Exclusive: Coho Growth offers a new funding path for SaaS entrepreneurs

Regardless of a founder’s optimism, in reality, very few software companies will ring the bell at the NASDAQ. But good business isn’t all about public listings. 

Many VCs and funding engines forget that software firms don’t have to rank in the top percentages to have a profitable, thriving business — making it harder for companies to get cash if they’re not on a trajectory for a hot IPO. But for Coho Growth, a new capital outfit launched today, there are big returns to be made by helping smaller ventures scale up.

“There’s a lot of VCs out there running around trying to find that company that could go public,” says Mike Walkinshaw, co-founder of the organization. “And frankly, that’s not us. We’re looking at the other 95 percent of software companies. And the beauty of software companies is that they have these recurring revenue software streams; things that really are wildly underappreciated by the normal banking system [...] Statistically, we can look at that company. And we can say, ‘This is the kind of cash flow stream this company is going to generate: this is how much money it's maybe burning to grow that business. We think that's a good bet.’”

Coho Growth is a brand-new lending vehicle focused on providing money to software entrepreneurs across North America. Privately funded by high-net-worth individuals and family offices, the group provides an opportunity to help entrepreneurs grow their business and achieve attractive exits, while simultaneously allowing investors to make significant returns. Being private, Coho can offer unique and bespoke products to companies in a way that public or institutional entities cannot, and its primary aim is to match entrepreneurs’ needs with investor expectations.

First and foremost, the group hopes to help founders achieve meaningful exits — or, as the Coho team puts it, a deal that offers a sizable amount of value back to those who created and scaled the company. Typically, venture capitalists make their money back first, and founders get what remains. If a company raises, say, $10 to $20 million, by the time the business is sold, the owners likely only have around 10 or 20 percent left. That means the entrepreneur might only be getting $1 million to $3 million from the deal. If a business is helped by a firm like Coho and is sold for $50 million, with the founder still owning 50 percent of the company, they’ll take home a whole lot more.

“From an entrepreneur's perspective, there's all this hype around the TechCrunch article [about] landing a big amount of VC money,” says co-founder Mark Bakker. “The problem is, even if you land a big amount of money, and you get a big exit, you're not actually getting a meaningful exit.

“In the current state of the market, not only has venture capital investments decreased substantially over the past year or two, but also what is classified as venture debt has declined as well, with the fall of Silicon Valley Bank,” he continues. “There is an untapped market for the type of financing that we are providing to entrepreneurs. It’s not traditional venture debt, and it's not venture capital. And it helps entrepreneurs reach that meaningful exit. And I believe that the team we have here is uniquely positioned to help those entrepreneurs while matching investor expectations.”

The team certainly has a strong pedigree. Co-founders Walkinshaw, Bakker, and Rob Foxall all worked together prior to creating Coho Growth at TIMIA Capital, a funding vehicle that provides non-dilutive loans to B2B SaaS companies with between $2 million and $20 million in annual recurring revenue. The trio spent five years in the same office together before launching their new venture, and boast a strong track record in the private credit space.

“Mark is extremely innovative in sourcing deals across North America using advanced marketing,” Walkinshaw says. “Finding deals cheaply is one of the key success factors of any one of these businesses, and Mark [...] continues to create new ideas on how we can get in front of software companies and sell them on the product. Rob is just the best at getting deals across the line. So he takes the leads from Mark, and then builds relationships with entrepreneurs, negotiates the deals, finalizes them, and drives them across the line. My job is really to focus on making sure that the underwriting is done properly, and that the loans that we're doing are good loans based upon the actual risk profile, and our own understanding. And then all three of us are involved in fundraising, which is another fundamental part of our business.”

After today’s launch announcement, Coho is on the hunt for companies it believes will be a strong bet for its investors. Within the software industry, the group is sector agnostic, though it is primarily looking for B2B companies in vertical market SaaS, rather than those trying to capture a massive horizontal market. A typical Coho company will be a smaller-sized business — likely between $2 million and $20 million in annual recurring revenue — that is looking to grow and eventually sell to a larger corporation.

“An example of a solution or a situation might be a company based in the Midwest in the U.S. that is looking to grow, but take on less dilutive capital,” says Foxall. “It maybe wants to invest in sales and marketing, some product reengineering, or buy out an existing shareholder just to clean up its cap table. And so we'll write checks somewhere between $1 million to $10 million [...] The company can grow from a smaller software business to a moderately sized software business, and retain control and ownership of their business along the way. And so it’s giving up less of the business, so founders ultimately have a more meaningful exit.”

“One of the big headlines here is that the banking system has really done a terrible job of supporting these companies,” Walkinshaw adds. “One of the things that we've learned over the years is that entrepreneurs want creative solutions, people they can trust, and people they can work with. And you know, if you come to the market with those kinds of interesting, creative solutions, they really respond to it.”

Don’t miss out on any funding news. Subscribe or become a member now: