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's 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 licenses. With this change in context, new methods are appearing on the landscape...
Hopes, opportunities, natural change or 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 far from painless. The practice puts a strain on publishers' cash flow, and the financial health of publishers crossing the ford. Those who take the plunge unprepared will inevitably experience a cash crunch, since working capital requirements will not change during the transition. The (new) SaaS market is booming, and most of it is populated by small, modest players. It's a safe bet that the most innovative solutions are to be found among these modest companies. How can we be sure they'll make it across the ford without being swallowed up, dragged down, by strained cash flow? They have no alternative but to strengthen their balance sheet, to seek investors, with the fair consequence 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 structure and developing their business model.
Yet alternative solutions exist at the bottom end of the balance sheet, all equally efficient economically, and with no impact on corporate governance or capitalization. The leasing of Saas solutions is a product recently developed by leasing companies specializing in financial and contractual engineering. These offers enable IT solution providers to solve the economic problems associated with the changes in their ecosystem that the IT market is currently undergoing. Leasecom, Grenke Location and GE-Capital are just some of the players who can offer such solutions, as can independent players such as ASF Consulting, or institutional players who set up financing specifically for Saas. These players can propose to publishers in subscriber mode to cede the invoicing of their royalties over a pre-defined period of time, and in return obtain payment of their share of these royalties. This method improves cash flow and enables all royalties to be collected as soon as contracts are signed. It enables working capital 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 is a response to this problem, and helps to diagnose the risk profile of service providers. To give publishers a head start in accessing financing, the exaegis rating agency launched the Truxt label in 2013, to give them a real competitive edge and inspire confidence in their customers, as well as in their banking and financing ecosystems. The label is awarded following an on-site audit based on a hundred or so questions covering all aspects of the company, not just accounting and finance: from sales and business management to service provision and risk management (continuity, security, reversibility). So, with a financial audit, an accounting audit, an internal audit and an external audit, the standard addresses all the issues that are currently holding back the adoption of Saas. What's more, exaegis' commitment to leasing companies 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 structure.
In this way, Exaegis intends to play its part in securing a 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 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, software publishers benefit from a set of IT best practices that are reviewed on an annual basis, so as to instill a dynamic of improvement within their teams, and to progress in the mastery of service delivery and the prevention of corporate risks, thus naturally constituting an effective tool for conquering and acquiring new market shares. These practices, shared by as many people as possible, contribute to better structuring of the industry.
Article translated from French