Raising Series A funding in the competitive business world is more challenging than you think. You must study everything from scratch and learn quickly to catch up with others.
Challenging yourself by working with your team is a massive move and will ensure you get on the right track.
With the help of people and learning facilities like the B Capital Group, you can know everything without a problem. You will gather enough investors to target your budget.
This post is for you if you want to know some metrics and milestones to raise your Series A funding.
Metrics
Publicly traded corporations and the procedures to complete the first round of financing are well documented, but little is known about the rounds in between.
The following is a list of essential metrics you should be aware of.
Compound Annual Growth Rate (CAGR)
Compounding affects the company’s annual growth rate. It is usually used to evaluate and compare asset performance and predict future returns.
Calculating CAGR
Return is calculated using the investment’s final value, initial value, and compounding years. The end value is divided by the beginning value, raised to an exponent of one divided by years, then subtracted by one. Multiply by 100 for the percentage.
Customer Acquisition Cost (CAC)
Your investors must know this is your firm’s number—the average cost of acquiring a new customer.
This includes sign-up bonuses, discounts, and promotions. It improves corporations’ spending.
Even though it’s a complicated number that demands the addition of many charges, it’s essential to know if you want to grow your clientele and reassure investors.
Calculating CAC
Select a timeframe—month, quarter, year—to assess. Add up your overall marketing and sales costs and divide by the number of new clients you gained. Estimate the cost of acquiring a new customer.
The formula:
CAC = (Cost of Sales + Cost of Marketing)/New Customers Acquired
Lifetime Value (LTV)
A customer’s “Lifetime Value” is the money an organization expects to make from them over time. It determines a business’s consumer value.
Venture capitalists respect lifetime value because it measures corporate growth. The assessment incorporates production, operating, and customer acquisition costs.
LTV helps organizations gain and retain high-value and consistent customers; therefore, paying attention is a mistake.
Calculating LTV
One of the most extensive lifetime value estimations. Before assessing customer profitability, know the following:
Consumers spend. It’s calculated by dividing annual revenue by purchases.
Consumers’ annual purchase frequency. Divide the average number of investments by the customers who made them. Netflix buys annually.
Average gross margin: Purchase profit and expense. Gross Margin=(Total Revenue – Cost of Sales)/(Total Revenue).
Average customer lifespan: How long customers buy a company’s products or services. Finance and fixed-contract SaaS enterprises have different customer lifespans.
CAC determines lifetime value.
Finally, compute customer lifetime value. Multiply average purchase value, gross margin, frequency, and client lifetime. Deduct acquisition cost.
The formula:
LTV=(Average Purchase Value x Gross Margin x Purchase Frequency x Customer Lifespan) – CAC.
Net Revenue Retention (NRR)
Investors need NRR. A year calculates NRR.
Next, calculate past clients’ annual recurring revenue. Your investors should know how well your company supports and makes extra money from its current clients.
If your company has an NRR exceeding 100%, it compounds annually.
This reassures Series A investors.
Calculating NRR
Before calculating NRR:
Monthly or annual recurring revenue: Included.
Expansion Revenue: Monthly or annual upsells and cross-sells.
Account Revenue Decline: Included.
Churn-lost revenue: Non-repeat consumers leave. Calculate period churn revenue loss.
This formula calculates NRR:
NRR = ((MRR + ER) – (CR + Churned Accounts)) / MRR x 100%
Milestones
If you’re considering doing some fundraising, you’re going through many different questions in your head right now. When is the appropriate time to raise? How much money should you get? Which milestones in Series A should you strive to achieve? What aspects are most important at each level?
Many sites propose raising a Series A with $1 million in ARR since investors will line up to write checks. After that barrier, investors will likely invest.
Profitable startups may do this. Understand this crucial fundraising phase.
Quantitative and qualitative benchmarks. Everything in place boosts ARR. Early-stage investors like startups’ capacity to generate business is below that barrier.
Milestones for the Series A
Showing product-market fit, traction, a strong team, a scalable business model, a clear plan for using funds, establishing trust with investors, honing your pitch, demonstrating an enormous market opportunity, a competitive advantage, and an exit strategy can help your startup secure Series A funding.
These factors affect investing chances.
Product-Market Fit
Startup success and investor attraction depend on product-market fit. Your product or service matches customer needs and is in high demand.
Surveys and NPS can also quantify product-market fit.
Show Traction
Traction is steady growth in key measures. Sales, DAUs, session times, and market entry could increase.
Key alliances, media attention, and industry awards show traction. These factors might boost your startup’s credibility and appeal to investors.
Scale Your Business Model
Scalable company models boost sales and profits. Scalability shows investors your company can grow without raising costs. Scalable SaaS companies have low variable prices.
Profitable companies attract investors. Investors may be interested in your startup’s scaling profit plan.
Create Evidence of a Huge Market Potential
Larger market companies attract investors because they provide better returns. Highlighting your target clientele and the market size is crucial.
Describe your clientele, their trouble points, and how your product or service may help.
Team
- Visionary and detailed team leadership
- A persuasive founder
- Creating a team while being self-aware and sensing who is needed
Market
- A growing belief in a vast and growing market opportunity
- Understanding market forces and their timing is crucial.
- Knowledge about all competitors
Product
- Testing different pricing and package configurations to understand their decisions
- Product-market fit indicators:
- High usage and low customer turnover (or understanding the causes).
- If the product disappeared, customers would be upset since they can’t function without it.
- For businesses, user interaction or consumer referrals verify it.
Go-to-Market
- Client recommendations and user interaction increase sales and marketing repetition.
- Clients “land and expand” by using the product more and paying for more features.
- Selling faster
- Customers will derive value from the product sooner as the CAC payback period gets closer to one year.
Final Thoughts
Venture investors’ revenue expectations for enterprise software firms’ early phases should match the founding team’s lead and sales velocity.
Investors expect millions in yearly recurring income and rapid development in Series A and beyond venture funding. Thus, you must make wise decisions.
