What does it take to raise a Series A?

Critical benchmarks, new B2B SaaS growth metrics, and insights into the investment process.

?? Critical Metrics for Raising a Series A

The Artemis Fund released an article discussing key metrics and qualitative attributes for successful Series A and B raises.

STV Take

The stats are eye-opening: only 12.1% of startups raised a Series A within two years in Q1 2022, down from 27.4% in Q1 2018.

It's harder than ever to stand out, but knowing the benchmarks is crucial. This is why I thought the inclusion of metrics around what constitutes ok, good, and great was an especially noteworthy

Our experience aligns with the data: companies with a good shot at an A round typically have a $2-3M run rate and 2-3x year-over-year growth.

?? New B2B SaaS Metrics

SaaS Capital's latest report on B2B revenue growth benchmarks reveals:

• Equity-backed B2B SaaS companies with <$1M revenue saw 100% average annual growth in 2023, up from 50% in 2022.
• Companies (bootstrapped and equity-backed) with <$1M had a 59% median growth rate. Top quartile grew by 106%.
• Companies with >130% net revenue retention had a 70% median growth rate vs. 17% for those with <90% retention.

STV Take

Growth rates are crucial to raising venture capital.

If a company is doing <$1M in ARR and has a below median growth rate, it is going to be incredibly tough to raise venture capital.

While The Artemis Fund article referenced above includes growth rates as one of their core metrics, how these factor into being able to raise a Series A isn’t something I have seen founders question until recently. Instead, most of the time, the focus centers around a revenue benchmark, but revenue in a vacuum is meaningless.

Investors will value a company doing $1M in revenue with a slow growth rate very differently than a company doing half the revenue but growing rapidly.?

?? What to Expect After the First Meeting

NextView Ventures breaks down their investment process :

1. Pre-screening meeting

2. First partner meeting

3. Second partner meeting

4. Diligence

5. Broader team meeting

6. Partner meeting

The first rule of venture fundraising is that the purpose of all VC meetings is to get another meeting. It's not to immediately push a decision.

In addition to providing an overview of the process, the NextView team also explains how founders should think about structuring the meetings and the types of questions an investor is trying to answer at each step.?

STV Take

This process is actually quite similar to how SpringTime runs our decision making process. The one exception is that our first call is always done with a partner, but the goal of the call is consistent with NextView’s pre-screen and first partner calls, which is to suss out whether this opportunity is worth an hour (the length of our second meeting) of our partners’ (and the founder’s) time.

I’d reiterate that the diligence period can feel ambiguous because, well, it is.

But founders can gauge a likely outcome by how much an investor is engaging. If communication has been slow, the interest level is likely lower.

Happy fundraising!