This guide is designed to provide an in-depth comparison of the best revenue-based lenders in the market and help you select the right lender for your SaaS.

If you’re seeking non-dilutive funding for your company, try Paper. Paper allows SaaS founders to apply to dozens of capital providers with a single click.

Pipe

Founded in September 2019 by Henry Hurst, Josh Mangel, and Zain Allarakhia, Pipe’s mission is to provide SaaS companies with upfront revenue by matching them with investors who offer a discounted rate for the annual contract value. Pipe recently secured a round of funding that brings the company’s valuation to $2 billion in less than a year after its IPO.

As one of the top revenue-based lenders in the market today, Pipe’s trading platform helps SaaS organizations grow their business on their own terms. Clients can immediately turn their subscription revenue into upfront capital, allowing them to scale their organization rapidly without diluting their ownership.

Existing SaaS businesses that have established subscription revenue streams can be approved for a trading limit in minutes with revenue-based lenders. By signing up for an online account and connecting its existing systems to Pipe a SaaS can begin trading on Pipe within hours. Approved clients will have access to a portfolio of customer contracts ready to trade as well as real-time bids for the annualized value of these contracts from institutional investors. Essentially, an SaaS is “selling” a certain dollar amount of its monthly recurring revenue to receive a certain amount of cash to use immediately.

Pipe may offer a discount rate as low as 1% per month or 10% to 15% a year. Prospective clients can sign up for an account and apply with their particular company’s data to get an accurate bid price and rate from each investor.

Regardless of the size of a SaaS, capital can be accessed through revenue-based lenders such as Pipe as long as a recurring stream of revenue from customers exists on a monthly or quarterly basis. Signing up carries no risk: there’s no cost to join Pipe and no obligation to ever make a trade.

CapChase

CapChase was established in 2020 by Ignacio Moreno, Przemek Gotfryd, Luis Basagoiti, and Miguel Fernandez. Based in New York, this fintech business helps SaaS companies finance their business with cash that’s tied up in future monthly payments. Recently, CapChase closed a $125M Series A funding round led by QED Investors, providing a means to expand the funding the company can provide to its clients.

As one of the main revenue-based lenders, CapChase pays SaaS companies the annual value of their subscriptions today, allowing them to make needed investments to fuel future growth. The organization will potentially fund up to one year of future monthly recurring revenue. Similar to Pipe, CapChase starts its discount rate as low as 1% per month or 10% to 15% a year. CapChase offers a runway calculator on its website, which is a tool that helps a SaaS business determine how it can extend its runway to boost rapid growth without giving up equity. By entering the cash needed, annual recurring revenue, burn rate, annual topline growth, and the number of contracts as well as annual expenses growth rate, current discount, customer acquisition costs, sales cycle, an annual contract value, a SaaS can quickly optimize for runway, growth, or dilution. All data entries can be made anonymously, but contact information is required to receive results from revenue-based lenders such as CapChase.

Once a conversation with CapChase is opened, this organization may be willing to negotiate time frames and discounts that affect fees. In addition, rates can be adjusted depending on the SaaS’s future growth.

Founderpath

Established in 2019, Founderpath wanted to be an alternative way for bootstrapped SaaS start-ups to get capital without sacrificing equity. The founders of Founderpath have been bootstrappers themselves; the company is based in Austin, Texas, but operates remotely. In March 2021, Founderpath successfully raised $10 million, which allowed the company to finance additional SaaS customers and add key executives to its c-suite team.

By integrating with other financial companies such as Stripe and Quickbooks, this revenue-based lender can accurately analyze the strength of a SaaS applicant. Once accepted, customers can convert monthly recurring revenue into upfront cash. The application process can take under three days to secure financing. SaaS companies typically receive 11 months of upfront cash for monthly subscriptions, and costs are calculated using a SaaS credit score. Each Saas begins with a perfect score of 1,000, which gets reduced for each poor metric by this revenue-based lender.

