:14

Sometimes you're raising debt without realizing it.

play05:16

You're paying a 25% interest rate

play05:18

on your personal credit card.

play05:20

And you're funding it through debt

play05:21

even though you may not think about it that way.

play05:23

And the problem is when you're raising debt,

play05:26

the biggest thing is it can very quickly,

play05:28

these covenants can become a noose around your neck.

play05:31

Meaning, if things are going South,

play05:33

let's say you put in a growth bet

play05:35

that didn't quite work, right?

play05:37

If you raised the equity, that's okay.

play05:39

Your investors are still with you.

play05:40

Maybe they'll do a follow on round

play05:41

but they're still in it with you to say,

play05:43

"Hey, let's go figure this out

play05:44

because we're all owners here.

play05:45

So let's figure out how to make it work."

play05:47

In the case of debt, it's actually a noose around your neck

play05:50

because as things are not working,

play05:52

things will actually not work even faster

play05:54

because the bank will come in

play05:55

or the financial institution will come in and say,

play05:57

"Hey, you really need to make these interest rate payments

play05:59

or these debt service payments

play06:00

or you're breaking these covenants

play06:01

and therefore you have to pay the ramifications

play06:03

and pay the fees."

play06:04

And all of a sudden it makes a bad situation even worse.

play06:08

Now, while there are lots of healthy ways to use debt

play06:12

for the good scenarios.

play06:13

In case there's a bad scenario, you'll get hurt.

play06:16

And there's also plenty of cases

play06:18

where there are good scenarios

play06:19

and the business is doing well

play06:20

but the interest rates can actually kill you.

play06:22

When the interest rates can be absolutely terrible.

play06:25

This is why a third new option has emerged,

play06:27

which can completely change

play06:29

how you actually can fund the growth of your SaaS business.

play06:33

And before I go into this third option

play06:34

and principle number three,

play06:35

let me just pause here for a second.

play06:38

One of the core things that you absolutely need to have,

play06:41

whether you are gonna go raise equity,

play06:44

or you're going to actually raise debt,

play06:46

one of the core things that you absolutely need to have

play06:49

is a working go-to-market strategy.

play06:52

And hopefully you're starting to see the pattern.

play06:53

This will be the case for the third one also, right?

play06:55

The working go-to-market strategy means

play06:57

that you actually have a scalable go-to-market strategy

play07:00

that's helping you grow your business

play07:02

and you can see the metrics,

play07:03

you can see the channels, you can see the messaging working,

play07:05

you can see the process working

play07:07

and you can say, "You know what?

play07:08

I've now got this go-to-market strategy.

play07:10

And I'm now got this go-to-market machine

play07:12

where if I put in one extra dollar

play07:15

then I'm going to get $2 more on the other side."

play07:17

And that's really the thing

play07:19

that's a prerequisite for growth.

play07:21

So if you start to see the power in this,

play07:24

you're starting to see the power of look,

play07:25

first we need to get to that go-to-market strategy

play07:27

and that machine, then we can actually have these options

play07:29

to fund that growth so we can grow faster.

play07:31

This is like under the hood,

play07:32

like the core things that really come together.

play07:34

So this is the power of this.

play07:35

Can I just get a yes in the comments below?

play07:37

Also, smash that like button for that YouTube algorithm.

play07:41

Really likes it when you do that.

play07:42

Now I do have a resource for you that I wanna link you to.

play07:47

It's my five-point SaaS growth strategy guide.

play07:49

It goes into way more details on how to drive growth,

play07:52

how to think about these funding options.

play07:53

I'll tell you about it at the end of this video,

play07:54

but let's go to the most important part about this video,

play07:57

which is this third option.

play07:58

This third option is Clearco.

play08:01

Clearco is a company

play08:02

that they used to be called Clearbanc

play08:04

and now they're Clearco

play08:05

because they've really gotten bigger,

play08:06

they've raised a big round and incredible company.

play08:09

And what they specialize in is actually partnering with you

play08:13

and not taking equity

play08:14

but actually giving you capital to grow

play08:17

based on your recurring revenue line.

play08:20

This is super, super powerful.

play08:21

So it's not equity, right?

play08:23

In order to grow, you can get capital,

play08:24

you can get gross capital.

play08:25

The first thing is they're not taking any equity

play08:27

so you don't get diluted.

play08:29

You get to hold onto your equity.

play08:31

Which is super important, super powerful

play08:32

because if you give away all your equity,

play08:35

then you know, things are not gonna work.

