Navigating the Funding Gap: Insights from 10,755 US Startups
In the world of SaaS startups, securing Series A funding is an achievement worth celebrating. At least for a day :). It’s a sign you’ve hit Initial Traction.
But each round usually gets harder. Successfully graduating to Series B takes a lot of strong growth and metrics.
The latest data from Carta analyzing 10,755 US Series A startups offers a revealing look at these graduation rates – and there are important lessons for B2B founders to absorb.
The Series A to B Success Rate: A Data-Driven Reality Check
The comprehensive Carta data reveals several critical insights about Series A to B progression:
- Time Horizon Matters Tremendously: The probability of securing Series B funding increases substantially over time. For cohorts with sufficient maturity (2018-2020), we see progression rates reaching 40-50%+ by Year 4, compared to just 1-4% in the first quarter after Series A.
- Vintage Effect Is Real: Startups that raised Series A between 2018-2020 show higher Series B graduation rates than those raising in 2021 or later. The 2020 Q1 cohort shows particularly strong performance, with over 55% reaching Series B by Year 4.
- The Recent Funding Winter: There’s a visible cooling in graduation rates for startups that raised Series A from 2021 onwards, with significantly lower progression percentages across all time horizons.
- Signs of Recovery: As the chart annotation indicates, there are “signs of life” with graduation rates “inching back up in more recent cohorts” – a cautiously optimistic indicator for the current fundraising environment.
What This Means for SaaS Founders
1. Plan for the Long Haul
The data makes it clear: the path to Series B is a marathon, not a sprint. For SaaS companies specifically:
- Most successful Series A companies take 2-3 years to secure Series B funding
- The median time between rounds is approximately 24 months
- Only a small minority (typically under 10%) secure follow-on funding within the first 6 months
Action item: Structure your Series A round to provide at least 24-30 months of runway, with contingency plans for extending it if needed.
2. Understand the New Metrics Bar for SaaS Series B
The funding environment since 2021 has reset expectations. Today’s Series B SaaS companies typically need to demonstrate:
- $4-8M in ARR (up from $2-4M pre-2021)
- 2-3x YoY growth (with some flexibility for higher efficiency)
- Clear path to profitability with improving unit economics
- CAC payback periods under 18 months
- Net revenue retention above 110%
Action item: Build your post-Series A strategy around achieving these specific benchmarks rather than vanity metrics.
3. Capital Efficiency Is the New Growth
The data shows that 2021 was a turning point, with graduation rates dropping significantly. This coincides with the shift from “growth at all costs” to “efficient growth”:
- Companies that raised Series A in 2020 or earlier could often secure Series B primarily on growth metrics
- Post-2021 companies face stricter scrutiny on burn rate and capital efficiency
Action item: Focus on improving your efficiency metrics like gross margin, CAC ratio, and burn multiple alongside growth.
4. The Graduation Window Is Extended
Looking at the cohort analysis, we can see that graduation rates continue to improve even 3-4 years after Series A:
- For 2018-2019 cohorts, significant jumps in graduation rates continue to occur in Year 3 and Year 4
- This suggests patience and persistence can pay off
Action item: Consider alternative funding strategies (venture debt, extension rounds) that can extend your runway while you build toward Series B metrics.
Signs of Hope in the Current Environment
The annotation on the chart pointing to “signs of life” in more recent cohorts deserves attention. While graduation rates for 2021-2023 cohorts are lower across the board compared to 2018-2020, we can observe:
- 2022 Q4 and 2023 Q1 cohorts showing higher early graduation rates than the immediately preceding quarters
- The slope of improvement for recent quarters appears to be accelerating
For SaaS founders, this suggests that while the bar remains high, investors are actively deploying capital to companies that meet the new efficiency-focused criteria.
Strategic Implications for SaaS Founders
1. Optimize for the “Three Rs”
Revenue, Retention, and Runway are now the critical factors for Series B success:
- Revenue: Focus on quality revenue from ideal customer profiles
- Retention: Prioritize net dollar retention as your north star metric
- Runway: Manage burn to ensure you can weather extended fundraising timelines
2. Consider the “Series A+” Route
The extended timeframes shown in the data suggest that bridge rounds are increasingly normal:
- 25-35% of successful Series B companies now raise intermediate funding
- This can be structured as Series A extensions, A-1 rounds, or strategic investments
3. Vertical-Specific Benchmarks Matter
While the aggregate data is informative, graduation rates vary significantly by sector:
- Enterprise SaaS with longer sales cycles often takes longer to reach Series B
- Product-led growth SaaS companies typically show faster progression paths
- Infrastructure and developer tools face different investor expectations than application software
Conclusion: Cautious Optimism With Strategic Focus
The Carta data presents both challenges and opportunities for SaaS founders. The path to Series B is undeniably more difficult than during the 2018-2020 period, but not impossible. The key is setting realistic expectations, focusing on the metrics that matter in today’s environment, and building resilience into your business model.
For SaaS companies at the Series A stage today, success will come from embracing capital efficiency while maintaining sufficient growth to demonstrate market traction. The signs of life in recent cohorts suggest that investors are ready to fund companies that can execute on this balanced approach.
