How the SaaS Revenue Lifecycle Changes Between Funding Rounds

Early-stage SaaS companies—and their revenue models—grow and change rapidly. As revenue models and sales structures evolve, SaaS finance teams must take an agile, flexible approach to forecasting, managing, and recognizing complex revenue. As SaaS leaders manage growth and raise capital, a complete, dynamic view into current and projected finances is paramount. Without a holistic view of company finances, SaaS leaders are at risk of poor resource planning and cash flow management.

Why is financial visibility critical for early-stage SaaS leaders?

Every hiring decision has a direct impact on the financial performance of a SaaS startup

Hiring the right people is essential for the long-term success of any growing business. Each hiring decision has an immediate and direct impact on a company’s bottom line. This is particularly true for early-stage SaaS companies since core teams are still being built and new hires tend to be placed in leadership roles.

Despite the obvious importance of hiring and performance analysis, 74% of companies have lost almost $15,000 for every bad hire they make. Financial visibility allows business leaders to analyze the impact each hire is having on business performance in real time and quickly make changes to reduce the impact of poor hiring decisions.

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Investors often require company roadmaps based on actual and projected financial data

Financial visibility is not just useful for business leaders to understand business performance and analyze the impact of each key business decision. Investors play an important role in the growth of early-stage SaaS companies and they usually require proof that their prospective investment can generate an acceptable return in the future. Business leaders can deliver this proof by collecting, storing, and analyzing current financial data as the foundation for accurate and data-centric financial projections.

Financial visibility aids in the creation of a data-centric company culture

To align internal stakeholders with organizational goals, SaaS leaders should create a culture and processes that help every employee see and understand the financial side of the business. This aids in the creation of a strong corporate culture built around data collection and analysis.

Team leaders must take a proactive approach in developing a strong corporate culture early in the formation of their business. The results of failing to do so can be difficult to solve in the long term, with almost a third of employees saying that their organization has a poor corporate culture.

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While the finance team should not act as gatekeepers, they should have full control over what financial data each internal stakeholder can access. This ensures that each team member can exercise autonomy over their company’s financial performance while still keeping sensitive data secure.

How do SaaS revenue lifecycles evolve between funding rounds?

Pre-Seed

Pre-seed is the earliest form of funding. At this point, companies operate with small teams and are still using funding from either the founder or their personal network. It is at this stage that founders ponder how much money they would need to raise in later funding rounds in order to achieve revenue goals.  

Seed

This stage involves actively raising funds for the new startup. This funding can come from members of the founder’s personal network, venture capitalists, angel investors, and elsewhere. The money raised during this stage is meant to get the company off the ground, so company leaders must ensure cash flow is managed closely and effectively. Companies that fail to manage cash flow during this period are at risk of arriving at the end of their runway without means of raising more. This has been the demise of countless SaaS startups.  

Series A and B

Once a team has a customer base and fairly predictable revenue model, business leaders move on to Series A and B funding. During these funding rounds, businesses make key hires, invest in building a sustainable business model, and scale operations to meet a previously underserved customer base. Businesses make decisions during this phase that ultimately define  the success of the company.

This means that the financial impact of every decision – hiring, setting goals and processes, allocating capital – must be continuously evaluated based on company-specific KPIs.

Growth stage (Series C and beyond)

Growth stage funding happens for one of two reasons. The first reason is that companies underestimate customer demand  and need to scale their business to meet it. The second reason is that startups need to boost company revenue growth and their valuations to maximize  future liquidity events. During these stages, companies are focused on  scaling their revenue-acquisition engine and the means to support customers. Everything from business processes, team sizes, and product offerings must grow significantly to serve the largest possible customer base.

This is also where large players such as investment banks, hedge funds, and private equity firms get involved. At this stage, in order to increase investor confidence, SaaS leaders must create and share accurate projections based on past and present financial performance.

Liquidity events (Acquisition, IPO, etc.)

Liquidity events are usually the end goal of  most SaaS leaders. These events liquidate equity in exchange for cash. This can occur directly through acquisition, or indirectly via  an initial public offering (IPO) on a stock exchange. For either to happen, company leaders must be able to highlight and share the value they can generate for investors with complete, accurate financial statements and performance data.

How can SaaS startups leverage software to manage evolving revenue lifecycles?

As SaaS startups scale, so too must financial processes that support and guide sustainable growth. Place’s category-creating agile finance platform delivers scalable, streamlined financial processes and real-time SaaS KPI reports and dashboards. Equipped with complete current and projected financial visibility, SaaS leaders can make quick critical decisions and plan strategically for future funding rounds.

To learn how Place can help you develop an agile, evolving approach to finance and revenue management, schedule a demo with us today.

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