How to structure a distressed software deal?

November 18, 2025

by a searcher from University of California, Berkeley in El Dorado Hills, CA, USA

I'm partnering with ex-founders of a business with the following characteristics. The business is generating $7.9M (2022A), $7.0M (2023A), and $5.5M (2024A) in revenue, with a return to growth beginning in 2025F at $5.8M, scaling to $7.3M in 2026F and $10.0M in 2027F. Gross margins remain strong and expanding, rising from 86% in 2022 to an expected 88% in###-###-#### ARR performance shows a similar trajectory, moving from $7.7M (2022A) to $6.1M (2023A) and $5.7M (2024A), with forecasts of $6.3M (2025F), $8.4M (2026F), and $11.4M (2027F). The company currently serves 168 active customers, with an ACV of approximately $35K and an 8% ARR CAGR projected over the 2022–2027 period. We're looking to acquire the business at distressed levels of about $1m or $2m and then turn it around. What is the best approach to try to raise equity or find out if it's edible for a loan?

Reply by a searcher
from Roosevelt University in Boston, MA, USA

Thanks for tag ^redacted‌. Happy to help in more detail but a B2B SaaS business with 90 percent margins, declining revenue, high churn, and minimal operational overhead is not a distressed deal in the typical sense. Also is the business profitable? I'd also want to see the churn cohort decay. The forecast also sounds really aggressive. Very very rare to see a company turn from three years of decline to 20% YOY growth AND better gross margins. You will need to do some major GTM work or hire someone which in the near term will cost you. I'm a former CRO/VP of Sales in SaaS so I'm speaking from experience. Realistically, to hit an $11M ARR in two years with a $35k ACV you'll need 145 sales assuming there is no churn (which it looks like there has been in the past). If you want to raise equity, you'll need to have a believable operational plan for how you would turn this around. Happy to be a sounding board. Regarding a loan, revenue based financing or IP loan might work. The churn will be a concern for revenue-based financing I'm sure. redacted

Reply by a searcher
from Columbia University in Saratoga, CA, USA

Since you have software that you can build patents on, you should build IP for the company and get IP backed loans. Also, with positive cashflow that hsould be SBA loan for it. I built the Invisalign patent portfolio and it added to company valuation. email me redacted

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