The Metrics Required for Raising a Series A Round

Shriram Bhashyam
Sep 17th, 2014
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.

Series A is an order of magnitude greater, in terms of diligence and required metrics, than the seed round. Current market conditions--the Series A Crunch--don't help either. 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 Series A 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. 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. 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.
Consumer Apps. Another crowded field and the shadow of King Digital looms.
  • 50K daily active users.
  • 25% month-over-month (MoM) user growth.
SaaS. 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. 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.
Further Resources.  We've built an Excel cap table tool that's freely available for download. Check it out here. Need more horsepower? Check out PayRight.

Disagree? Have more knowledge to add to to the communal pot? Let us know in the comments section below.
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