Since Founderpath’s investors loan the company original funds at a set interest rate of 12%, SaaS founders will pay a higher rate for upfront cash. However, unlike venture capital, Founderpath has no personal guarantees and takes no equity. It also charges no origination or due diligence fees.

The company points out that many SaaS firms offer a 20% to 30% discount to customers for paying their monthly subscriptions upfront on an annual basis. Since Founderpath promises to convert the same fee to an upfront cost at 17% or less, customers can retain more of their revenue.

Stripe Capital

Stripe Capital provides customers with rapid and flexible financing options in a non-dilutive manner. U.S. SaaS companies using Stripe’s payment platform must have at least one year’s worth of payment history and will typically receive three loan offers at one time. Customers may choose a custom loan amount up to the maximum offered. Although offers expire, new offers based on transaction history are constantly being generated by this revenue-based lender.

If a SaaS chooses to access upfront cash, Stripe will automatically collect a percentage of future subscription payments. Although a minimum payment is required every 60 days, in general, this repayment method allows a SaaS company to pay down more of its loan during busier times and less in slower periods. Stripe charges a flat fee for the loan and no ongoing interest. The minimum payment will ensure the loan is paid off within 18 months.

Once an offer is accepted, this revenue-based lender makes the funds available in your account within one to two business days. For example, a company with monthly recurring revenue of $27,000 may be able to borrow up to $100,000, which can be paid back over 12 months.

Honorable Mentions

The following revenue-based lenders have been selected as “honorable mentions” in our comparison, also providing capital to SaaS companies without requiring equity and control.

ARR Squared

Based in Singapore with offices in Australia and the United States, ARR Squared provides access to non-dilutive capital by converting monthly subscriptions to upfront cash. Founded by Preet Gona and Alexis Zirah, ARR Squared works to provide an alternative means of capital to extend a SaaS company’s runway and booth growth and revenue potential without sacrificing equity.

As one of the leading revenue-based lenders, the company begins its lending process by running data from the applying SaaS through its analytics arm. By synchronizing accounting information and subscription management with the ARR Squared system, the company can generate a discount rate to an annual contract value within a few minutes.

RevTek Capital

Headquartered in Forest Grove, Oregon, RevTek was founded in 2000 by entrepreneurs. The founders' goals revolved around helping fellow entrepreneurs hold onto their equity as they grew by providing growth capital in the form of debt. In addition to capital, RevTek’s professionals can assist with operations, marketing, and finance.

In order to qualify, a SaaS must have a predictable recurring revenue of at least $50,000 per month with a minimum gross margin of 50%. However, profitability is not required. Typically, such clients can borrow up to one-third of their annualized revenue run rate or 40% of their annual recurring revenue.

Decathlon Capital Partners

Unlike the previously discussed revenue-based lenders, Decathlon Capital Partners is not sector-specific. Although the company can provide revenue-based capital to SaaS businesses, it also finances a wide variety of other companies in multiple industries.

Based in Salt Lake City and San Francisco, Decathlon was founded in 2010 ”to democratize access to growth-stage capital.” The lender believes that equity-based funding models have a conflict of interest with the businesses they finance.

SaaS firms seeking capital to grow their customer base, develop their offerings, or expand their team can secure capital and repay the loan as revenue allows. Since a typical funding package requires loan repayment over two to five years, SaaS companies can expand without restrictive or short-term constraints.

Terms

For VC funding, the cost of capital is really tough to calculate (e.g. what's 5% of your company going to be worth in 5 years?). It's much simpler with factoring, but there's one part of the math I missed at first.

For example, if a SaaS agrees to accept a $10,000 loan at the beginning of a calendar year to be paid back from monthly revenue of $1,000 per month over the course of a year, it can appear that the “interest rate” is only 20%. However, this assumes the loan is completely paid back at the end of the calendar year, not throughout.

