Scaling from Series A to Series B: What KPIs Are Needed?
Startups are often admired for the grit and resilience that they exhibit in their efforts to overcome obstacles, impress investors, and grow into successful companies. In regards to funding, Series B is arguably one of the hardest stages. What does it take to get there and what does the Series B look like?
Series B is more demanding than its preceding funding stage, Series A, where startups need to show signs of increasing revenue growth, a solid business plan, and overall progress. During Series A, company valuation is usually around $10-15 million, and startups receive an average of $10.5 million in funding from venture capitalists. With an exciting future to look forward to, Series A startups are hopeful and optimistic.
As for startups in Series B, a company’s valuation is usually around $30-60 million, with an average of $24.9 million in funding. During this stage, startups strive to become replicable and scalable. In the process, they must meet challenging benchmark metrics. For example, Christoph Janz, a Saas and early stage investor at Point Nine Capital, states that VCs are much more likely to invest in SaaS (software as a service) startups with a year-over-year ARR (annual recurring revenue) growth rate of 3x or higher.
Similarly, Series B startups should hit a monthly growth rate of 10% or higher, and profits per customer (LTV, or lifetime value of a customer) must ideally be three to five times higher than the cost of acquiring an additional customer (CAC, or customer acquisition cost). Taking into account the increased spending from hiring additional team members (for business development, marketing, etc) and market expansion, it is not surprising that burn rates, or negative cash-flow, typically increase dramatically during this aggressive-growth stage. As a result, aspiring Series B startups need to be more wary of their finances.
Typically, investors increase their ownership share at the Series B. According to Capshare’s “Private Company Equity Statistics Report 2018”, investor ownership in startups increases from 40% in Series A to 57% in Series B on average. This can be discouraging to startup founders and employees, hence another reason why Series B is an especially difficult phase.
Despite Series B’s hardships, the startups that make it past this stage can say that they have been through the worst. Series B promotes the survival of the fittest, and that is essential in today’s competitive environment of startups.