play08:37

Like you may have a successful company

play08:38

but you won't have much equity.

play08:39

And you know, it's debatable on what that looks like.

play08:42

The good case and bad case, but it's something

play08:43

to be very, very careful about.

play08:45

Now on the other hand

play08:47

and because you're not giving away equity

play08:49

and you're not doing another institutional round,

play08:51

the expectations around growth, aren't completely shifted.

play08:55

There's no like, hey, we're gonna grow our growth rate

play08:57

by this much otherwise we're gonna be in a lot of trouble,

play08:59

it's none of that.

play09:00

So the money doesn't come with the strings attached

play09:03

that you would normally get with equity.

play09:04

The second thing is it's not debt either.

play09:07

This is very important.

play09:07

It's an important distinction.

play09:08

It's not debt because it doesn't come with covenants.

play09:11

It doesn't come with a personal guarantee.

play09:13

And the most important thing about this

play09:14

is it's not like venture debt.

play09:16

Venture debt is only accessible

play09:17

if you've already raised equity.

play09:19

So if you're bootstrap, this option

play09:21

is just as much available for you.

play09:23

So it's super powerful.

play09:24

Now I wanna tell you more about Clearco

play09:27

but I wanted to make sure I did it properly.

play09:29

This is why I got my old friend, Andrew D'Souza,

play09:32

who is actually the CEO of Clearco to get on a call with me

play09:36

to explain exactly what this financial product is

play09:39

and how you can use it for growth capital.

play09:41

Let's switch over to Andrew and the call that we had

play09:43

where we go a little bit deeper

play09:44

and exactly how Clearco comes together and fits it.

play09:47

- If you think about equity capital

play09:49

being your most expensive source of capital,

play09:50

you wanna fund R and D and product development

play09:52

in the high risk parts of your business

play09:54

but the repeatable parts of your business sales,

play09:57

marketing infrastructure,

play09:58

customer acquisition, we can fund you without taking equity

play10:03

and without putting debt or liability on your business.

play10:07

- Now, that one was the interesting part

play10:09

especially in our pre-show.

play10:10

I always thought that it was like,

play10:11

oh, this is like a unique debt product for SaaS founders.

play10:15

But you were saying, it's not debt.

play10:16

It's a rev share.

play10:17

What's the distinction on that?

play10:19

Why do founders care about that?

play10:20

Like tell us a little bit about that part.

play10:22

- Yeah, so every sort of capital,

play10:23

you think of a spectrum of risk

play10:25

versus cost of capital.

play10:27

On one end of the spectrum you've got equity

play10:29

that is the most expensive

play10:30

but you're offloading risk, right?

play10:32

You may never have to pay your equity investors back.

play10:34

They really can't do anything to you

play10:35

if you never pay them back, if you never exit.

play10:37

There are along, you know, they're on the ride with you.

play10:40

On the other end of the spectrum we've got debt

play10:41

and debt is low cost.

play10:43

You'll go to a bank,

play10:44

they'll give you debt, but they need assets.

play10:47

And so they'll take maybe a personal guarantee

play10:49

or they'll take the enterprise value of your business

play10:51

or they'll basically say, look, we're gonna take security

play10:54

in the business.

play10:55

So we're gonna add leverage to your business.

play10:57

And if you're very confident,

play10:58

if you know exactly what's gonna happen tomorrow,

play11:00

debt can be an effective way to grow your business.

play11:02

But if you miss a payment,

play11:03

if you don't, if you can't, you know,

play11:05

come up with the money when the debt comes due,

play11:08

they can basically force you into bankruptcy,

play11:09

take your business and force you to liquidate.

play11:11

And so what we've tried to do is design a product

play11:13

that sits in between, which is a revenue share.

play11:16

So we have no fixed payment timelines.

play11:17

We ride up and down the sort of journey and revenue journey,

play11:22

and trajectory of your business.

play11:23

There's no way we can force a business into bankruptcy.

play11:26

And so, we may, you know, it can take as long as it takes

play11:30

to get our capital back

play11:32

and we just continue to ride it with you.

play11:33

So we do a lot of the,

play11:35

we offload a lot of risk in the same way that equity does

play11:38

but we're far lower cost in equity.

play11:41

And so it really just depends on sort of the risk

play11:43

versus how much leverage you wanna add to your business

play11:46

and where along the spectrum you wanna work,

play11:47

who you wanna work.

