Tell us about what Armada Ventures does?
We raise growth capital for business-to-business software companies (B2B SaaS companies), typically between £2M and £8M. We work with a range of potential investors, in both the debt and equity space, so our job is to identify the right investment partner for each business. Regularly this will result in a co-invested round with multiple institutional investors participating.
What do you look for in an SME trying to raise money?
Institutional investors are looking for opportunities with rapid and scalable growth prospects so the headline revenue numbers need to be showing at the very least a 50% year on year growth rate combined with a set of strong lead indicators which evidence that this trend will continue. Underpinning such a revenue line needs to be a sales model that demonstrates strong sales velocity ensuring that the market the company is focusing on is adopting their services at a high rate and their ability to execute is high.
All that said, probably the most important factor in attracting new investment is the team. Investors invest in people primarily, so the team needs to have either a good track record in building and exiting businesses or at the least, deep domain expertise in their chosen field.
Is equity or debt the better solution?
There’s no single right answer to that question and very often we work with businesses that decide to raise both types of funding; they’re looking for equity finance, but they also take on venture debt which has the advantage of being non-dilutive, something that’s really important to a number of founders. Typically, we’ll get the equity raise in good shape first, taking it to term sheet stage and legals and then we circle back round to the venture debt provider.
What kind of business is well-suited to venture debt in particular?
We work closely with early and mid-stage technology companies, where almost all services are now sold on a subscription model. The model, where your buyers pay regular license fees rather than an upfront purchase price, delivers consistent and visible revenues, which makes it very attractive to debt investors, because there’s a transparent income stream in place to pay the interest charges.
How should SMEs prepare for the fund-raising process?
It’s important that businesses understand that raising significant debt capital will require them to submit to just as much due diligence as an equity fund-raising involves – all of the paperwork has to be in place in the data room ready for inspection when the investor wants it. That might include technical documentation as well as commercial and legal work, but it’s part of our job to provide advice on exactly what is needed.
Do funding providers have different requirements?
Given that we often raise debt alongside equity, much of the due diligence work will often have been done ahead of the debt raising; there may well be enough information in the data room to satisfy the lender, but every investor has its own requirements, so additional due diligence may be necessary, especially if some time has elapsed since the equity was raised. The key is to have all the information at hand, so that there are no unpleasant last-minute surprises to trip you up.
About Armada Ventures
Armada is an advisor to, and investor in rapidly growing but early stage Enterprise SaaS businesses who started life if the UK. Armada generally like to see live paying customers on the platform and some early revenue growth so it’s fair to say they like to get engaged at late seed stage phase through to growth rounds.
SaaS Business Case Study
To learn more about how two fast growing B2B SaaS companies used Venture Capital to increase their revenues, read our case study.
Brokers’ Guide to Growth Finance
Brokers are a key part of the funding ecosystem that supports SMEs. In this guide we talk to brokers about using venture debt to help SMEs grow without giving up control.