The horizon must be clear to investors for you to successfully raise a Series B.
The roughly eighteen months that separate the average startup’s Series A from Series B is a period of intense transformation of the business. As such, many of the metrics that helped the company raise their Series A become irrelevant. For a Series B to happen, these eighteen months need to transform the startup from an attractive initial MVP (Minimum Viable Product) with great potential to a fast-growing product/service that customers find valuable. In short, “the dogs are eating the dog food,” as I heard one VC put it. Series B is all about getting the money to take this ‘dog food’ to as many customers as possible.
The actions you take will drive the metrics
As I wrote in an article on our blog a couple of years ago, right after closing your Series A you need to think of the actions you can take along the way to ensure you get to a successful next round. Specifically, you need to understand that before Series B you may have brought in investments with an awesome team, compelling vision, and an interesting beta offering with some initial customer interest. However, by the time you’re looking for a Series B, you need to be ready to show something more.
I noted the six basic steps to expediting the Series B process, based on our experience helping dozens of startups get there. They include key actions such as: a) devising your plan for success by setting your eye on the milestones you will need to reach; b) showing traction and proof points that the business can grow exponentially; c) developing a ‘sales plan’ making a rank-order list of your top twenty to thirty potential Series B investors; d) cultivating investor interest with actions such as generating free press with media interviews, and getting them posted throughout social media and doing informal, “checkin’-in” conversations with potential investors; e) developing a timeline for closing Series B and clearly communicating it to potential investors; and f) committing the time for the raise from your key management team.
The metrics that matter
In the roughly eighteen months that separate you from your next big round after Series A, you need to build and evidence a series of metrics that prove that you have staying power, and – most importantly – that the only thing you need to grow exponentially is money.
One of the most useful articles on this topic was written by Andreessen Horowitz a couple of years ago (16 Startup Metrics, by
The Andreessen Horowitz article covers in good detail the sixteen metrics that you can nurture in the precious time between your Series A and B. I recommend you read the full article to go into detail. In this post, I want to touch on the basics so you get a good idea and can map your milestones with the help of it. We have found these metrics to consistently reflect the business, our CFOs work with Series A clients everyday to implement and monitor many of these in order to prepare them for their Series B.
Their article contrasts several key metrics to show the reader how the same set of numbers can be read differently, and how things, such as revenue, indicate different business metrics depending on how you look at it, such as for example Total Revenue vs. Recurring Revenue, or Total Contract Value vs. Annual Contract Value. They also enlighten founders with concepts which could be lost on a spreadsheet to the untrained eye, such as Customer Acquisition Cost.
Here’s how Andreessen Horowitz organizes the metrics in their post. Some are more relevant for SaaS, others for product companies.
I. Business & Financial metrics
Although some of these metrics may sound like more of an accounting metric, they are key to understand how your financial model works and how scalable it is.
- Bookings vs. Revenue
- Recurring Revenue vs. Total Revenue
- Gross Profit
- Total Contract Value (TCV) vs. Annual Contract Value (ACV)
- Lifetime Value (LTV)
- Gross Merchandise Value (GMV) vs. Revenue
- Unearned or Deferred Revenue …and billings
- Customer Acquisition Cost (CAC) …Blended vs. Paid, Organic vs. Inorganic
II. Product and Engagement Metrics
These are the metrics that have to do with how people use your product or service, and how much it costs to deliver it.
- Active Users
- Month-to-Month (MoM) Growth
- Burn Rate
III. Presenting the Metrics
This last section is not about metrics but about how to present your metrics, with some useful tips in order not to deceive – or be deceived – by the format you use to report them.
- Cumulative Charts vs. Growth Metrics
- Chart Tricks
- Order of Operations
I hope you find this information useful and timely as you prepare for a successful Series B. The specific numbers you need to achieve on each milestone vary greatly depending on the type of business you run. Your CFO is prepared to set up these milestones and help you take their pulse regularly so that you can fine-tune and take corrective action in order to get them worthy of a Series B.
Photo courtesy of Christopher Michel.