The reality is that a $10,000 loan taken on January 1 of a calendar year is repaid with $1,000 monthly installments at the end of each month. This means the lender actually recoups funds throughout the year with the initial investment amount returned in only 10 months. This results in an actual interest rate of 41.5% because the average amount you borrowed over the year is closer to $4,000 and you "paid" $2,000 to borrow it.

If this same $10,000 loan is taken on January 31 of a calendar year, with $1,000 monthly installments paid back at the end of each month, the actual interest rate skyrockets to 51.4%. Here's another example with where you give $1,000 in MRR for $11,000 now:

Check out Paper

Paper is a capital marketplace for SaaS companies. We allow SaaS organizations to apply to dozens of capital providers with a single click. The process is easy:

1. Connect to your payment provider (e.g. Stripe)
2. Select acceptable loan parameters (e.g. duration, interest rate) and desired loan amount
3. Get matched with multiple lenders in an instant

In recent years, more non-dilutive funding options have entered the picture, providing often much-needed financing to SaaS start-ups without requiring equity in the company itself. This guide will provide some industry background, explain the difference between dilutive funding and non-dilutive funding, and share a comprehensive list of funding categories.

Rapid Growth of SaaS

When SaaS platforms began making software available to customers over the internet, they completely changed the pace of technology adoption. A lengthy implementation process quickly shrunk to download time, and IT departments had to make the switch from managing physical technology assets to handling cloud-based challenges.

Since most SaaS models generated revenue from a tiered subscription agreement, the potential for rapid scaling existed, which again, increased the pace of growth for SaaS companies. Items such as security, maintenance, and compliance were often rolled into the SaaS offerings.

For new players entering the SaaS market, the rate of growth had to match the expectations of the industry, often requiring significant capital during the early stages. For most startups, that meant relying on venture capital (VC) funds or other equity financing that required sacrificing a percentage of company ownership.

The Difference Between Dilutive and Non-Dilutive Funding

The main difference between dilutive and non-dilutive funding for SaaS companies has to do with how much ownership, control, and future returns an entrepreneur is willing to sacrifice for the capital. VC funds also come with an expectation that the founder is willing to “go for broke” and either achieve a billion dollar outcome or die trying.

Dilutive funding, otherwise known as equity financing, requires trading capital for a percentage of ownership, some level of management control, and a portion of future profits. VCs are less concerned about earning traditional returns based on profit sharing and more interested in rapid growth, which often leads to the need for more VC funds.

As a founder, it’s important to remember that the types of outcomes a VC considers “good” is quite narrow relative to a “good” outcome for you and your personal wealth. VC is structured for $0 or $1B+ outcomes, but for founders there are many life changing outcomes in between.

Non-dilutive funding, on the other hand, includes ways to attract capital without sacrificing partial ownership or control of the company. Many types of non-dilutive funding for SaaS companies exist including government tax credits and grants, crowdfunding campaigns, and private financing. Each offers advantages and disadvantages, and may be suited for particular types of growth and expansion.

The Long-Term Consequences of Dilution

SaaS companies opting for dilutive funding should understand that venture capitalists, angel investors, and other equity investors often tuck extra stipulations and requirements into the details of funding agreements. Over time, some of these provisions can have a significant long-term effect on a company’s revenue, control, or growth.

According to Dries Buytaert, an open-source advocate and technology executive, five factors have significant dilutive effects on SaaS companies. Buytaert discusses, in detail, the dilutive effects of multiple rounds of funding, reverse vesting, option pools, pro-rata rights, and liquidation preferences. Here’s a quick summary:

• Multiple Funding Rounds. With each round of funding designed to take a company to the next level of growth, founders will probably be forced to give up an added percentage of their business. Ideally, Buytaert suggests a maximum sacrifice of 25% dilution during the first round, which would decrease by 5% in each subsequent round. Even at this rate, four rounds of financing will leave entrepreneurs with only 30% of their company.
• Option Pools. Unfortunately, relinquishing a percentage of a company is not the only dilution factor. Most investors will require that an employee option pool is also created, which shifts between 10% and 20% of new value of the company from the founders’ equity into a fund for future employees.
• Reverse Vesting. To ensure that founders stay with the company, investors frequently want the right to repurchase the founders’ shares of the company if they choose to leave. The vesting period is typically four years; at that point, founders usually can keep all their initial shares.
• Pro-Rata Rights. Through multiple rounds of non-dilutive funding for SaaS companies, early investors and new investors begin negotiating ownership rights. Initial investors often want pro-rata rights, or the right to invest in future rounds to grow their investment with the company. New investors, however, want their fair share of the company as well. The demands from multiple investors often force founders into even greater dilution.
• Liquidation Preferences. Finally, investors often require a liquidation preference to protect themselves against companies that fail. This preference means that investors will be allowed to liquidate their stock before other shareholders. In some cases, investors require “participation rights,” which allows them to take out their initial investment (or even multiples of that investment) as well as the value of their stock.
  

After four rounds of funding, many company founders end up with single digit percentages of ownership. For example, Aaron Levie, founder of enterprise cloud company Box, owned roughly 4% of his company at the time of its public offering. When Zendesk went public in 2014, owner Mikkel Svane owned about 8%, and a co-founder of ExactTarget owned just under 4% when the company filed its S-1.

If SaaS companies do not make it to the public offering level, founders can be left with even less after adjusting for risk, opportunity cost, legal fees, and other factors. It’s important to remember that reduced equity can mean loss of control, decision-making power, and future spending choices in addition to fewer long-term returns.

Types of Non-Dilutive Funding

As demand for funding new SaaS companies continues to increase, more organizations are developing creative ways to provide capital. As a result, the types of non-dilutive funding options are already wide and varied with other potential creative funding solutions on the horizon.

Understanding how each type of non-dilutive funding works as well as what type of situation it is designed for can help owners of SaaS companies make better decisions each time they need to secure capital for growth.

Current categories of non-dilutive funding include government grants, crowdfunding, public tax credits, government voucher systems, private loans, revenue sharing, and venture debt.

If you’re seeking non-dilutive funding for your company, try Paper. Paper allows SaaS founders to apply to dozens of capital providers with a single click.

Private Loans

Banks, financial institutions, and other lending organizations are anxious to help fund new or growing SaaS companies. According to Gartner, revenue from SaaS businesses around the globe is projected to exceed $151 billion by 2022. Many of the tens of thousands of private SaaS companies are still in the early stages of development as the global business market transitions from on-premise-based software to cloud-based solutions.

More and more banks and lending institutions are entering the market, expanding the loan options for SaaS companies, which have had limited asset-based loan options from only organizations specializing in SaaS loans. Interest rates and repayment terms are expected to evolve, generating a greater number of creative loan options for SaaS companies seeking funding.

Revenue-Based Financing

Revenue-based financing provides non-dilutive funding for SaaS companies by offering capital in exchange for a fixed percentage of the company’s gross revenue until the loan amount plus a negotiated multiple is reached.

This allows SaaS companies to repay loans at the same rate that it is generating revenue, reducing the risk of needing to dip into operating cash to meet loan obligations. Typically, gross revenue is either calculated daily or monthly to determine repayment amounts, and loans are expected to be repaid within three to five years.

Venture Debt Financing

For those SaaS companies that do not have positive cash flows or enough assets for loan collateral, venture debt financing may be an option. In this case, these specialized lending organizations provide capital loans that are tied to warrants, which gives them a right to buy equity in the company at a set amount. This helps offset the risk that venture debt lenders take in funding these SaaS businesses but also minimizes dilution for the owners and other investors.

Government Grants

Government-based economic development programs at both the state and federal level exist to encourage the growth of domestic-based businesses and can be a good source of capital for new SaaS companies. However, they can be extremely competitive so it’s important to have a clear business model and sound plan before applying.

