SaaS Startups: How to Start and Fund a SaaS Company

Global SaaS spending is projected to approach $300 billion in 2025, according to Gartner, growing at nearly 20% per year. Yet the vast majority of SaaS startups fail within their first few years. The difference between the companies that make it and those that don’t often comes down to two things: building something people actually need and funding growth without destroying your ownership in the process.

This guide covers how to start a SaaS startup from scratch — from validating your idea to choosing the right funding model — with the data and benchmarks you need to make informed decisions at every stage.

What Is a SaaS Startup?

A SaaS (Software as a Service) startup is a company that delivers software over the internet on a subscription basis. Instead of selling a one-time license, SaaS companies charge monthly or annual fees for ongoing access to their product. Think Slack, HubSpot, or Zoom — customers pay recurring fees rather than buying software outright.

What makes the SaaS model attractive for founders:

• Predictable recurring revenue: Monthly and annual subscriptions create reliable cash flow that compounds over time
• High gross margins: SaaS companies typically operate at 75-80% gross margins — far higher than most business models
• Scalability: Software serves one customer or one million with relatively low incremental cost
• Low startup costs: Compared to physical product businesses, SaaS requires minimal upfront capital — no inventory, warehousing, or manufacturing

These characteristics explain why SaaS has attracted more startup funding than nearly any other category over the past decade. But they also explain why the market is crowded — and why execution and capital strategy matter more than ever.

How to Start a SaaS Startup: 8 Steps

1. Identify a Real Problem

The number one reason startups fail is building something nobody wants — 35% of startup failures cite “no market need” as the primary cause, according to CB Insights. Before writing a single line of code, validate that the problem you’re solving is painful enough that people will pay for a solution.

Start by talking to potential customers. Not friends or family — actual people in your target market who deal with the problem daily. Aim for 30-50 customer discovery conversations before committing to building anything. Ask about their current workflow, what frustrates them, and how much they’d pay to eliminate that frustration.

2. Research the Competition

Competition isn’t necessarily bad — it validates that a market exists. What matters is whether you can differentiate. Map out every competitor: direct competitors solving the same problem, indirect competitors offering partial solutions, and the status quo (spreadsheets, manual processes, or doing nothing).

For each competitor, analyze their pricing, target customer segment, key features, and weaknesses. Look for gaps: underserved customer segments, missing features that users complain about in reviews, or pricing that locks out smaller customers. Your differentiation doesn’t need to be a revolutionary new technology — it can be a better user experience, more transparent pricing, or a focus on a specific niche.

3. Define Your SaaS Business Model

Your business model determines how you make money. Most SaaS companies use one of these pricing approaches:

• Flat-rate subscription: One price for all features (e.g., $49/month). Simple but limits revenue from larger customers.
• Tiered pricing: Multiple plans at different price points (e.g., Basic, Pro, Enterprise). The most common SaaS pricing model — lets you capture different customer segments.
• Usage-based pricing: Customers pay based on consumption (API calls, storage, users). Increasingly popular — according to Metronome’s 2025 survey, 85% of SaaS companies have adopted or are testing usage-based models, and companies using them report significantly higher net revenue retention and lower churn.
• Freemium: Free tier with paid upgrades. Effective for product-led growth but requires massive user volume to convert enough free users to paid.

Your pricing model should align with how customers perceive value. If your software saves 10 hours per month, pricing per user makes sense. If it processes transactions, usage-based pricing aligns cost with value delivered.

4. Build a Minimum Viable Product (MVP)

An MVP is the simplest version of your product that solves the core problem. It’s not a prototype or a demo — it’s a real product that real customers can use and pay for, stripped down to the essential features.

MVP development costs vary widely depending on complexity:

• No-code/low-code tools (Bubble, FlutterFlow): $5,000-$15,000
• Simple SaaS MVP: $30,000-$60,000
• Complex SaaS MVP (AI features, integrations, compliance): $100,000-$250,000+

Development typically takes 3-6 months. To keep costs down, ruthlessly prioritize features. Your MVP should do one thing exceptionally well rather than many things adequately. You can always add features later once you have paying customers and revenue to fund development.

5. Acquire Your First Customers

Your first 10-20 customers won’t come from SEO, paid ads, or a viral launch. They’ll come from direct outreach — the customer discovery conversations you had in step one. Reach out to the people who told you they’d pay for a solution and offer early access at a discounted rate.