play11:49

- Yeah, I remember having board discussions

play11:51

around raising even venture debt

play11:53

and even our particular investors

play11:56

and board members were averse to even venture debt.

play11:58

Because they're like, if,

play12:00

because of the covenants that come with that,

play12:02

it's almost a noose around your neck

play12:03

if things go South, it goes South even faster with it.

play12:06

- Exactly, exactly.

play12:08

It's like buying a house in a volatile market, right?

play12:11

You can have a big mortgage

play12:13

but if your house value drops by 20%,

play12:16

which is what I think for some people we saw

play12:19

in the pandemic last year

play12:20

is when banks get nervous,

play12:24

they may pull the line,

play12:26

they've got material adverse risk clauses.

play12:28

There may even be nothing wrong with your business

play12:30

but if the market changes, they can pull your,

play12:32

they can call your capital.

play12:34

And certainly if your business doesn't meet covenants,

play12:37

you can trip those things up.

play12:38

And you know, many good banks are easy to work with there

play12:41

but then you're sort of, you're at their mercy.

play12:44

They've got things like warrants

play12:45

so they still get equity upside.

play12:46

So I think sometimes you can get a debt offering

play12:49

that feels or looks very low cost,

play12:52

but the actual cost comes in the terms

play12:54

and things like warrants and additional fees

play12:56

that are sort of hidden there.

play12:57

- What has been the sweet spot of the type of founder?

play13:00

Is it traditionally a bootstrap founder

play13:02

that's going for the product?

play13:04

Is it all kinds?

play13:05

Like what do you see as the archetype

play13:07

of the perfect ideal SaaS founder

play13:09

that you would love to have using your product?

play13:13

- Yeah.

play13:14

I mean, we've got companies that are doing

play13:15

their first few thousand dollars a month up to,

play13:17

you mean our largest companies on the e-commerce side

play13:19

will do 500 million this year.

play13:22

Probably on the SaaS

play13:23

it's maybe around 50 to a hundred million.

play13:25

So we can scale with companies pretty meaningfully.

play13:30

I think what we're really looking for

play13:31

is have you found some version of repeatable growth

play13:34

and product market fit?

play13:35

Can you spend a dollar and can you get out more?

play13:38

Are you an economics (indistinct) set up.

play13:40

Is your CAC LTV rights set up

play13:41

within a reasonable time period, right?

play13:43

We're looking anywhere from probably seven to 14 months

play13:47

of CAC LTV.

play13:48

And then if you have that or a payback period

play13:51

and if you have that, we can kind of fund you indefinitely.

play13:55

And so, you know, if you have a very, very long LTV

play13:58

to payback, you know, if it's outside of a year and a half,

play14:02

two years, then we'll probably try,

play14:05

we can try and help you there.

play14:06

We can supplement part of that,

play14:08

but we probably,

play14:09

you're probably still gonna need

play14:10

to raise some sort of equity

play14:11

to get there.

play14:12

- The coolest thing about this is all of a sudden

play14:15

you can actually use your recurring revenue.

play14:17

The contracts that you have.

play14:19

The revenue that you're already promised

play14:20

by the customers you have as an asset.

play14:22

It's almost an asset.

play14:24

Those future cash flows become an asset for you

play14:26

which you can get the growth capital around.

play14:28

Which is super powerful and really amazing.

play14:31

And the best part of this is it's AI-driven

play14:33

meaning there's no weird banker to go talk to

play14:36

and smooths with.

play14:37

Literally you plug in your systems

play14:39

and they analyze their data

play14:40

and they have AI-based underwriting.

play14:42

There are very few things that are truly AI in this world

play14:45

but this one really comes close

play14:46

and will actually underwrite your offer for you

play14:49

so you can see very clearly what they're offering.

play14:52

If you wanna dig more into this

play14:54

and understand exactly how this all works together,

play14:57

the full video interview with Andrew and I is available

play15:00

along with details on how to think about this.

play15:02

If it's the right fit for you

play15:03

and how to get started with Clearco.

play15:04

All you need to do is just go to tkkader.com/clear.

play15:08

tkkader.com/clear and I'll give you all the details

play15:11

in there.

play15:12

You don't have to go yet.

play15:13

I'll link to it below.

play15:14

Let's start to wrap up a few things and recap.

play15:16

So if you've got that quality go-to-market strategy

play15:19

and that quality go-to-market machine

play15:20

where you're starting to see that predictability

play15:22

in the business, now you wanna grow faster,

play15:24

there's three ways you can fund that growth.

