SaaS businesses became increasingly popular and were expected to generate $85 billion in revenue by 2021. However, the key to success for any SaaS business is to attract and engage investors.
Understanding the Metrics SaaS Investors Look For
Investors are interested in businesses that have the potential for growth and profitability. In order to attract investors, SaaS startups need to understand what metrics investors look for. Here are the four engagement metrics that attract investors the most:
- Long-term engagement: Investors look for businesses that are able to retain subscribers over a long period of time. This is an indicator of the value that the product provides to the user. According to a TechCrunch article, retention of members on the annual plan is linked to product value.
- Frequency of interactions with core app features: Investors also look for businesses where users are engaging with the core app features frequently. This indicates that users find the product valuable and are getting the most out of it.
- Cohort engagement analysis: Cohort analysis helps businesses see what percentage of users are still using the app after a certain period. This can provide more detailed usage analysis and give investors insight into the performance of the business.
- Defining «key engagements» to guide users towards core activities in product: Startups should define their «key engagements» to guide users towards core activities in the product. This ensures that users are engaging with the most important features of the product and getting the most value out of it. According to the same TechCrunch article, the current engagement rate of existing customers is the best predictor for resubscribing, so it’s important to guide users towards these core activities.
Metrics like these help investors predict the growth of a SaaS business and its retention of subscribers. By paying attention to these metrics, startups can improve their performance and attract investors looking for businesses with a high potential for growth.
Recommended Lecture: Important metrics to track in SaaS
Six Strategies for Attracting Investors to a SaaS Startup
Attracting investors is crucial for SaaS startups looking to grow and succeed. However, with so much competition in the market, it can be difficult to stand out and get the attention of investors. Here are six strategies that can help attract investors to a SaaS startup:
1. Show results to prove potential for growth
Investors want to see evidence that the product has potential for growth and profitability. One effective way to do this is by showing results.
For example, a case study of a successful SaaS startup can be a great way to demonstrate the potential of the product. Real-world examples of results can also be effective in showing investors that the product has the potential to succeed.
Recommended Lecture: Different Types of SaaS
2. Focus on user engagement
User engagement is another important factor that can attract investors. As discussed in section 1, investors look for businesses where users are engaging with the core app features frequently.
Improving user engagement can also help reduce churn rate, which is important for long-term growth. Businesses can improve user engagement by providing value to the user, optimizing user experience, and encouraging user feedback.
3. Develop a unique business plan
With so many SaaS startups in the market, it’s important to develop a unique business plan that stands out from competitors.
Investors want to see businesses that have a unique value proposition and are able to differentiate themselves from others in the market. Businesses should focus on identifying their unique selling points and communicating them effectively to investors.
4. Consider factors to gain investors’ trust
Investors want to work with businesses that they can trust. Consistency and transparency are key factors that can help businesses gain the trust of investors. It’s important to be open and honest with investors about the state of the business, its potential for growth, and any challenges that it may face.
5. Preparation for seeking funding
Before seeking funding, businesses should have a plan in place. This includes identifying the amount of funding required, the potential sources of funding, and the expected return on investment. Businesses should also prepare a pitch that effectively communicates their value proposition and potential for growth.
6. Bonus FAQs
Here are some bonus FAQs that can help businesses sell their ideas to investors and attract venture capital:
- What are the best ways to pitch to investors?
- How can businesses demonstrate the scalability of their product?
- What are the most important factors that investors look for in a pitch?
- How can businesses prepare for due diligence?
Recommended Lecture: Pros and Cons of SaaS Investments
Factors to Consider When Gaining Investors’ Trust
Gaining the trust of investors is crucial for SaaS startups looking to raise funding. Investors want to work with businesses that are transparent, consistent, and have the potential for growth. Here are some factors to consider when gaining investors’ trust:
1. Consistency and transparency
Consistency and transparency are key factors in gaining investors’ trust.
Businesses should be open and honest about the state of the business, its potential for growth, and any challenges that it may face.
This can help build trust with investors and increase the likelihood of funding.
Recommended Lecture: steps to implementing OKR in a SaaS
2. Demonstrating the potential for growth
Investors want to work with businesses that have the potential for growth and profitability.
Businesses should be able to demonstrate this potential by showing evidence of growth and developing a clear plan for future growth.
This can include case studies of successful businesses in the same industry or projections based on market research.
Recommended Lecture: Business Models of SaaS Companies
3. Building a strong team
Investors want to work with businesses that have a strong team in place.
This includes a team of experienced professionals with a track record of success in the industry.
Businesses should be able to demonstrate that they have the talent and expertise required to execute their business plan and achieve their goals.
Recommended Lecture: Vertical vs Horizontal SaaS
4. Minimizing risk
Investors are always looking to minimize risk when making investments. Businesses should be able to demonstrate that they have taken steps to minimize risk, such as diversifying their revenue streams or developing contingency plans for unforeseen challenges. This can help build trust with investors and increase the likelihood of funding.
5. Understanding the investor’s perspective
Businesses should take the time to understand the investor’s perspective and investment criteria. This can help businesses target the right investors and develop a pitch that effectively communicates the value proposition of the business. It’s also important to be prepared for due diligence and have all the relevant information and documentation ready for review.
Attracting SaaS Investors Final Thoughts
Attracting and engaging SaaS investors can be a challenging task, but with the right strategies and mindset, it can be achieved.
Businesses should focus on showing results, improving user engagement, developing a unique business plan, gaining investors’ trust, and understanding the investor’s perspective.
By taking these factors into consideration, businesses can increase their chances of attracting investors and achieving long-term growth and success.
We hope this article has been helpful in providing valuable insights into attracting and engaging SaaS investors. If you enjoyed this content, be sure to check out our other articles on SaaS startups, entrepreneurship, and marketing.
Recommended Lecture: SaaS Venture Capital Investing
Attracting SaaS Investors FAQ
Who should I target when trying to attract SaaS investors?
Target investors who have experience in the SaaS industry and understand the potential for growth and recurring revenue.
What are some key metrics that SaaS investors look for?
Investors are interested in long-term engagement, frequency of interactions with core app features, and cohort engagement analysis.
How do I improve user engagement to attract SaaS investors?
Define your «key engagements» to guide users towards core activities in the product and pay attention to retention rates and active users.
Who can I turn to for advice on attracting and engaging SaaS investors?
Seek advice from experienced entrepreneurs, industry experts, and investors who have a track record of success in the SaaS industry.
What are some common objections that SaaS investors may have?
Investors may be hesitant if they see a lack of growth potential, inconsistent revenue streams, or a lack of transparency in the business.
How can I address objections from SaaS investors and build trust?
Be transparent and consistent, develop a clear plan for growth, demonstrate a strong team, and minimize risk to build trust with investors.
