After closing our seed round a few months back, my co-founders and I decided to figure out what traction we’d need to reach the next fundraising milestone: Series A. I was surprised to find that there’s not a great single resource on the internet that sets out current market VC expectations for Series A companies. So we’re now providing that resource. We did a lot of digging into this, including asking mentors, current investors, and prospective investors. Here’s what we found.
The Series A
Series A is an order of magnitude greater, in terms of diligence and required metrics, than the seed round. Current market conditions–the so-called Series A Crunch–don’t help either. The Series A Crunch refers to the fact that there is a lot of capital available for seed rounds, with a new micro-VC fund seemingly popping up daily, and AngelList, SeedInvest, etc. also adding to the pool of capital ready to deploy for seed investments. But since the Series A round involves big institutional players, who have strict mandates and fiduciary duties to their LPs, the bar is set much higher to raise your A round than was required for your seed round.
Through our research, here’s what we’ve found vis-a-vis metrics needed to raise a Series A round from institutional venture investors.
General Series A Requirements
Let’s start with an important caveat: there is not one set of metrics that applies to every business and we can’t paint all investors with a single broad stroke. Below are general guidelines that are broadly applicable and further down I discuss sector-specific metrics.
- Product/market fit: What is product-market fit? It has been discussed ad nauseum by many thought leaders, including Marc Andreessen, but I like Andrew Chen’s elegant take: when people who know they want your product are happy with what you’re offering.
- Proof of repeatable business and large market demand provable by data. You need a productized, not customized, offering customers are paying for.
- Clear path to scale and new business acquisition.
- Identify customer acquisition cost and customer lifetime value. Naturally, these metrics should point to customer profitability.
E-commerce Metrics for a Series A
This is a dense market, with diminishing margins, and heavy-weight incumbents (see Amazon). Also, VCs are licking their wounds from companies like Fab and Gilt (wasn’t Gilt supposed to IPO for the last 4 years?).
- $1 million monthly recurring revenue (MRR) is the key metric here.
Another crowded field and the shadow of King Digital looms.
- 50K daily active users.
- 25% month-over-month (MoM) user growth.
SaaS Metrics for a Series A
Jason Lemkin (the SaaStr himself, of Storm Ventures) has noted the following:
- $50-150K MRR.
- > 100% YoY growth on MRR or annual run rate (ARR) basis.
We’ve built PayRight, a B2B SaaS tool for companies to efficiently manage their equity and cash compensation. Naturally, we’ve looked into B2B SaaS-specific metrics:
- $1.5MM ARR.
Marketplace Metrics for a Series A
Marketplaces are tricky (trust us, we know) because of the chicken/egg problem with supply and demand (buyers want to see good supply, and good sellers will list where there are buyers). It is understood that liquid marketplaces also take a while to build.
- $500K-$1 million in monthly gross market volume (GMV).
- 20-30% MoM growth in GMV.
- Liquidity: > 10% demand/supply ratio.
- Transaction velocity: the time it takes to have a transaction clear should be decreasing.
Disagree? Have more knowledge to add to the communal pot? Let us know.
This post originally was originally published on EquityZen’s blog.
Editor Note: For a complimentary take on moving from Seed Round to Series A see this post from CB Insights.
Further Resources. EquityZen has built an Excel cap table tool for pre-Series A companies that’s freely available for download. Check it out here. If you are interested in their company managed liquidity services for employees see their PayRight services.
About the Author: Shri is a founder of EquityZen, a marketplace for investments in private tech companies. Prior to founding EquityZen, he was an attorney at Shearman & Sterling, where he advised market participants on regulatory, transactional, and trading and markets issues. Shri regularly writes about venture capital, secondary investments, and startups on the EquityZen blog and elsewhere. Follow him on Twitter @ShriBhashyam.
More on EquityZen: EquityZen is a marketplace for investments in proven private technology companies. Angel Investors, funds, and family offices use EquityZen to access investments in premier venture-backed companies.