play15:26

Number one, you can raise more equity if you can.

play15:29

If you're in the right market,

play15:30

if you have the right traction,

play15:31

if there's enough upside, then you can go raise equity.

play15:34

But you will get diluted.

play15:35

The second option is you can go raise debt, right?

play15:38

But it does come with covenants

play15:39

and may come with personal guarantees.

play15:40

Interest rates might be crazy.

play15:42

And the third option is you can actually partner

play15:44

with Clearco for growth capital.

play15:47

So this is super exciting

play15:48

because this is just part of the evolution of SaaS.

play15:51

This is the part of evolution of SaaS

play15:53

because it's super important

play15:54

because even the financial markets

play15:56

are starting to understand the value of your ARR,

play16:00

your annual recurring revenue.

play16:02

And because everything is instrumented,

play16:04

we can start to understand DRR and churn.

play16:06

All the things that we talk about on this channel,

play16:08

it can actually be securitized.

play16:09

And based on that, you can raise growth capital

play16:12

to fund your growth.

play16:13

That's what's so amazing about it.

play16:14

Now, if you were in that stage

play16:17

where you are actually trying to figure out

play16:19

your go-to-market strategy

play16:20

and you're trying to figure out like,

play16:21

"Well, how do I get to that predictable machine?

play16:23

So I can actually take advantage

play16:24

of any one of these growth options,"

play16:27

then what you should also do

play16:28

is go to getunstoppable.com/strategy.

play16:31

It's completely free.

play16:32

It's my five-point SaaS growth strategy guide.

play16:35

Inside of that guide I walk you through exactly the things

play16:38

that you need to understand to craft that growth strategy

play16:41

so you can get to that point

play16:42

where you have a go-to-market strategy,

play16:43

you have a skill over the marketing machine.

play16:45

And then from there, you can start to take advantage

play16:48

of all the capital that's out there

play16:50

and all the different ways with its pros and cons

play16:52

to actually drive that growth

play16:54

and feed more into that machine

play16:55

so you can scale faster.

play16:57

There's two resources that I mentioned in this video.

play16:59

One is all the information

play17:01

and the detailed interview with Andrew about Clearco.

play17:04

So to get access to that, go to tkkader.com/clear.

play17:08

If you already have that predictable machine

play17:11

that you're now ready to raise funding and capital around

play17:13

to actually fund and you wanna actually choose the right one

play17:16

that's right for you,

play17:17

got tkkader.com/clear, and you get access

play17:20

to the full interview and also details

play17:22

on how to talk to Clearco plug in your data

play17:24

and understand what they have to offer.

play17:26

The other option is if you're not quite there yet,

play17:29

in terms of your scalable go-to-market machine,

play17:31

you wanna build one

play17:32

and then go download my five-point SaaS growth

play17:34

strategy guide.

play17:35

For that one, just go to get on getunstoppable.com/strategy.

play17:39

I'll link to both of these resources below.

play17:40

You can check both of them out,

play17:41

figure out which one is the right fit for you.

play17:43

If you got value from this video

play17:44

be sure to smash that like button

play17:46

if you haven't already.

play17:47

Also, if you have a fellow founder

play17:48

or a team member that would get value from this,

play17:50

please share this video with them.

play17:52

It would mean the world to me and my team.

play17:54

Also share with your investors.

play17:55

They should be aware of the alternative ways

play17:57

that you can continue to drive growth.

play17:59

Because if you're saving equity,

play18:00

they're gonna be saving equity as well

play18:02

if you can use an alternative way to fund the growth

play18:04

of your SaaS business.

play18:06

Lastly hit the subscribe button and that bell icon.

play18:08

I'll drop an episode like this two to three times a week

play18:11

every week with actionable strategies

play18:13

and ideas to grow your SaaS businesses faster.

play18:16

And lastly, remember, everyone needs a strategy

play18:18

for their life and their business.

play18:20

When you are with us, yours is gonna be unstoppable.

play18:23

I'm TK.

play18:24

I'll see you in the next episode.

play18:27

(soft music)

play18:33

Shall we?

play18:36

Let's do that.

play18:37

(laughs)

play18:40

That was a little awkward.

play18:41

Maybe just.

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SaaS GrowthFunding OptionsVenture CapitalDebt FinancingEquity FundingClearco AlternativeRevenue ShareGrowth CapitalSaaS StrategyFunding Tips
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