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Episode 6: Investing in a SaaS Business

Home Insights Episode 6: Investing in a SaaS Business

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Published on: September 12, 2022


In this episode we look at what investors are likely to focus on when investing in SaaS businesses, including insights from one of our experts in the space, Corporate partner, Tom Gillespie.

An investor will need comfort that the business' IP is protected. This means, registering trademarks, designs, patents where it makes sense to, as well as clearly identifying any copyright works.
It is also fundamental that IP is owned solely by the business itself and is registered under the name of the business. All employment and contractor agreements should make clear that IP created by employees and contractors belong solely to the business and is automatically assigned to the business upon creation.

It's common for businesses to incorporate open source software into their solutions, which is generally free to use and modify. However, there may still be licensed terms that you need to comply with, and understanding those terms and the consequences of non-compliance, is going to be critical to protecting the integrity and value in the solution.
SaaS businesses may collect personal information and data online from their customers in numerous jurisdictions around the world. With an increasing focus on privacy and data matters, it's paramount that a SaaS business takes their obligations seriously and can demonstrate this to potential investors.

While it's fine for the user terms to be streamlined, they still need to cover the basics, including around software matters, privacy, limitation of liability, governing law etc. Too often, we see SaaS businesses failing to incorporate these fundamental provisions in their user terms, and this can lead to unexpected outcomes.

While not unique to SaaS businesses, founders and shareholders should be aware that the terms they agree for an initial funding round will set the baseline for subsequent rounds. We can't overstate the importance of giving away as little in terms of economic and control rights as possible. The goal here is to ensure that when the big pay check comes down the track that founders and early shareholders still have sufficient rights to receive the value that they deserve from all of their hard work.
If you're looking to fundraise, be sure to consider the specific items outlined above or speak with one of our team members.

You can view the Digital Download Series episodes here.

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