Accessing Future SaaS Revenue | Miguel Fernández from Capchase

SaaS is quickly becoming the default mode of revenue for software companies, and it’s clear why. Instead of inspiring your customer base to purchase upgrades, you can lock them into a repeating subscription fee that ensures they continue to enjoy the latest features and compatibility.

But this strategy comes with the downside of having your revenue stream diluted across months or even years, making growth more challenging.

This is the problem Miguel Fernández sought to solve with his company Capchase. On this edition of UpTech Report, Miguel discusses how Capchase enables companies to have access to those revenue streams faster, giving them the capital they need to expand their businesses.

More information:

Miguel is cofounder and CEO of Capchase. Prior to launching Capchase, Miguel worked for 2 years in management consulting and then moved into SaaS. He headed sales and customer success at Geoblink, a Location Intelligence SaaSCo and scaled it from 0 to 2m+ ARR. After that, Miguel was pursuing his MBA at Harvard Business School researching working capital and cash conversion cycle optimization.

DISCLAIMER: Below is an AI generated transcript. There could be a few typos but it should be at least 90% accurate. Watch video or listen to the podcast for the full experience!

Miguel Fernández 0:00
I’m really excited that we’re turning some companies cashflow positive overnight, which is something that is incredible for the founders because they suddenly see that, hey, maybe I don’t have to do it myself anymore in the future.

Alexander Ferguson 0:16
Miguel, I’m excited to be able to chat with you today to begin share very briefly five seconds, what is Capchase?

Miguel Fernández 0:23
Yeah, Capchase is a FinTech, for SaaS companies. And basically, what we help them is to grow in an analytic way.

Alexander Ferguson 0:30
I like on your size of dilution is not the solution. Good, good, bad word. So tell me how did you discover this problem, and you’re like, we got to solve this.

Miguel Fernández 0:39
Yeah, so basically, I was working on a SaaS company before with two of my co founders. And we took the company from zero revenue to 3 million in ARR, in around three years. So we experimented a lot with different payment terms, and with cash flow, or cash flow management strategies. So to give you an idea, at the beginning, when we started, we would just like send customers in whichever way we could, we just wanted to show traction with customers. So we were charging them monthly to try and reduce the friction to get them to sign up. And it was great, because for them, it was a little friction to pay on a monthly basis for a software product. And then what we saw is that our bookings were increasing, right? Short sales cycles, nice ACBS developing nicely, we’re happy, because we’re increasing revenues, we’re increasing to our costs, we’re increasing to, you know, those customer acquisition costs, implementation costs, his commission costs and so on. But cash was not cash was lagging, right, because we’re incurring all this upfront costs with customers, and then they were paying monthly. So we’ll see that famous cash gap that is typical in SAS companies until they see the hockey stick growth. So then we had to race around to close that cash gap. And we got diluted, and that really hurt the CEO and founder, so he decided that we were going to charge up front. So we started charging up front, but then customers didn’t want to, because then it was not as easy for them to pay for it. So then we saw that deal start to get delayed, and we have to incentivize our customers to pay upfront by giving larger discounts 20 to 30% discount, so then we’re not deluding ourselves, but we’re cutting our top line by 20 30%. And in every single renewal years down the line, people will be like, Oh, no, I’m not gonna pay 20% more because the original price was this contract. So that was really bad will destroy lifetime value, or the customers. So we didn’t know how to solve that. And then, months later, after we had transitioned out of the company, we’re thinking about how to solve that problem. And basically, we came to conclusion that it would be ideal to enable customers to pay monthly, so they sign up very quickly, they sign up, and it’s easy for them little friction, and then give the SAS code all the cash upfront. So they can offset early those acquisition costs, and keep investing in growth and got the Barrett and that what we did. So now every time a company a sasco, to a customer that pays monthly or quarterly, what we do is we upfront them the full 12 months of contract value. And the end customer keeps paying monthly and quarterly on a very flexible way to the SAS company. So it’s the best of both worlds.

Alexander Ferguson 3:17
And you hook into effectively their their system so that you can see the cash coming in, then you just automatically withdraw it.

Miguel Fernández 3:25
We never get in touch with the customer, because we want the relationship to remain between the sasco and the customers. But we can see how the flow of funds are moving. And then the moment that the end customer pays when they find a payment, and we withdraw from the sasco Bank.

Alexander Ferguson 3:42
So obviously, there’s other ways to be able to solve this problem, but you’re trying to solve it in a new way. And hopefully that cost less and no dilution. You mentioned 20 30%, which you typically been giving up to get people to pay it in full. So what’s then your average? What are the what is someone paying them to be able to use some service like yours?

Miguel Fernández 4:01
Yeah, okay, so the we’ve spoken with hundreds of sass companies, and the average discount to get paid upfront, is around 17%. So the equivalent of two free months, we’ve seen companies not doing discounts right to companies with a 50% discount, depending on what they’re on whether it goes are so with Katz’s, the discount is less than what they give to the customer, considerably less can be up to like 50% less. And then is is much much much more competitive than things like venture debt or revenue based financing. No or factoring which none other legs factoring, right. So it’s just like, a much, much, much better system for SAS because because it was tailored for SaaS companies, you know, like venture that is just giving loans to VC backed companies. revenue based financing is a model that was there’s really good for E commerce companies, but it’s not that good for SAS code, and it’s just like SAS I using a sample So I bought the solution, like this was done by SAS properties for SAS, SAS company, right? So it’s perfectly tailored for that.

Alexander Ferguson 5:09
What are you most excited about looking forward from here that you’re working on and be able to launch and going forward.

Miguel Fernández 5:15
So we’re really excited about the change of this news for companies. So we’re working with 10s of companies already. And the feedback we get is great. Like, they absolutely love it, because of what I mentioned, right? If you can imagine that you close $10,000 of MRR in a month, if you just if you charge monthly, the next month, your burn rate is going to go down by 10k. But if you use capital, you’re going to get, let’s say 120k up front. So your burn rate is going to decrease by 120k. That means that you can either invest in growth, so the next month, you get more customers, and this becomes like a self feeding machine, that becomes what accelerates growth enormously. And we’re really excited that we’re turning some companies cashflow positive overnight, which is something that is incredible for the founders, because they suddenly see that, hey, maybe I don’t have to do myself anymore in the future. And then we’re just getting more and more integrated with their operations to make it easier for them to just focus on product and growth. And forget about accounts receivable or on cash management, because we’ll all die on autopilot with captures.

Alexander Ferguson 6:25
So where do you see the company in like five years from now? Long term? How’s it gonna grow?

Miguel Fernández 6:30
Yeah, so I think is, what we know we don’t want to do is to be a lending company. In fact, we never use the word lending because we don’t count as debt in the balance sheet, which is also another founder friendly advantage. Where we want to do is do a platform, where every SAS company can just offload all their other back office, all the accounts receivable, accounts payable, and all that gets in autopilot. So funders can focus only on what really creates value for them, which is creating product and getting that product in the hands of customers. And then one thing is that we, we think that VC is a great industry and adds a lot of value. Because what they bring is not just money, like a good VC, the last minute you get from them is money. If you’re only getting money from a VC, then that is the most expensive cost of capital a founder is ever going to get because like it is 100% cost of capital. So we’re not saying that founders shouldn’t get VC because we ourselves we are, we are part of some VCs, because the advice we get is incredible. What we’re saying is use your very expensive VC money for very high return on investment activities, like hiring at clinics engineer or doing a new product that is going to put you above the competition or entering a new market or buying a competitor, you know, but don’t use 100% cost of capital money to the VC money to do things that you can put infinite money into, like customer acquisition, or things that have no return on investment, like working capital, you’re pouring your VC money to fund that cash gap to allow your customers to pay monthly. It is a poor use of funds use something like cavities or alternative. That means that you’re using low cost of capital for low return and infinite pools of capital and a low cost to deploy on infinite activities like custom application.

Alexander Ferguson 8:21
It’s like another tool and until a SAS front to be able to manage cash flow and options, not just saying okay, well, there’s only one way or two ways to get funding now there. Now there’s another way just a simple problem, though with happens if client decides after two months to discontinue what how does that change then the arrangement?

Miguel Fernández 8:41
Yeah, so for example, do you mean an end? So do you mean an edge offer Cisco’s or are Cisco customers?

Alexander Ferguson 8:49
The end customer?

Miguel Fernández 8:50
Oh, yeah, perfect. Yeah, so So that happens, and it hasn’t been already with a few companies, it doesn’t matter really. We don’t expect the companies the SAS cars to pay us back. Because a customer that we advanced against has churned, what we do is we have an intelligent system that looks for similar customers in our SaaS customer space, and we replace them. So the customer has churned and they’re not gonna pay any more than another customer that we weren’t upfront saying that stay the same or a little bit more with substitute and fill the gap just to fill that gap. So always automatic, super visible to the company to Cisco, they can see what’s happening. And they can see always like how much how many more customers can advance. And I’m basically one second to that.

Alexander Ferguson 9:41
What is that a management that they do like on a monthly basis that they’re like deciding how much they’re gonna Okay, this many customers all advance or whatever.

Miguel Fernández 9:49
Yeah, it’s proposed by bit by the system, and it’s an opt in or opt out, basically, but they get like, oh, out of all the customers that had been have printed. This was actually and have left and you have all of these new customers that you have closed this month. How many do you want to advance now?

Alexander Ferguson 10:08
Yeah, where can people go to learn more? And then what’s a good first step? How do they get started? What’s that process look like?

Miguel Fernández 10:14
So we have a blog that we’re trying to help founders with, you know, like the problems, the hard questions that we all ask ourselves, and we always, we almost never have the answer, at least, ourselves, right. So we’re glad to have that. And he’s very, I mean, it’s very fun a friend in the sense that there are a lot of graphs explaining how things work in an easy way. And there’s a good point we are we’re also featured on TechCrunch and Wall Street Journal. But if they want to learn from it, I’m available to everyone at my email. It’s Miguel at catches a calm and then in a website, they can just ask for more information, and we will give them the full download and help them to evaluate, it gets it makes sense, because some cases it doesn’t, or if there’s anything else out there that can be any more useful for

Alexander Ferguson 11:01
them. That concludes the audio version of this episode. To see the original and more visit our UpTech Report YouTube channel. If you know a tech company, we should interview you can nominate them at UpTech Or if you just prefer to listen, make sure you’re subscribed to this series on Apple podcasts, Spotify or your favorite podcasting app.



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