Publisher financing for a smooth SaaS transition
Latest IT trends: SaaS is slowly but steadily becoming part of the IT landscape, with its growth underpinning the growth of software publishing in France. Everyone is getting on board: end-user customers are pushing their distributors to implement a SaaS or subscription-based business model, where services are billed on a per-use basis, replacing the now 'has-been' sale of operating licences. With this change in context, new methods are appearing on the landscape...
Hopes, opportunities, natural change or a painful birth, opinions differ on the emergence of this new model. From an editor's point of view, moving from a method of collecting income at the time of purchase to a method of collecting rent spread over the term of the contract is not painless, far from it. This practice puts a strain on publishers' cash flow, and the financial health of publishers crossing the ford. Those who take the plunge without preparation will inevitably experience a cash crunch, since working capital requirements will not change during this transition. The (new) SaaS market, which is booming, is populated mainly by small, modest players, and it's a safe bet that the most innovative solutions are to be found among these modest businesses. How can we be sure that they will make it across the ford without being swallowed up, dragged down, by a strained cash flow? They have no alternative but to strengthen their balance sheet and look for investors, with the fair result for their managers: the loss of part of the control of their company. What's more, the search for capital is both time-consuming and exhausting. Unfortunately, we come across entrepreneurs who spend more time pitching than managing their business and developing their business model.
Yet alternative solutions exist at the bottom end of the balance sheet, which are just as effective economically and have no impact on the company's governance or capitalisation. The leasing of Saas solutions is a product recently developed by leasing companies specialising in financial and contractual engineering. These offers enable the managers of structures offering IT solutions to resolve the economic problems associated with the changes in their ecosystem that the IT market is currently undergoing. Leasecom, Grenke Location and GE-Capital are all players who can offer such solutions, as can other independent players such as ASF Consulting, or other institutional players who are setting up financing specifically for Saas. These players can offer publishers in subscriber mode the opportunity to assign the invoicing of their royalties over a pre-defined period of time, and in return to obtain payment of their share of these royalties. This method improves cash flow and enables all the royalties to be collected as soon as the contracts are signed. It enables working capital requirements to be financed without recourse to external investment, without loss of control and without any reduction in sales.
Assigning contracts is not without risk for lessors, given recent case law on the indivisibility of contracts. As a result, they are putting in place control mechanisms covering the service provider's operational capacity and financial sustainability. The financial and operational rating system developed by exaegis responds to this issue and enables the risk profile of service providers to be diagnosed. To help publishers get ahead of the game and gain access to financing, the exaegis rating agency launched the Truxt label in 2013 to give them a real competitive edge and inspire confidence in their customers and their banking and financing ecosystem. The label is awarded following an on-site audit based on a hundred or so questions covering all aspects of the business, not just accounting and finance: from sales to business management, not forgetting service provision and risk management (continuity, security, reversibility). So with a financial audit, an accounting audit, an internal audit and an external audit, the benchmark addresses all the issues that are currently holding back the adoption of SaaS. What's more, exaegis' commitment to lessors to keep the solution operational for lessees in the event of the service provider's disappearance is a powerful argument for software publishers, since one of the main objections of prospective Saas publishers is the durability of their solution and their structure.
In this way, Exaegis intends to play a part in securing the market, which, in the absence of effective public initiatives, has been weakened by the sudden irreversible change in the ecosystem. Only isolated initiatives by trusted, reliable and legitimate third parties, such as those led by exaegis, are capable of consolidating SaaS offerings. These initiatives reinforce the transparency expected by end customers on the SLA issues displayed by suppliers, reinforce transparency with regard to financial partners, and increase the maturity of publishers in terms of IT risk management.
In addition, ISVs benefit from a set of IT best practices that are reviewed on an annual basis, so as to instil a dynamic for improvement within their teams, to improve control over service delivery and to prevent business risks, and ultimately to become an effective tool for winning and acquiring new market share. These practices, shared by as many people as possible, help to improve the structure of the industry.
Article translated from French