One easy trick to Series A: Revenue

“It is a truth universally acknowledged, that a young startup in possession of promising metrics, must be in need of capital.”

Startups: Get enough traction, raise Seed, get more traction, raise A. The complete frustrating part for a seed founder is what qualifies as “enough traction” for a SeriesA. Every VC has a different definition of the bar to raise an A. When I started in Alchemist Accelerator in 2014, I heard $50K MRR. I’d earlier been launched two separate IOT & software businesses and reached that benchmark easily, so wasn’t too intimidated. But Christoph Janz of PointNine Capital in his yearly “funding napkin” says VC keeps raising the bar, and now declares $100K — $250K MRR as the bar for Series A. Double what I thought, for the same amount of incoming seed funding capital.

Conversely, Tom Tunguz (Redpoint VC) says 27% raise SeriesA with NO MRR, as “At this point, investors are betting on the team’s unique backgrounds, approach to the market or some other characteristic of the opportunity.” I know personally 5+ of these zero revenue SeriesA companies, and can say they do exist.

With great funding comes great responsibility. If you raise a series A with no revenue, you can immediately hire more people and “move quicker”. However, you still need to find product-market, and even problem-market fit (as defined by Sean Byrnes).

  • Do customers consider it one of the top 3 problems they have?
  • Would customers immediately adopt a solution if you provided it to them right now?
  • If you solve the problem, do you have ways to distribute your solution to the customers?

Revenue is its own A investor”, was perhaps the best advice I got. Bloomberg Beta (one of our seed investors) had a panel on “Seed to A Myths”. The panel went around and around — “how much MRR? What metrics? Engagement? Roadmap progress”. The final quote from Roy Bahat was “Revenue is its own A”. To add to Sean’s problem-market fit, also add “Revenue-problem-market-product” — Is this a real problem that customers have, which you can reach, which you can charge money from? As Homer Simpson said, “Money can be exchanged for goods and services”.

Revenue is its own A” can have multiple interpretations. Matt Harris, CEO SendWithUs, says “Meaningful revenue within your initial market shows that you have a business that could scale with funding”. That’s certainly true. Venture capitalists are not charities, they expect a substantial return on their funding, as they have their own investors (Limited Partners: pensions, family offices, universities) which need to return money for retirement of teachers, firefighters; college students who need scholarships; and research grants for the next wave of innovation. I don’t take the weight of this trust in my company lightly at all — one of our LPs was a scholarship granter when I was a student engineer at Harvey Mudd College, and my grandparents depended on their pension funds after working hard for 40+years.

Revenue is its own A” can also mean — if you’re making money and profitable, you have money to finance your own growth. As Homer Simpson said, “Money can be exchanged for goods and services.”

With revenue, Series A funding can then be about finding the right partner to fuel faster growth. When LaunchDarkly raised our A, we were profitable. Josh Stein of DFJ had been the Series A investor in Box. To us, Josh was the right investor to fund us to keep up with the explosive demands for our services — we could hire more engineers, customer support, and help our customers more.

In writing this article, I re-listened to the whole Bloomberg “Path to A” panel — it’s very much worth re-listening to! Thank you Roy Bahat, Hunter Walk, Maya Ibrahim & Josh Elman for your help to entrepreneurs.

Thank you Paul Biggar Sean Byrnes Matt Harris Roy Bahat for reading early drafts. Amongst their advice was to avoid inside baseball, but in full disclosure: Sean Byrnes, Josh Stein & Roy Bahat are investors in LaunchDarkly. I’m speaking at Christoph Janz’s PointNine Summit. I biked to Matt Harris wedding. I cohost To Be Continuous podcast with, & am an angel investor in Paul Biggar’s company.