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B2B SaaS Venture Capital
In order to understand B2B SaaS venture capital, you first need to understand what SaaS and venture capital are.
What Is SaaS?
Software-as-a-Service or SaaS involves selling software via a subscription versus a one-time licensing fee. Software is located externally in data centers and servers versus internally. This model has a number of advantages, including low start-up costs for businesses and always up-to-date versioning and security.
Customers access SaaS via a web browser, without having to install the software on their device. Although it requires internet access, SaaS gives companies a fast way to distribute software to remote employees without having to deal with licensing, installation and troubleshooting headaches. Examples of SaaS business applications include email, file sharing, customer retention software, human resources management systems and calendars.
What Is a Venture Capital Firm?
SaaS VC funding refers to individuals (angel investors) or companies (B2B SaaS venture capital firms) that inject capital into early-stage firms they believe have a high potential for growth. SaaS venture capital firms continue to invest in SaaS firms in 2020, despite a downtrend from 2019, related to the pandemic and other pressures in the market.
According to Pitchbook, Q2 2020 reflects the impact of COVID-19 lockdowns and orders to shelter in place. The VC industry remains resilient, with $500 million+ funds closing more deals (24) so far in 2020, exceeding the total for all of 2019. Enterprise venture capital investors focused more on late-stage findings than start-ups.
Overall, deal activity in the first two quarters of 2020 is less exuberant than seen in 2018 or 2019. SaaS start-ups are watching the dearth of liquidity closely, as it could impact the long-term investment funding available for individual companies. Fortunately, venture capital leans toward seeding enterprise deals, so SaaS start-ups that need cash infusions for beginning and mid-stage growth aren’t completely in the woods.
A SaaS venture capital report commissioned by Pitchbook and NVCA shows that VC funding exited 2019 with $250 billion of outstanding capital, mainly in the form of VC-backed IPOs. Meanwhile, U.S. SaaS ventures achieved a summit of $46.3 billion in 2019. Whether those numbers can return post-COVID remains to be seen.
Who Is Looking for SaaS VC Funding?
Founders of fledgling technology start-ups have developed a product they believe in but lack the capital to perfect and market their tool. That’s where SaaS venture firms come in. VCs are pre-seed incubators that connect new companies with funding through a B2B venture, meaning investors who specialize in getting business-to-business SaaS ventures off the ground. This process requires a selling pitch from founders and executives of small firms who want to grow their company from a few customers to a household name.
Software venture capital firms often have high expectations in return for their investment and may run you through an incubation program to reorganize your business for success. Therefore, timing is crucial.
There’s no ideal point to seek b2b venture capital but do so when you’re confident you have a product that will sell and serve business partners well. Seeking help from venture capital software companies too early can lead to many problems if you haven’t worked out a clear strategy and reliable revenue expectations.
Software Venture Capital Firms
To begin with, it’s important to understand the different stages that VC firms identify when offering to fund SaaS start-ups and emerging businesses. We’ll also take a look at some of the major venture capital firms in the industry before going deeper into the key players.
- Seed Capital: If you just started your company and don’t yet have a product or even an organized charter for your company, then you should seek seed capital. It’s tougher to find VCs that fund this stage, so the initial investment would probably be small. However, if you need money to create a sample product or to conduct market research, find investors who believe in the potential of your product.
- Startup Capital: This stage addresses companies who have a sample product and at least one full-time employee. Funding at this stage, also rare, may cover the recruitment of key management and getting the product ready to market.
- Early Stage Capital: Typically, two to three years into your company’s history, you’ve gotten the company organized and have a management team in place. At this point, you’ve survived the early growth pains and sales are growing. However, you need VC funding to increase sales and get to a break-even point.
- Expansion Capital. Your well-established company needs VC help to make it to the next level of growth. Funding at this stage is much more available and you may find SaaS venture capitalists willing to help you with your marketing efforts.
- Late Stage Capital. It shouldn’t be too hard to find technology venture capitalists willing to invest in your company at this stage. You have impressive sales and mid-tier management in place. You may want to increase your capacity and working capital to grow even more.
- Bridge Financing: At this stage, you may want to find a merger or acquisition opportunity so that you can prepare for an initial public offering.
Next, let’s look at some of the key B2B venture capitalist firms in the market today.
- Accel, formerly Accel Partners, is an American VC company. It deals with companies looking for seed, early- and growth-stage investments. Its offices are in Palo Alto and San Francisco and they also have subsidiaries in India, London and China.
- Battery Ventures Is a worldwide investment firm that focuses on technology such as SaaS. it offers venture capital and equity investments from offices in Silicon Valley, San Francisco, Boston, London and Israel.
- Bessemer Venture Partners has over $5 billion in its portfolio. This American VC investor has offices in Redwood City, San Francisco, Boston, New York, India and Israel.
- Insight Venture Partners Is a New York City-based venture capitalist firm that invests in growth-stage technology and software companies.
- Emergence Capital focuses on early and growth-stage SaaS and enterprise cloud businesses. The company infuses cash to visionaries at the early and growth stages from its offices in Silicon Valley, San Francisco Bay and the West Coast.
Founded in 1972, Sequoia Capital has provided funding to early and late-stage growth startup-ups. Its big-name partners include DropBox, Google, Atari, Yahoo, Evernote and WhatsApp, just to name a few. According to the company’s about page, the Sequoia Capital AUM totals more than $3.3 trillion.
This American venture capital firm is based in Menlo Park, California. It focuses on the technology sector and is a good bet for your SaaS firm if you are in the growth stage of your development arc. Sequoia Capital AUMmanages numerous investment funds globally in areas such as Israel, China, India and Southeast Asia.
Sequoia Capital subsidiaries include:
- Sequoia Capital China with offices in Hong Kong, Shanghai and Beijing
- Sequoia Capital India, with offices in Bengaluru, Mumbai and New Delhi
- Sequoia Capital London with offices in London
According to the Emergence Capital Crunchbase portfolio page, Emergence Capital AUM is $1,355.8, including six funds, the latest of which — Emergence Capital Partners Fund V — has raised more than $435M since its inception in 2018.
The Emergence Capital team includes 17 founders, partners and principals, such as founders Gordon Ritter, Brian Jacobs and Jason Green. Before starting Emergence, Emergence Capital investment team member Gordon Ritter spend 15 years founding other companies that included offerings such as server appliances, web-native application development and On Demand services for SMS.
Brian Jacobs, founder and general partner of Emergence previously spent 25 years in venture capital endeavors that included business and consumer start-ups.
Bessemer Venture Partners
Bessemer Venture Partners AUM equals over $4 billion invested in 130 companies worldwide, according to Bessemer Venture Partners Crunchbase page. BVP Bessemer Venture Partners is one of eight funds managed by the company and has raised more than $525 million. Meanwhile, the company’s Fund Seventh offering raised $350 million.
Point Nine Capital
Point Nine Capital is a European fund based in Berlin. It can raise funds for your early-stage SaaS and digital marketplace start-up. The Point Nine Capital fund size is €289 million. The Point Nine Capital Portfolio includes four funds, according to Crunchbase and the latest is the Point Nine Capital V, introduced Sep 22, 2020 and already worth €100M.
SaaStr runs a blog about SaaS firms and founded by Jason Lemke and Mallen Yen in 2012. The VC currently manages six funds and the most recent Saastr fund raised $15 million for RevenueCat.
Jason Lemkin left Adobe not long after it bought his Echosign, his brainchild and start-up. He created the Saastr brand on Quora and now the Saastr accelerator program helps other SaaS founders reach their market potential.
SaaStr University offers lessons from SaaS and Cloud leaders. You can use their ideas to help you get through the early stage start-up phase, whether or not your SaaS firm earns the attention of the company’s savvy leaders. SaaStr Pro is an automated leadership training program available year-round for smart subscribers.