Software spending is becoming a major target for budget cuts as it grows into a larger line item in enterprise budgets. According to a recent reportcustomers spend 53% more on software-as-a-service (SaaS) licenses compared to five years ago. Management has come down aggressively; 57% of IT teams told Workato in a 2022 poll that they are under pressure to significantly reduce software spending at their organizations.
Cutting software spending is easier said than done in companies where teams and even entire divisions depend on specific software to get their jobs done. The solution, argues Mark Ghermezian, is avoiding austerity in the first place – with business loans. But not just any loans: business loans that are specially provided for the purchase of software and infrastructure.
Ghermezian is the founder of Gynger, a New York-based platform that provides capital to companies to purchase software and service products for their custom tech stacks. Gynger emerged from stealth today with $10 million in debt from Upper90 and $11.7 million in seed capital, co-led by Upper90 and Vine Ventures with participation from Gradient Ventures (Google’s AI-focused venture capital fund), m]x[vCapitalQuietCapitalenDeciensKapitaal[vCapitalQuietCapitalandDeciensCapital[vCapitalQuietCapitalenDeciënsKapitaal[vCapitalQuietCapitalandDeciensCapital
Ghermezian previously founded Braze, a cloud-based customer engagement platform for multichannel marketing. There, he says, he saw how difficult it was to sell software and – on the other hand – how difficult it was for buyers to buy the software.
“Going through that pain as I managed our budgets and thinking about cash flow and runway, I experienced the shortcomings of the business-to-business SaaS market firsthand,” Ghermezian told australiabusinessblog.com in an email interview . “As a founder, you raise all this money and immediately have to spend a lot of capital to build your tech stack. We wanted a way to combine software with capital to serve the startup ecosystem and help them get the best software while growing and managing their cash flow.”
Gynger’s core product is an automated underwriting model for financing software and infrastructure purchases. The company offers a line of credit and debt financing to corporate customers, allowing them to prepay their SaaS bills and pay back Gynger later. (Ghermezian says the debt Gynger raised will be used to fund it, though Gynger can — and has — borrowed from his balance sheet.)
Ghermezian lists what he sees as the key benefits of the Gynger platform, including giving customers access to supplier prepayment discounts and the ability to spread lump sum payments over three to 12 months. Gynger also offers a unified SaaS spend dashboard that consolidates them into a single monthly payment.
There is some customizability with Gynger. Customers can choose to prepay suppliers for the entire year in exchange for a discount or, for example, spread existing bills, and decide which contracts Gynger wants to finance on their behalf. Ghermezian says Gynger’s decision algorithm looks at cash, burn rate and revenue to determine how much capital a company qualifies for.
The alternative finance market has exploded as macroeconomic headwinds drive companies to seek non-dilutive forms of capital. Ghermezian sees Gynger in close competition with fintechs like Pipe and Capchase, both of which provide companies with financing beyond equity and venture capital. But he notes that many lenders focus on buying a company’s receivables (i.e., goods and services that are owed) and making loans against their annual recurring revenue. While Gynger considers income when making its loan decisions, it doesn’t require a company to have it.
“Companies of all sizes can benefit from Gynger, but we’ve seen success especially with pre-Series B companies,” said Ghermezian. “With Gynger, any business of any size can access non-dilutive capital, buy the software and infrastructure they need to run their business, and pay on their terms.
Lending to a company with no revenue may sound risky. And Gynger’s website presents the platform as a way for merchants to upsell customers by using flexible financing as an incentive for larger purchases, which also seems risky.
But Gradient Ventures’ Darian Shirazi said he believes Gynger is taking a considered approach to doling out capital.
“The annual per-seat billing software model is evolving, and we believe Gynger will provide businesses with new ways to purchase software that best fits their financial situation,” Shirazi added in a statement. “Many have tried to innovate in the software finance underwriting model, but the real multi-billion dollar opportunity lies in offering a variety of payment and financing workflows depending on customer need. Gynger is revolutionizing the way customers pay and buy software and we are excited to partner with them.”
Risks aside, if anything, borrowing for software spending seems like a pretty safe business model, as global IT spending is projected to grow 4% to $4.5 trillion by the end of 2022. according to to Gartner. That is certainly a large and growing addressable market.
To date, Ghermezian says Gynger has funded SaaS contracts from as little as $1,000 to as much as $1 million from vendors such as Airtable, Google Cloud Platform, Amazon Web Services, Slack, and Zoom. He declined to disclose Gynger’s sales, but claimed the 13-person company is “super healthy” in terms of cash flow.