Early-stage customer acquisition channels for SaaS:

• Direct outreach: Personal emails and LinkedIn messages to your target persona. Low scale but high conversion.
• Communities: Reddit, Slack groups, and industry forums where your target customers already gather.
• Content marketing: Blog posts and guides targeting problems your product solves. Slow to build but compounds over time.
• Product Hunt / launch platforms: Can generate initial awareness, though the quality of signups varies.

Your goal at this stage isn’t growth — it’s learning. Every customer interaction teaches you what features matter, what messaging resonates, and whether your pricing is calibrated correctly.

6. Measure the Metrics That Matter

SaaS businesses live and die by their metrics. Once you have paying customers, start tracking these from day one and build them into your SaaS financial model:

• Monthly Recurring Revenue (MRR): Your total predictable monthly revenue from subscriptions. The foundational SaaS metric.
• Churn rate: The percentage of customers or revenue you lose each month. Healthy SaaS companies retain at least 90% of customers annually (GRR ≥ 90%).
• Customer Acquisition Cost (CAC): How much you spend to acquire one customer. The median CAC payback period for SaaS companies is 20 months, though earlier-stage companies with smaller ACVs should aim for under 12 months.
• Net Revenue Retention (NRR): Measures whether existing customers are spending more over time. Top SaaS companies target NRR above 110%, meaning their existing customer base grows even without new sales.
• Gross margin: Revenue minus cost of goods sold (hosting, support, infrastructure). SaaS companies should target 75%+ gross margins — the industry median is 77%.

For a deeper dive into SaaS metrics and benchmarks, see our complete guide to SaaS KPIs.

7. Scale What Works

Once you’ve found product-market fit — defined by strong retention (low churn), positive NRR, and repeatable customer acquisition — it’s time to scale the channels that are working.

Scaling means investing more in proven acquisition channels, not trying every channel simultaneously. If content marketing is your best source of qualified leads, double down on content production. If outbound sales drives your highest-value deals, hire another SDR before experimenting with paid ads.

This is also the stage where growth rate becomes critical. Investors and acquirers benchmark SaaS companies against the Rule of 40: your revenue growth rate plus profit margin should exceed 40%. A company growing at 50% with a -10% margin hits the mark. So does a company growing at 20% with a 20% margin.

8. Choose Your Funding Path

Every SaaS startup eventually faces a funding decision. The path you choose shapes your company’s trajectory, your ownership stake, and your strategic options for years to come. We’ll cover this in detail in the next section.

How to Fund a SaaS Startup

Funding is where most guides on starting a SaaS company fall short — they treat it as a one-paragraph afterthought or assume every founder needs venture capital. The reality is more nuanced. Your funding strategy should match your growth ambitions, risk tolerance, and how much ownership you’re willing to give up.

Bootstrapping

Fund the business from personal savings and customer revenue. Bootstrapping means slower growth but 100% ownership and complete control. Many successful SaaS companies — Mailchimp, Basecamp, Calendly — were bootstrapped for years before considering outside capital (or never took it at all).

Best for: Founders who can fund initial development themselves and have a clear path to revenue within 6-12 months. Especially viable for niche B2B SaaS where you can charge meaningful prices from day one.

Bootstrapping doesn’t mean going without capital entirely. Once you have recurring revenue, non-dilutive funding options like revenue-based financing let you accelerate growth while retaining full ownership.

Pre-Seed and Seed Funding

The first institutional funding stage. In 2024, the median U.S. seed round was $2.5 million at a $14.8 million pre-money valuation, according to Carta. Seed funding typically comes from angel investors, micro-VCs, and accelerators like Y Combinator or Techstars.

What you need to raise: A validated idea, early customer traction (even a waitlist), a strong founding team, and a compelling market opportunity. For pre-seed rounds, you may only need a prototype and a pitch deck.

The trade-off: You’ll typically give up 15-25% equity in a seed round. Only about 15% of seed-stage companies successfully raise a Series A — so the dilution is real, and the next round is far from guaranteed.

Series A and Beyond

The median Series A round is approximately $8 million, according to Carta’s Q1 2025 data, and are led by institutional venture capital firms. At this stage, investors expect proven product-market fit: $1M+ ARR, strong unit economics, and a clear path to scaling revenue.

Best for: Companies pursuing venture-scale outcomes ($100M+ valuations) in large markets where speed and market share matter more than profitability. Expect to give up 20-30% equity per round.

Revenue-Based Financing (RBF)

Revenue-based financing provides upfront capital in exchange for a percentage of future revenue. Unlike equity financing, RBF involves zero dilution — you keep 100% of your company. Unlike traditional debt, payments flex with your revenue, so there’s no risk of default during a slow month.

