The Best Places to Get SaaS Funding in 2019

Here Are the Top Funds Investing in SMB SaaS

As demand for SaaS products continues to rise, institutional investors are paying close attention to the growth opportunities. In just the first half of 2019, public SaaS companies’ stocks reached near record highs, with the BVP Nasdaq Emerging Cloud Index reporting the basket of SaaS stocks reached 1,248.21, just a few points off its all-time and 52-week record highs of 1,253.05. Strong performance in public SaaS companies often indicates high valuations and steady demand are in store for private small-and medium-sized SaaS businesses. This is giving prospective SaaS investors broad opportunities to invest in the digital space.

While SaaS businesses are no longer considered “alternative investments” by fund managers—indeed, institutional investors have been comfortable with online business investment since before 2013—investment funds specifically targeting this sector are in a relatively young space. Regardless, the strong demand from public markets means SaaS companies will have less trouble raising funding from VCs. Private sector demand has reinforced this idea, as a majority (65%) of online business investors are interested in SaaS due to the prevalence of recurring revenues and high margins (according to FE International, based on research into the investors whom they help acquire SaaS businesses.)

These are just some of the funds which SaaS founders, owners and operators should keep an eye on if raising investment is part of their upcoming plans.

 

TinySeedTinySeed

TinySeed was built specifically to work closely with SaaS bootstrappers to provide early-stage angel funding and mentoring. It is a year-long, remote accelerator that provides mentorship to SaaS founders, helps link other SaaS founders together and provides startup founders enough funding to live for a year while they work on building the business.

Key Facts

  • Announced in late 2018
  • Aims to funds 10-15 companies at once
  • Invests $120K for the first founder + $20K per additional founder, in exchange for 8-15% equity
  • Money not devoted to living expenses is allotted to marketing, design, contractors and other expenses for growing the business
  • Mentors for business strategy are a big part of the value they offer, all of whom can be found here: https://tinyseed.com/people
  • Dividends split pro-rata based on ownership percentage
  • Focuses on businesses with the potential to grow to 7-8 figures

Ways To Invest:

  • Investment opportunities limited to those that can provide value on mentorship program
  • Accredited investors only

Key Person(s)

Rob Walling, General Partner

Rob Walling founded and exited Drip (sole advisor: FE International), hosts Startups for the Rest of Us and Zen Founder podcasts, has written 3 books, two of which became bestsellers and has published more than 400 essays. Rob runs MicroConf, and is focusing on mentoring TinySeed investments for the foreseeable future.

Einar Vollset, General Partner

Einar is a YC-alum, former Cornell CS Professor, and the founder of Discretion Capital, a tech-focused M&A investment bank. He sold his first startup to Google in 2010, and exited his most recent in 2016.

 

LTV SaaS FundLTV SaaS Fund

LTV Fund is “the world’s leading dedicated mid-cap SaaS investment fund”. LTV SaaS Fund specializes in mid- and long-term investments, boasting high triple digit percent returns on investments of 3 years and above. They focus on SaaS businesses and recurring marketplace apps and their core projects are based in the US. However, they hold offices in Europe and Asia, meaning they are the most international of all of the funds featured here.

Uniquely, LTV Fund is an ‘open’ fund, meaning it has the ability to acquire/divest businesses throughout the lifetime of the fund, versus traditional ‘closed’ funds, which make investments at the outset and then cannot re-weight their holdings (for better or worse) without closing out the fund in its entirety. This unique feature allows LTV Fund to acquire other synergistic and strategic businesses along the way to maximize the fund’s yield through balance sheet appreciation as well as cash flow increases, and exit businesses at the optimal time.

This is possible through an intimate knowledge of the SaaS M&A industry, as well as an impeccable reputation with some of the largest M&A firms, entrepreneurs and communities in the space.

LTV SaaS Fund is also responsible for LTV Conf, one of North Americas’ leading SaaS conferences for founders and investors.

