What has changed for seed-stage startups who are planning to raise Series A? It is normal that in a new climate of uncertainty with SaaS valuations on a rollercoaster (SaaS is back folks), founders at the seed stage question how early-stage investors will react to what is happening in the public market and at late stages. I have been chatting about this topic with the founders/CEOs of the SaaS companies at seed stage that I work with. They are in a strong position: not sitting on high valuations and with relatively solid runways (18 months+). The debate encompassed runway and burn, valuations and proof points. Eventually, it boiled down to WHEN is the right timing to fundraise Series A.
My immediate answer was: KEEP CALM and PMF.
The extended summary of our conversations 👇👇👇
- Public and late-stage markets are on a rollercoaster and the perception of infinite growth have changed. The effects for it will likely trickle down to the early stage.
- The bar is likely going to rise, the pace is likely going to slow down.
- When it comes to fundraising Series A, we need readiness plus momentum
- Readiness=PMF. Key SaaS milestones and metrics. ARR level, but more importantly, ARR quality. Rule of thumb: >$750k ARR, 10+ sweet spot customer logos, 3+ flagship happy customers, strong customer love. GTM: repeatability of the growth engine, funnel velocity, conversion to paying rate, valuable uses cases, expansion motion. Of course: no or low churn.
- Momentum = Growth. Let’s not confuse market momentum with company momentum. Company momentum= growth rate. Key indicators: MRR monthly growth. Rule of thumb: 15%+ MoM. Pipelines growth, signs-up growth, product engagement metrics growth (e.g. MAU, volume of product units, of APIs calls, etc). Market momentum: yesterday was negative, today is better, tomorrow. The point here, do not time the market.
- Sometimes readiness is enough. But this is only true for high conviction, thesis-led VCs.
- Let’s allocate capital and focus on the activities with the highest ROI: exceptional hires, product excellence, customer value, category narrative.
- Play your own game. Good things will come. It will take us to be ready, to generate growth momentum and to fundraise successfully.