When Is Your Startup Ready For A Round A

One of the most common questions i get asked by founders is how many users/downloads/MOU/MRR does a startup need to have to be able to close a round A.

Different businesses are different in terms of what’s driving the business and its capital needs so this question is tricky. Typically companies that presented a product-market fit are round A fundable. That means the company identified a true need a proved that they can serve that need in a cost effective way that users find valuable. By raising additional capital, the startup can replicate what it was doing to scale significantly. Such examples can include an online-to-offline company (e.g SideCar) that proved their model in 1-2 cities or a social network (e.g Secret) that proved to be highly viral with a large enough sample. Repeatability is key. 
Many times it is not about a single metric but a combination of them: for example social-mobile will be measured by a combination of K-factor, total downloads/users and engagement. Consumer companies are usually measured by both active users and growth. 
Having said all of that, i know you still want to see some numbers so here are some ballparks:
  • $1 million monthly recurring revenue (MRR).
Consumer Apps. Highly tricky since a Candy Crush or Whatsapp are very different than Belly (loyalty), Paypal, SkyScanner (Air travel) or BillGuard (Credit card monitoring)
  • 50K daily active users.
  • 25% month-over-month (MoM) user growth.
  • $50-150K MRR.
  • > 100% YoY growth on MRR or annual run rate (ARR) basis.
Marketplace. Most marketplaces are two sided: supply and demand. Margins are usually small so profitability and operational scale can be reached only at sizable volumes. Also benchmark might differ between a marketplace with ASP of $5 vs. ASP of $5000 but…
  • $500K-$1 million in monthly gross market volume (GMV). Usually higher.
  • 20-30% MoM growth in GMV.
Don’t try to fit your startup into a mold. Instead be critical about what’s really driving your business and if you had $1, do you know for a fact that the ROI on that $1 is.
Let’s take Mint as an example: Mint is not measured by the number of active users. It’s business is driven by the data gathered about its users, so as long as a user is still signed up and additional information is fed to Mint, whether that user is active or not is irrelevant.
To summarize, investors tend to define those metrics by thinking about what’s driving the business, is it data, engagement, total user base, and get a sense for whether they feel confident that additional capital can scale the company to the next milestone. 

About shanishoham

Shani is an entrepreneur, investor and business leader with technical background and deep understanding of dev tools. He is currently the President and COO of Testim.io. He built the business from inception to over 100 customers, increasing ARR x4 YoY, ACV x7 YoY, growing its lead base to over 50K/year, hiring over 20 team members and leading 2 round of financing. Prior background: scaling 5 B2B technology ventures and one VC fund to signifiant size. I’m an alumnus of the Stanford Graduate School of business - Sloan Master in Management program, a 10 months intensive program for 57 carefully selected experienced Executives and leaders from all around the world.

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