At the federal level, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs “enable small businesses to explore their technological potential and provide the incentive to profit from its commercialization.” Entrepreneurs need to progress through either two distinct phases or one fast-track phase, which includes establishing their worthiness for a grant through an outline of research and development projections and/or results, business performance to date, and commercial potential. Grants range from more than $200,000 to well over $1.5 million of the course of six months to two years.

Individual state economic development programs may also offer grants, which can be less competitive but somewhat more difficult to find due to year-to-year funding changes. They can also be varied as to how they accept capital requests and award financing.

For example, programs like the Arizona Innovation Challenge creates competition for funds while the Colorado Proof of Concept grant focuses on connecting research institutions to private commercialization opportunities. Although some state grants are focused on increasing exports or employee skills development, many others are designed specifically for the technological innovations that are well-suited to SaaS companies.

Crowdfunding

Although the idea of crowdfunding can date back to the 1700 Irish loan funds, the first modern-day crowdfunding effort is recognized as a fan-funded reunion tour by a British rock band. Since then, companies such as Prosper, Kiva, Kickstarter, Indiegogo, and others have paved the way for non-dilutive funding for SaaS companies.

According to an article in Startups Investing, businesses seeking to secure crowdfunding capital today may do well by entering a partnership with a marketing agency that specializes in maximizing crowdfunding participation.

Tax Credits

Since both state and federal governments have a vested interest in helping companies like SaaS businesses succeed to not only provide future tax income but also domestic employment opportunities, they provide various tax credit programs to encourage and support investors.

The Tax Credit Finance Resource Center, created by the Council of Development Finance Agencies, offers comprehensive information about tax credit programs as well as how they can be applied to a SaaS business. Tax credits decrease an investor’s tax liability. At the federal level, a New Markets tax credit program is available while many others dedicated to technology development can be found at the state level.

Investors need to show that an actual investment has been made in things such as a physical building or cash outlay. Credits can then be used to boost the rate of return internally, decrease interest rates in a specific round of financing, or establish a non-cash investor repayment option.

Government Vouchers

Government vouchers are another source of non-dilutive funding for SaaS companies, which can be used to pay for products, services, access to facilities, or consulting advice from other businesses. Although vouchers don’t carry an actual cash value and cannot be transferred, they do allow SaaS businesses to either receive products or services at reduced or no charge to them. Some vouchers can be used to secure specific types of unsecured loans as well.

Non-Dilutive Funders

Below are some financial institutions that provide non-dilutive funding loans for SaaS companies.

TIMIA

TIMIA Capital offers a Springboard loan that is designed to help SaaS businesses obtain enough cash to meet final goals. Typical companies will have $3 million more in ARR as well as average cash burn.

Triple Point Capital

Triple Point Capital provides a wide array of debt financing solutions ranging from $10,000 to $100 million. This lender offers both asset-based financing for things like equipment acquisition or accumulating inventory as well as purpose-based financing that includes runaway extensions or buy-outs.

Capital

Capital bills itself as an intelligent credit market for SaaS companies and other businesses. SaaS companies are asked to upload their financials into the system, allowing Capital to identify the aspects of a business that are financeable without dilution. The provider then creates a custom financing plan, outlining the risks and benefits of each option, and gives the SaaS company an opportunity to select options that seem best for their current needs.

Revenue Based Financing

Here are organizations that offer revenue-based non-dilutive funding for SaaS companies.

Stripe Capital

SaaS companies who receive payments on Stripe may be eligible for Stripe Capital funding options. Those U.S. businesses who have at least a one-year history of receiving Stripe payments may be eligible. Those businesses that take advantage of this non-dilutive funding for SaaS companies will automatically repay the loans through a percentage of Stripe sales. A minimum payment is required.

Element

Specializing in SaaS funding, Element professionals take a more personalized approach. After an initial call, Element will collaborate with the SaaS to determine terms before preparing the necessary paperwork and dispersing the funds.

TIMIA

TIMIA Capital also offers Revenue Financing loans that can be used to pay for sales and marketing, acquire other organizations, or liquidate other investors. In this case, TIMIA Capital will consider the specific metrics of a SaaS company and create risk-adjusted terms.

