Continuing with yesterday’s post Revenue Run-Rate to Raise a Series A, the immediate follow up question is: assuming low-to-mid six figures of recurring revenue, when’s the best time to raise a Series A? While the simplest answer is that the best time to do it is anytime you can do it on good terms, the real answer is more nuanced.
Going back to the four stages of a B2B startup, stage one is product-market fit. With a few hundred thousand in annual recurring revenue, there’s a good chance product-market fit is in place. Next, stage two, is building a repeatable customer acquisition process with good metrics (e.g. the ratio of cost of customer acquisition relative to the lifetime value of the customer). Once this has been achieved on a small scale, it’s the best time to raise a Series A round of financing. Why? With firm customer acquisition metrics, it’s easy to make a compelling case that investing X dollars in the business will turn into Y revenue. Investors want a compelling story and many focus on financial models, so when there’s a clear path to significantly increase the startup’s value relative to money invested, investors get excited.
The best time to raise a Series A is when a repeatable customer acquisition process is in place with good metrics.
What else? What are some other thoughts on the best time to raise a Series A?