The Metrics Required For A Startup To Raise Series A Funding

Atish Davda is the founder and CEO of EquityZen, a marketplace for private investments. This article originally appeared on their blog.

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.

• 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.