Revenue Run-Rate to Raise a Series A

Here’s a common conversation I have with entrepreneurs:

Entrepreneur: I want to raise a $2 million Series A.

Me: Great. How much recurring revenue do you have now?

Entrepreneur: We’re just getting started and have a few pilot projects.

Me: Cool. What’s your annual revenue run-rate?

Entrepreneur: Well, we don’t have any revenue yet.

Me: Unfortunately, the chance of you raising a Series A is slim-to-none.

Of course, investors want a great management team, market, traction, growth-rate, and, naturally, revenue. So, what’s a good target run-rate to raise a modest Series A (e.g. $2 million – $3 million)? From my experience outside Silicon Valley, I’ve found entrepreneurs usually need to have $250,000 – $500,000 in recurring revenue (annual run-rate) to raise a couple million dollars from investors.

Now, investors typically want to buy 20-35% of the company with each round of investment, so that means a $2 million investment for 25% of the company results in a pre-money valuation of $6 million and a post-money valuation of $8 million. Is a company with $500,000 in recurring revenue worth $6 million? That’s for the market to decide.

What else? What are some more thoughts on revenue run-rate to raise a Series A?

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