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DH Capital, SaaS Capital Launch Fund for Emerging SaaS Businesses

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Investment banking firm DH Capital announced on Monday it has partnered with SaaS Capital to launch a new fund designed to provide growth capital to emerging software-as-a-service businesses.

The launch of a fund designed especially for SaaS businesses wil help to grow out SaaS services that are not able to secure proper funding. This, in turn, will give SaaS companies a chance to partner with web hosting companies where their services can be offered as add-on services.

In its recent “SMB Cloud Adoption Study 2011″ study, Microsoft found that the SMBs that are adopting both SaaS and IaaS services are larger, more growth-oriented and more interested in additional services, such as unified communications and remote desktop support.

Building on the success of its first fund, SaaS Capital will provide senior debt loan facilities to SaaS companies with more than $3 million in revenue.

The SaaS Capital line of credit is designed to meet the needs of SaaS firms who have passed the start-up stage, but require additional capital to support continued growth.

By borrowing against future cash flow streams, businesses can essentially self-fund their current growth activities. A SaaS Capital credit facility can either be used in conjunction with venture capital financing or, in some cases, a replacement for venture capital financing.

The amount of credit available is determined by either an advance rate against booked but unbilled contract value, or a multiple of monthly recurring revenue. Loan amounts range from $1 million to $4 million with larger facilities available through the fund’s syndication partners.

SaaS Capital offers several advantages over other financing options, including the total amount of available capital increasing as the business grows, thus providing negative amortization.

Additionally, the company has the option to draw down capital only when it is needed, which reduces its overall borrowing cost. And finally, a SaaS Capital line typically provides access to significantly more capital than a bank facility.

“It’s an exciting time to be launching this new fund,” said Todd Gardner, CEO of SaaS Capital. “Prospects for SaaS businesses have never been brighter, but the availability of capital has not kept pace. Even as the business model has flourished and weathered a recession, SaaS remains undervalued and underserved. We are pleased to offer this additional funding alternative to support businesses seeking to fund their own growth.”

Talk Back: Are you a SaaS company that is considering applying for the new DH Capital/SaaS Capital fund? Do you see this as a more appealing alternative to other methods of financing? Let us know in the comments.

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