How it works: A provider evaluates your recurring revenue (MRR/ARR), growth trajectory, and retention metrics. Based on this data, they offer a capital advance — typically 1-4x your monthly recurring revenue — that you repay over 6-24 months as a percentage of revenue.

Best for: SaaS companies with $10K+ MRR that want growth capital without giving up equity. Ideal for funding specific ROI-positive initiatives: marketing spend, sales hiring, or product development. Funding decisions happen in 24-48 hours rather than the months required for VC fundraising.

For a detailed breakdown of all SaaS funding options — including venture debt, SBA loans, and MCAs — see our complete guide to SaaS financing.

Funding Comparison: Which Path Is Right for You?

Funding Type	Typical Amount	Equity Given Up	Speed	Best For
Bootstrapping	$0 (self-funded)	None	Immediate	Founders with savings and fast path to revenue
Pre-Seed / Seed	$500K-$3M	15-25%	2-4 months	Pre-product or early-traction companies
Series A	$10M-$25M	20-30%	3-6 months	Proven PMF, $1M+ ARR, scaling fast
Revenue-Based Financing	1-4x MRR	None	24-48 hours	$10K+ MRR, growth without dilution
Venture Debt	20-35% of last round	0.5-2% (warrants)	4-8 weeks	VC-backed, extending runway

Common Mistakes to Avoid

After working with thousands of SaaS founders, these are the patterns we see most often in companies that struggle:

Building before validating. The temptation to start coding immediately is strong. Resist it. Spend 4-6 weeks on customer discovery before committing to a product direction. The cost of building the wrong thing far exceeds the cost of talking to potential customers.

Underpricing the product. New founders consistently price too low. SaaS pricing should reflect the value delivered, not the cost of development. If your software saves a company $10,000/month, charging $99/month leaves enormous value on the table.

Raising equity too early. Taking VC money before finding product-market fit means you’re diluting ownership at your company’s lowest valuation. If possible, reach $10K+ MRR before raising — or use non-dilutive capital to bridge the gap.

Ignoring churn. Acquiring customers is exciting. Retaining them is what builds a business. A SaaS company with 5% monthly churn loses half its customers every year. Fix retention before investing heavily in acquisition.

Scaling too many channels at once. Early-stage SaaS companies should master one acquisition channel before adding the next. Spreading a limited budget across five channels means none of them get enough investment to work.

SaaS Startup FAQ

How much does it cost to start a SaaS company?

A basic SaaS MVP costs $30,000-$60,000 to build, with development timelines of 3-6 months. Using no-code tools can reduce this to $5,000-$15,000. Add $5,000-$10,000 for initial marketing and operations, and most founders can launch a SaaS product for under $75,000 total.

How long does it take for a SaaS startup to become profitable?

Most SaaS startups take 18-24 months to reach cash flow breakeven, though this varies widely. Bootstrapped companies focused on profitability can get there faster. VC-backed companies often prioritize growth over profitability and may operate at a loss for 3-5+ years while scaling aggressively.

Can I start a SaaS company without technical skills?

Yes, but you’ll need either a technical co-founder, a development agency, or no-code tools. No-code platforms like Bubble allow non-technical founders to build functional MVPs. However, as you scale, you’ll likely need dedicated engineering talent — either hired or through a technical co-founder who has equity in the outcome.

What is a good MRR growth rate for an early-stage SaaS?

Early-stage SaaS companies ($0-$1M ARR) should target 10-20% month-over-month MRR growth. At $1M+ ARR, sustainable growth rates typically settle to 50-100% year-over-year. The Rule of 40 — growth rate plus profit margin exceeding 40% — is the benchmark investors use to assess overall SaaS health.

Do I need VC funding to start a SaaS company?

No. Many successful SaaS companies are bootstrapped or use non-dilutive funding like revenue-based financing. VC funding makes sense for companies pursuing massive markets where speed matters more than ownership. But if you can grow profitably with smaller amounts of capital, keeping 100% of your company often creates more long-term value for founders. See our guide to SaaS financing options for a full comparison.

Start Growing Without Giving Up Equity

Starting a SaaS company is more accessible than ever — but funding growth without excessive dilution is the challenge most guides don’t address. If you’re building a B2B SaaS company with recurring revenue, you don’t have to choose between slow bootstrapping and giving up a third of your company to venture capitalists.

Founderpath provides non-dilutive growth capital for SaaS companies with $10K+ MRR. No equity, no warrants, no covenants — connect your revenue data and get a funding offer within 24-48 hours.

Check what you qualify for — it takes less than 5 minutes.