Factoring Capital

While revenue-based financing provides growth capital, factoring financing provides working capital. Here are some lender options.

Pipe

Pipe boasts a rapid application process, making current revenue streams tradeable for loans up to their annual value. SaaS companies requiring greater cash flow may find scaling up easier with these non-dilutive funding options.

Capchase

Capchase is also a factoring capital provider, allowing SaaS companies to draw the annual value of their recurring revenue stream as a cash loan. They specialize in subscription-based companies such as SaaS.

Founderpath

By converting current subscription-based customers into collateral, SaaS companies can obtain the cash they need now to further their growth. Founderpath provides that factoring capital option.

Cautions in Non-Dilutive Funding Options

As with all funding options, some non-dilutive funding options may have some potential disadvantages for certain companies. Here are some cautions to keep in mind:

Warrants

Warrants can be a required condition of a non-dilutive loan, which would automatically allow a lender the right to purchase a certain amount of a SaaS company’s stock up to a preset deadline. Most warrant requirements fall in the 5% to 10% range. If a company secures a $1 million loan with a requirement to provide warrant coverage at 10%, a SaaS business would give the lender the right to purchase $100,000 worth of company stock.

Although a non-dilutive lender may not get immediate equity in a business, warrants allow these lenders to have the option to buy into the company at a later date, which would result in dilution.

Covenants

Covenant requirements specify minimum levels of either performance or revenue in order to maintain the non-dilutive loan conditions. Some loan organizations will require covenants as a way to reduce their risk and ensure that the SaaS is making reasonable progress in growing its company.

An example of a covenant may include an agreement to secure a certain number of new customers each month while retaining a certain percentage of existing customers. If a SaaS company fails to meet the terms of a covenant, its leadership may be required to actively find solutions with the lender. However, if the issue is not resolved, the borrowing business may be subject to higher interest rates or be unable to secure additional credit. In the worst-case scenario, tripping a covenant could result in immediate demand for repayment of the loan, which could result in bankruptcy.

Personal Guarantees

The final stipulation that SaaS businesses may be asked to consider is the personal guarantee, which requires the founders to be personally responsible for the debt taken on by a business. This obviously puts individuals at risk, and companies need to weigh the benefits vs disadvantages in such an agreement.

Regional Differences

In seeking non-dilutive funding for SaaS companies, it’s important for businesses to note regional differences. Government regulations in specific countries may dictate how and where the money may be used.

In addition, SaaS businesses may be able to find grants and other local sources of funding in specific cities and countries, especially if they contribute to the local economy. Be sure to consider not only where extra non-dilutive funding may be available but also any geographical limitations in its usage.

Application Process

The application process may vary a bit depending on the lender but here are the basic steps:

1. SaaS businesses should contact their lender of choice and arrange for an initial consultation.
2. Complete a lender-initiated questionnaire, which will typically ask for basic information such as recurring revenue over the past three, six, or 12 months, cash burn, outstanding debt, gross margin percentage, and other similar data.
3. Once the lender evaluates the SaaS company’s responses, it will typically purpose terms, structure, and pricing information accordingly.
4. If all progresses to this stage, the lender will conduct its due diligence process to validate all data, which is followed by a lender meeting to review and finalize details.
5. The legal department completes the final steps by drawing up necessary documents and agreements, which are then circulated, signed, and approved to close the deal.

Let Paper Do the Legwork

SaaS businesses are busy trying to grow their companies. Those seeking non-dilutive funding for SaaS companies can rely on Paper to eliminate noise in the funding process. As a capital marketplace for SaaS companies, Paper allows SaaS organizations to apply to dozens of capital providers with a single click.

SaaS companies are invited to enter business-specific metrics, acceptable options, desired loan amount, and other information. Paper will then automate the application process by matching SaaS companies with multiple lenders and completing all the required paperwork in an instant.