Scaling a tech business is never easy, especially when you have a strong plan, but you don’t have the necessary capital to execute your strategy. You’ve grown your company with an earlier seed round, but now you’re considering growth capital. In this article we cover the main considerations for you and your business when heading towards your Series A.
Positive sales & marketing indicators
Sales and marketing metrics are all important for you to know when to push the plunger of Series A investment growth. You will have been testing and learning for a while now and your indicators are starting to prove your methods can identify, reach and appeal to your ideal customer in a repeatable way. This is (at least beginning) to demonstrate that you are starting to find the all-important product-market fit.
Annual / Monthly Recurring Revenues
For SaaS businesses, Series A often comes with the requirement that you have grown your annual net revenues to the magic £1m net ARR. Investors need to know you’re onto something solid and that is partially proven by your revenues. These folks are professional investors, they can’t make bets on half-proven businesses with a few ‘lucky deals’ from existing contacts; not with other people’s money. Usually, you can engage with a VC if you are at least £500k+ ARR and growing strongly month-on-month. You will need to meet the VC's revenue requirements by the time you close the round or may receive less favourable terms, e.g. take a hit on valuation, or worst case, you could lose your investor.
Break-even is just over the horizon
Your finances are in good shape. You can see that you have a clear path to break even. Investors are happy that you need cash to grow and don’t expect you to be cashflow positive after you receive investment. In fact, they want to invest in your business and then execute the plan to grow as quickly as possible, which means spending the investment over the first year or two. This will get you back into a good cash state and back to the profitability horizon.
A lack of investment is holding you back
You know that in order to grow to £10m ARR and beyond that you need to invest in a team of people that have delivered on those revenues or built scalable products to that level before. That’s not to deride the team you have already, but sometimes we need different experience in product and process to deliver against a big identified market opportunity.