Understanding the Potential for CaaS
Technology is quickly disrupting a wide range of sectors and offering new investment opportunities. The fast pace of these emerging technologies and startups such as Uber and Airbnb are changing the way business is done, yet the approach to financing tech startups remains traditional in many ways.
Today, startups need a dynamic, fast and transparent way to access capital, and investors need clear-cut, data-driven screening process to make an informed investment decision. As finance continues to evolve to meet the growing demands of the technology sector, a powerful and innovative model has been introduced in response to these needs - Capital as a Service (CaaS).
CaaS is the efficient delivery of growth capital to start-ups on-demand. Using the help of consumption-based algorithms facilitated by technology, investors can quickly assess the viability, performance, and credit risk of a start-up based on live data. CaaS provides investors with a real-time, accurate exploration of both long and short-term investing, saving both time and money.
How it works
There are two main components of CaaS – data gathering, and screening and scoring.
- Data gathering: APIs are connected with a variety of start-up data sources such as billing, accounting systems, and bank accounts.
- Screening and scoring: Once the data for each start-up is received, it is analyzed and assessed based on relevant metrics such as unit economics, churn, growth, and efficiency. Following analysis, an investment decision is made for each start-up based on the performance of their metrics against international benchmarks.
A win-win scenario
CaaS serves both founders and investors.
It provides founders with an opportunity to avoid pitfalls of the traditional fundraising process by reducing the time it takes to secure financing by approximately 85% - from an average of five months to a maximum of three weeks. As a result, founders are able to focus more on what they do best: building their product and serving their customers.
In turn, investors can make investment decisions purely based on precise, objective data and key metrics, without human bias and error. CaaS also offers the potential for scalability through its ability to evaluate multiple investment opportunities at once.
When is CaaS most effective?
In early-stage equity investing, investment decisions are not data-driven, they are made based on an assessment of the start-up’s founder, the product, and the size of the market they are operating in. However, further down the line, investment decisions should be increasingly dictated by the start-up’s traction and financial numbers. CaaS infrastructure is best utilized when data is available, to give investors a comprehensive understanding of both the start-up’s current performance as well as their potential.
Disrupting the venture capital landscape
The CaaS model has exciting potential to conquer the VC (equity and debt) world. CaaS seeks to democratize access to capital by making fast investments based on metrics, not gut-feelings or endorsements by other capital providers.
Read in my next article how CAAS infrastructure can contribute to accelerating the deployment of venture debt and other nondilutive capital in the MENA region.