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

After 14 years of General Management and incubating/scaling new businesses & organizations for enterprises (established a $55M mobile business and a $100M/400 employees global division), I became an investor Today I’m a board member/mentor with 5 incubators & micro-VCs and involved with many other private & public incubators around the world. I also founded a VC firm named 2020 and I'm a member with a number of angel groups so i get to see & work with many startups, innovation centers and other parties across the ecosystem. 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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: