SaaS Startups

Benchmarks in SaaS for Seed and Series A Rounds in 2017

Michael Cardamone

I’m often asked by founders what milestones they need to get to in order to raise an institutional Seed round or Series A and what size do those rounds tend to be. The short answer is, it depends; but below are some benchmarks I’ve seen, which is based on companies raising in the Bay Area and NYC. Keep in mind, there are always exceptions and outliers!

Average Round Sizes: I looked at Crunchbase data for Seed and Series A rounds in SaaS companies in NYC and the Bay Area over the last 2 quarters.

NYC:

  • Seed – Average round size – $2M
  • Series A – Average round size – $7.65M

Bay Area:

  • Seed – Average round size – $1.7M
  • Series A – Average round size – $8.6M

Benchmarks for getting a Seed round done:

Repeat and proven founders with past success can often raise a seed round pre-revenue, I’ll assume most founders don’t fit into this bucket. I’ll also assume your team is strong, you have founder-market fit and you are building a good product that is solving a real problem. Without those, it’s very difficult to raise money at all.

In a crowded market or one that isn’t obviously very large:

  • $200K+ in ARR or at least multiple paid pilots with large enterprises that could convert into meaningful revenue
  • Realistic projections showing the company can get to $1.5M+ in ARR in the next 12 – 18 months, so seed investors feel confident you can get to the next round
  • Happy customers with good early engagement
  • A good answer for why now and a clear understanding of the market opportunity

In a less crowded market and one that is clearly very large:

  • Often less revenue than above ($0K – $100K ARR) if you can build momentum by quickly growing the pipeline, getting brand names in your industry involved as advisors or angels, getting good logos as customers and/or through PR
  • Realistic projections showing the company can get to $1M+ in ARR in the next 12-18 months (it often takes a bit less revenue to raise an A in a less crowded market, all else being equal)
  • The same as the last 3 points above

Benchmarks for getting a Series A round done:

Outside of team and assuming it’s a sufficiently big market ($300M+ in ARR possible), current and projected growth rate will likely have the largest impact on size of round and valuation. SaaS companies today are growing faster than ever, so the bar has gotten higher.

$250K – $1M in ARR: Some SaaS companies can raise large Series A rounds with less than $1M in ARR but they are few and far between. Obviously there is less data here to evaluate key SaaS metrics, but the companies that I’ve seen do it, tend to have the following characteristics:

  • Hot market with a lot of buzz
  • Clear path to at least 4X ARR in the next 12 months
  • Large pipeline with good indicators many of them will end up closing
  • Low (if selling to SMB’s) or negative (if selling larger deals to mid market and enterprise) revenue churn
  • Very clear story on how your market is evolving over the next few years and why that creates an opportunity for you

$1M+ in ARR: This is much more common. Most SaaS companies that raise $5M+ Series A rounds from what I’ve seen are doing between $1M – $2.5M in ARR and tend to have the following characteristics:

  • Growing 7%-15% MoM over the last couple of quarters
  • Great SaaS metrics that show a path to accelerating growth
    • AE’s are booking 4X+ in ARR vs. their all in comp
    • Low or negative revenue churn
    • CAC payback under 1 year
  • Based on lead velocity and sales funnel metrics – it’s very believable you can at least 3X ARR in the next 12 months
  • Same vision about the market as above

Again, there are always exceptions and a lot of factors that go into a round getting done or not. If you are a SaaS founder, this is just meant to help provide some benchmarks as you start to think about your fundraising strategy.

Published on March 31, 2017
  • Varun Kashyap

    Thanks Michael for this post. This is extremely useful. Could you also highlight the valuation that we are looking at in both seed and Series A rounds based on NYC / Bay Area and / or crowded markets not very large v/s less crowded markets and very large.

  • Alex Norbert

    Thank you for the helpful post. Can you tell us an average valuation at Seed / pre-money?

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