It’s sometimes tough to figure out what, exactly, a firm invests in based on name alone. For SaaS Capital, though, there’s truth in labeling.
The Cincinnati, OH-based firm was founded in 2007 and primarily in software service businesses serving the needs of enterprise, higher education, and healthcare organizations.
On Tuesday afternoon, SaaS Capital filed paperwork with the SEC indicating that it’s in the planning phase of raising its third flagship fund. The filing for “SaaS Capital Fund III, LP” shows the firm is targeting $75 million and will take a minimum subscription of $350,000 from prospective limited partners. SaaS Capital hasn’t yet received commitments from LPs, according to the filing.
If fully-raised, Fund III will be SaaS Capital’s largest fund to date and only just less than the total amount SaaS Capital has raised in prior funds.
Crunchbase data shows that SaaS Capital has led and participated in a number of venture capital rounds, but the firm specializes in what the website describes as “committed credit facilities” that are tailored “to fund the growth of a SaaS business in lieu of a round of equity.”
Again, according to the firm’s site, its credit vehicles let companies draw capital equal to “between 4x and 7x MRR.” As a company’s revenue grows, the more it can borrow from their SaaS Capital credit line. Startups can draw funds over the course of two years, after which point “[the] facility can then either be renewed or the debt amortized out over an additional 3 years.”
It’s a model that has let some of SaaS Capital’s portfolio companies leapfrog over venture rounds. In a 2015 article in Silicon Angle announcing the firm’s second fund, it’s said that “Clinicient and CoverMyMeds, [skipped] a venture round altogether and recently raised private equity from Catalyst Investors and Francisco Partners, respectively.” CoverMyMeds was acquired by McKesson for $1.1 billion after securing a $4 million debt facility with SaaS Capital four years earlier.
Over the past several quarters, Crunchbase News has observed and reported on the continued influx of LP money into venture capital, but there hasn’t been much in the way of news about venture debt firms. This being said, there have been some notable fundraises among these investors:
- In June, Horizon Technology Finance secured $300 million for a new venture debt fund.
- New Delhi-based Trifecta Capital Advisors is targeting $112 million (Rs250 crore) from Indian and offshore investors for its second debt fund, according to Deal Street Asia back in May.
- New York-based Multiplier Capital announced that it had raised $266 million for its second venture debt fund back in December 2017
More and more companies gulp down ever-larger chunks of equity-only funding. It’s an appetite for venture capital which fund managers are raising billions of dollars to satiate. But as companies grow up and out of startup mode to become sustainable businesses growing at a more linear clip, more may start turning to venture debt as cap tables grow more bloated.
Illustration: Li-Anne Dias