While the Oxford dictionary defines risk as “a chance or possibility of danger, loss, injury or other adverse consequences,” at Capchase, we have a different take on Risk. After all, working with SaaS businesses, we know that risk is inherently part of the equation. The way we think about it, risk is whatever prevents a founder from achieving their long-term goals. A client that is not moving towards their ultimate goal, is generally a risky client. In this post, I’ll try to explain what we mean by that.
Every founder has an end state of the world in mind when they set out on their entrepreneurial journey. As explained by our founder Miguel Fernandez, founders on that journey need to be expending all their energy on their core competency, while partnering with vendors and companies that can help remove obstacles on non-key initiatives. Capchase is on a mission to help growing SaaS companies with capital and insights - the idea being that the startup team should continue to reduce Risk for themselves by focusing on their core competency and long-term goals.
As we underwrite companies for funding from Capchase, we’re essentially looking for a long-term partnership in which our goals and our client’s goals are aligned. Since our client’s long-term success is determined by how good they are at what they do, the metrics that we look at are aligned with that perspective. We like companies that are post product-market fit, have come up with a business model that leads to strong unit economics (LTV/CAC, gross margin), and have traction in the market (high retention, low churn). These are simple fundamentals that sometimes get forgotten in the frenzy of a hyper-growth, competitive environment, but as normalcy returns to the startup world with a focus on fundamentals, our belief is reaffirmed that taking a long view of a client’s business ensures good outcomes for everyone in this partnership.
Specifically, below are some characteristics that we look for in prospects that we underwrite:
While the current environment may seem like a “sky is falling” moment for the startup world, we haven’t changed our perspective on companies that meet the criteria listed above. The VC world may have changed significantly in the last 5 months, leading to talks of delayed funding rounds, or in the worst case, a down round. However, for companies that meet the criteria above, the product and terms that we would have offered in December ‘21 are still the same in May ‘22.
The most important thing for such companies is to continue to a) focus on the fundamentals - good unit economics, sustainable growth, disciplined spending, and b) cut through the noise, and your business will be in great shape coming out of this slowdown. David Sacks at Craft Ventures has a helpful framework to think about this here.
Our work with our clients starts with the first interaction that they have with us - whether it be through an account executive (AE), or directly reaching out to us through our website. We like to understand what your long-term plans for the business are, and what role Capchase could play in it. Since we have access to your financial data, you’re getting into a partnership where you will get honest feedback on what you’re doing well compared to where you need to improve.
Since the things that we’re looking for are also important for your success as a company, we can guide you on when it makes sense for you to get Capchase funding (the answer may be no, or not yet!), and how much. Our goal is to add value to any company that reaches out to us. As part of that mission, we can provide an assessment, and an AE can help you think through the next 6-12 months of your growth journey, and where all you may need capital. The following are the various elements of partnership with Capchase:
We will formulate a capital plan that includes the following:
As they say, if the only thing that you’re getting from your VC is money, it’s likely very expensive equity. On similar lines, if the only thing that you’re getting from your financing provider is debt, you’re not deriving the most value out of them. At Capchase, we like to reduce Risk for ourselves, and for our clients, by forging a long-term partnership where money is only one of the variables.