TLDR:
- Fundraising beyond Series B requires meeting specific criteria regarding revenue growth, sales efficiency, churn, and cash burn.
- Growth rates are important, with a minimum level of growth needed to attract VC funding.
How do you raise funds beyond Series B? If you’ve made it that far, congrats! You’re one of the lucky 15% that raised seed funding and made it to Series B. It also means you’re highly likely to get an exit at some point. There’s only a small chance that it’ll be an IPO exit, and Stacey Bishop with Scale Ventures shares what it takes to get to that next level of funding.
Typical Fundraising Paths
You may have already raised your series A and B, and you’ve got a sense that it’s a different process each time. Series A is typically about the founding team, target market, and product vision. In Series B, investors dive deeper into the management team, where they try to assess the founding team’s ability to attract and keep great talent on board. Customer traction is key. Of course, ARR growth comes into play as well. By the time you get to Series C, investors aren’t asking a lot about the founding team or product vision. They want to know all about the numbers and what’s taking off. In this article, you’ll learn about the 4 vital signs investors are looking for: Revenue growth Sales efficiency Churn Cash burn
When starting out, growth rates are super high, like 900%, which is insane. Over time, those rates do come down quite a bit, but there’s still a minimum level of growth you need in order to raise funding.
Two Case Studies
Scale Ventures invested in Box in 2010 while in the high-growth, low-burn bucket. They only raised about $15-20M at that point. After that, they raised a ton of money because capital was cheap and available. Their burn rate went up, and so did their growth rate. They were in the hyper-growth, hyper-spend category. Then, the market became very competitive while they were a public company. Growth fell, but burn was still high, so they spent about three years in that red box. Finally, they managed to move over to the lower growth but low burn place, and we’re repeatedly seeing this pattern play out in private markets.
Efficient growth is critical to surviving in today’s venture market. You want to lower your burn multiple and ensure you have cash. Growth trends are returning to normal from post-pandemic peaks. 2021 was abnormal, and today is much more normal. There’s still plenty of capital actively investing. You can raise money, so pay attention to those metrics for growth and efficiency.
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