Ari Stiegler: Startups are rethinking the SaaS space

The ways Americans consume content have shifted drastically over the last five years. Network television, downloadable music, and now even movie theaters have all given way to streaming subscription services. These trends track closely with younger generations’ consumption preferences, which often prioritize immediacy above all else.

While this industry is still taking shape, it is already producing mammoth profit margins. Music streaming subscription services like Spotify and Apple Music are now some of the world’s largest music platforms. Netflix has quickly become the king of streamable content. Its profits exceed $20 billion annually and its original productions garner countless Oscars and Golden Globes nominations. Even fitness has been revolutionized by subscription streaming services. With gyms shuttered around the country amid the COVID-19 pandemic, Peloton’s online fitness classes have drawn than a million subscribers.

As with traditional media, though, the world of SaaS (software as a service) companies has come to be dominated by a select few players. While Spotify, Netflix, and Apple Music pull in significant profits, nascent streaming services are having trouble getting off the ground, said Ari Stiegler, venture capitalist, and managing partner at Flux Capital.

This trend, said Stiegler, contradicts the very appeal of subscription services.

“Many industry-leading subscription services entered the market as disruptors,” said Stiegler. “Spotify and Netflix are great examples. Both companies fundamentally upended their respective markets to offer a product more in line with consumer demand—and it worked fantastically.”

Now, however, Stiegler said that start-up subscription services face a more difficult road to success. Stiegler described that many startup subscription services face cash-flow difficulties since most consumers prefer to subscribe on a monthly or quarterly basis. When startup services are in their infancy, Stiegler said, larger, annual contracts are needed to generate the revenue to satiate immediate cash-flow needs—but these longer contracts are incongruent with typically subscription models.

“Monthly recurring subscriptions as a business model has dominated the Saas market for a decade,” said Stiegler. “This steady flow of revenue, while beneficial for consumers, is difficult for businesses that need capital upfront for financing projects.”

Stiegler pointed to Pipe, a Los Angeles-based startup, as an innovative player working to provide services to ameliorate this dilemma for startup firms. Pipe helps startup subscription firms avoid this dilemma by using an innovative platform to connect SaaS (software as a service) platforms to investors willing to front the cost for a year’s worth of content. This fixes cash shortages while avoiding dilution.

“Pipe is offering a unique service to aid SaaS firms as they progress through their first few quarters,” Stiegler said. “Rather than providing dilutive funding to these SaaS startups, Pipe build a platform to turn monthly recurring revenue, into annual recurring revenue. This is an excellent example of a startup carving out space for itself by servicing a growing industry.”

Stiegler urged aspiring investors and venture capitalists to seek out opportunities like Pipe across a range of new industries.

“In my career as a venture capitalist and entrepreneur, I’ve always sought out opportunities that use cutting-edge technology to create something new and advance solutions,” Stiegler said. “Pipe is doing just this, and I think we can all learn from their example.”