As it grows into a large line item in enterprises’ budgets, software is becoming a prime target for cost reduction. According to a recent report, customers are spending 53% more on software-as-a-service (SaaS) licenses than they did five years ago. Management is furious; 57% of IT teams told Workato’s 2022 poll that they are under pressure to significantly reduce software spending in their organizations.
Reducing software costs is an easier task than in companies where teams and entire departments rely on specific software to get their work done. The solution, argues Mark Germezian, is to eliminate cuts in the first place – with commercial loans. But not just any loan – business loans for software and infrastructure purchases.
Ghermezian is the founder of Ginger, a New York-based venture capital firm for technology stack acquisitions of software and services. Jinger raised $10 million in debt and $11.7 million in seed funding from Upper90 and Vine Ventures in partnership with Gradient Ventures (Google’s AI-focused venture fund), m]x[vCapitalQuietCapitalandDeciensCapital[vCapitalQuietCapitalandDeciensCapital[vCapitalQuietCapitalእናDeciensካፒታል[vCapitalQuietCapitalandDeciensCapital
Germezian previously founded Braz, a cloud-based customer engagement platform for multi-channel marketing. There, he said, he saw how difficult it was to sell software and—on the flip side—how difficult it was for buyers to buy the software.
“Going through those pains while managing our budget and figuring out cash flow and runway, I’ve experienced firsthand the ins and outs of the business-to-business SaaS market,” Germezian told TechCrunch in an email interview. “As a founder, you raise all this money and immediately need to invest a lot of capital to build your technology stack. We want to combine software with capital to serve the startup ecosystem and help them find the best software by extending and managing their cash flow.”
Jinger’s core product is an automated underwriting model for financing software and infrastructure purchases. The company offers enterprise customers a line of credit and debt financing, allowing them to prepay their SaaS bills while paying Ginger’s fees later. (Germezian said the debt Jinger raised would be used to cover these, although Jinger would borrow against his balance sheet).
Image Credits: Ginger.io
Germezian lists what he sees as the top benefits of the Ginger platform, including the ability for customers to get prepayment discounts from suppliers and spread out one-time payments over three to 12 months. Ginger provides a single dashboard that consolidates SaaS costs into one monthly payment.
There is some customization with Ginger. Customers can choose to pay suppliers throughout the year in exchange for a discount, or spread out existing accounts, and Geinger decides which contracts they want to finance based on their characteristics. Germezian said Ginger’s decision algorithm looks at cash, burn rate and revenue to determine how much capital a company qualifies for.
The alternative finance market exploded as macroeconomic headwinds prompted companies to seek non-volatile forms of capital. Germezian sees Ginger competing closely with fintechs such as Pipe and Capchase, both of which offer business financing outside of equity and venture debt. But many lenders focus on buying a company’s receivables (ie, funds owed on goods and services) and lending against their annual recurring revenue. While Ginger considers income when making credit decisions, he doesn’t want a company to have one.
“Companies of all sizes can benefit from Ginger, but we’ve seen particular success with pre-Series B companies,” says Germezian. “With Ginger, companies of any size can access unsolved capital, purchase the software and infrastructure they need to run their business, and pay according to their terms.
Taking out a loan from a company with no revenue can seem risky. And Ginger’s website positions the platform’s providers as a way to piss off customers by using flexible financing as incentives for large purchases, which appears to require risk.
But Gradient Ventures’ Darian Shirazi said he believes Ginger is taking a balanced approach to raising capital.
“The per-seat annual billing software model is evolving and we believe Ginger is providing new ways for companies to purchase software that best fits their financial situation,” Shirazi added in a statement. Many have tried to innovate on the software finance model, but the real multi-billion dollar opportunity lies in offering a myriad of payment and finance workflows based on customer needs. Jinger is revolutionizing how customers pay for and buy software and we’re excited to partner with them.
In any case – risk aside – lending for software spending seems like a safe business model bet, as global IT spending is expected to grow 4% to $4.5 trillion by the end of 2022, according to Gartner. That is certainly a large and growing market.
To date, Germezian said, Jinger has funded SaaS contracts ranging from $1,000 to $1 million from vendors including Airtable, Google Cloud Platform, Amazon Web Services, Slack and Zoom. He declined to disclose Jinger’s revenue, but said the 13-person company is “very healthy” in terms of cash flow.