Key Facts

  • 100% founder buy-outs
  • 10 years+ of operational history
  • 40+ staff
  • Track record of triple digit percent return to investors
  • Access to the world’s largest database of private acquisition data for SaaS businesses in the $1MM – $50MM range
  • Over half a century of investment banking experience from bulk bracket banking to small and mid-cap acquisitions
  • Offices in New York, London and Hong Kong
  • $10M – $100M under management

Ways To Invest:

  • Accredited investors only in the 6-and 7-figure range

Key Person

Thomas Smale, Fund Manager

Thomas is the Fund Manager at LTV SaaS Fund. Having originally founded FE International (the world’s leading SaaS M&A firm) in 2010 after several years of building and selling his own businesses, Thomas is a serial SaaS business entrepreneur and expert. With previous fund exits ranging from 120% – 800% in returns, Thomas’ investment thesis leads the market by combining a value-led approach with an intimate knowledge of growth marketing and the M&A markets and negotiation.

 

Indie.VCIndie.VC

Indie.VC is a 12-month program designed for founders who aim to build profitable companies. They help founders focus on revenue growth strategies without having to work on raising funding. They advertise a 100% revenue growth rate in the first 12 months, and 300% in the first 24 months, for the companies they back. Indie.VC sits under the investment firm O’Reilly AlphaTech Ventures, an early stage investment firm founded by Mark Jacobsen, Tim O’Reilly and Bryce Roberts. OATV has four funds with between 16-22 properties each in the digital space.

Key Facts

  • Fund post-revenue tech or tech-enabled businesses
  • 15 investments so far
  • Targeting “overlooked demographics” claiming they thrive under their funding and training program
  • Conversion trigger ranges from $500,000 to $5M, before conversion to equity is triggered
  • Redemption amount typically between 3% to 7%
  • Offer to connect founders with each other through quarterly events featuring panels with experts (past participants include founder of Basecamp, founder of Swift, and founder of Pardot
  • Seek to be the last round of funding companies take
  • Prefers to be lead investor
  • Provides between $100K to $1M in funds, with an average investment around $285K
  • Offers start-ups the option to buy back the firm’s shares as a portion of their total sales—which caps the firm’s return at three times its investment
  • Publishes V3 investment documents on GitHub

Ways To Invest:

  • Private

Key Person(s)

Bryce Roberts, Managing Director/Co-Founder of OATV and Indie.VC

Bryce focuses on consumer and enterprise software and service investments. Prior to OATV, he led many successful early stage investments at Wasatch Venture Fund and began his career in technology doing large enterprise software deployments. Bryce works closely with the other MD, Mark Jacobsen, who has advised entrepreneurs for over 25 years, helping them build their companies.

 

SaaS.GroupSaaS.Group

Founded in 2017, SaaS.group invests in established SMBs to help them grow a pre-existing, profitable SaaS product once the founder wants to exit the business. With a focus on LTV, content marketing and conversion chain optimization, SaaS.group partners with institutional investors in the software industry through a diversified SaaS portfolio. Recently, SaaS.Group acquired Juicer.io in a deal solely advised upon by leading mid-market SaaS M&A advisors FE International.

Key Facts

  • Investments in the 7- and 8-figure range
  • Privately funded
  • Most recent acquisitions include Juicer.io and DeployBot.com
  • Value investors
  • Track record of 8-figure exits

Ways To Invest:

  • Private

Key Person(s)

Ulrich Essmann, Partner

Ulrich is an Angel Investor with TechSeed Ventures GmbH, and the co-founder, president and CPO of Sedo.com (exit 2013). Since his company exit in 2013 Ulrich has made angel investments in companies like Researchgate.net, Goodwall.org, Apptopia.com, SteadyHQ.com, Miomente.de and supported reward-based German crowdfunding projects like original-unverpackt.de and krautreporter.de.

Tim Schumacher, Partner

Tim, business partner of Ulrich, co-founded Sedo.com in 2001, the world’s largest domain market place. Since selling the company, Tim has remained an active Entrepreneur and/or Investor in various start-ups, for example Eyeo (makers of Adblock Plus), Ecosia, Hitfox, Aklamio, Miomente, PiwikPro, BasicThinking, Home, Zolar, Joblift, SaaS.group and others.

 

How much is my SaaS business worth

 

Earnest CapitalEarnest Capital

Earnest Capital provides early-stage funding, resources and a network of experienced advisors to founders building profitable businesses. Investments are made via a shared earnings agreement, to develop hand-in-hand with founders who don’t want to have to sell their business. Earnest Capital offers mentorship and networking for founders.

Key Facts

  • Investment via Shared Earnings Agreement
  • Invest upfront capital at early stage of businesses – typically the product has launched
  • Agreement on a return cap which is typically 3x-5x the initial investment
  • No equity control over the business
  • No board seats
  • Makes its money through a “founder earnings” model: net income + any amount of founders’ salaries over a certain threshold
    • This leaves founders with the freedom to reinvest as much or as little into growth as they like, which means the businesses are in control of when EC gets a payout as they don’t get paid until founders pay themselves
  • Non-perpetual model, meaning once the return cap is hit, payment to Earnest ends
  • Collaboration between Tyler Tringas and SureSwift Capital
  • If the businesses decide to raise funding or sell, then EC’s stake converts to equity

Ways To Invest:

  • Accredited investors only

Key Person

Tyler Tringas, General Partner

Tyler is a web developer currently working on an e-book for building SaaS businesses. Tyler was head of Energy Economics for New Energy Finance, which was acquired by Bloomberg LP for an undisclosed amount in 2009. He is currently the founder and lead developer of Storemapper as well as CEO of Maptia, a collaboration project between writers, photographers, etc. from around the globe.

Kevin McArdle of SureSwift Capital, Investor

Kevin is the Co-Founder and CEO of SureSwift Capital. SureSwift creates optimal business exits for dynamic, transaction-based SaaS companies.

 

Constellation CapitalConstellation Software

Constellation Software acquires, manages and builds industry-specific software businesses to provide essential software solutions to both public and private sector clients. The businesses have a combined 125,000 customers in over 100 countries, and Constellation is now working to establish a portfolio of software businesses in a fund.

Key Facts

  • Acquisition criteria:
    • Tier 1:
      • Mid to large sized vertical market software companies with a minimum of $1M earnings before interest and tax
      • Consistent earnings and growth (generally EBITDA/revenue +revenue growth of 20% or more per year)
      • Determined offer price
    • Tier 2:
      • Number 1 or number 2 market share holder in a niche vertical market
      • Revenues of at least $5M
      • Hundreds-of-thousands of customers
      • Determined offer price
    • Prefer 100% ownership in their companies, but willing to buy less if founders want to remain involved (particularly for Tier 1 businesses)

Ways To Invest:

  • Publicly traded company on the TSX (CSU.TO)

Key Person

Bernard Anza Routh, Chief Investment Officer

Bernard joined CSI in 1995 and works with VMS businesses to identify and pursue opportunities for platform and tuck-in acquisitions. Primarily works to establish licensing and distribution arrangements, as he has a background in AVP Business Development for the Swiss-based tech corporation Ascom Inc. Prior to Ascom, he held various positions within IBM.

 

Tiny.VCTiny.VC

Tiny.VC has 38 co-investors, including System.One, GGV Capital and Greycroft, and has to date made 8 investments and completed 1 exit. Tiny.VC was founded in 2017.

Ways To Invest:

  • Private

Key Person

Andy Chung, Executive

Andy is a partner at the Nordic Web, a research and analysis company which specializes in covering data on tech companies emerging in the Nordic regions. The Nordic Web has started a new Angel fund to invest across Denmark, Finland, Iceland, Norway and Sweden. Andy is a Co-Founder and serves as Board Member at Happyinc and is also an active Angel Investor.

 

Owl Mountain FundOwl Mountain

Owl Mountain builds, grows, and acquires digital assets. They are aiming to be the “Berkshire Hathaway of Digital Assets”. Their partner is banking on cashflowing web assets being the real estate investment of this era.

Key Facts

  • Team of specialists
  • Outside capital
  • Purchase sites which stack and monetize channels
  • They either invest time up front and in return receive a nominal fee, or participate capital in the deal

Ways To Invest:

  • Private

Key Person

Ewen Finser, Partner/Content Strategy Operations

Ewen has experience in building websites from the ground up, and got his inspiration for Owl Mountain from Wired Investors. He was a senior technical recruiting consultant for Precision Systems, a technical recruiter in the information technology space to recruit engineers, and the founder of Venture 4th Media, which specializes in developing and transacting digital media assets within high growth niche markets.Subscribe to SaaS Mag

We will update this page as more interesting funds emerge in the online business space. For now, these are the funds leading the market in the SMB SaaS space and carving a new path for SaaS businesses seeking investment. Set up by individuals with hands-on experience in their chosen sectors, they represent a new shift in investment possibilities. If you would like to keep up-to-date with developments in the SaaS industry, then make sure to subscribe to SaaS Mag for free.

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