The 4 Kinds of Series A Rounds in Enterprise

A wise VC once told me when dinner is served, you eat. When it comes to fundraising, I’ve learned that if someone is trying to invest now, you should strike while the iron is hot. Given that the headwinds are getting stronger, we at boldstart have been advising all of our portfolio companies to raise as much as they can as soon as they can and to make sure that every dollar spent has a real ROI.

Related to this, the question I am often asked is “what metrics do I need to hit” to get that next round. While super important, I always like to understand where the business is in its lifecycle before answering. Having spent the last week in several meetings with startups going from seed to A, I thought I would break down the various types of A rounds and the major 🔑🔑🔑 to success:

The 4 kinds of A rounds:

1. No A round. Sucks. — self explanatory
2. Vision A round, super hard — raise on the promise and pre-launch, on the vision, huge market with the killer team that can build and scale. sometimes easier to raise on the promise and the expectations of amazing success than after the launch
3. Metrics A round, easier — killer metrics, repeatable growth and predictable sales model, used to be $80–$100k MRR/$1mm ARR, the bar is raising…
4. Hybrid A, toughest — this is where you are between 2 and 3 and the hardest to get done.

So let me break down the thought process on each one and how to put your best foot forward.

1. No A round — cut burn, survive at all costs, we call that cockroach mode if the nuclear winter is coming, and you need to do whatever it takes to survive — never fun to do
2. Vision A round — sometimes it is easier to raise on the promise of what you are going to launch, then launching and having investors wait for the metrics. These rounds, in many cases, are done through inbound leads and warm intros from your existing seed investors and from your network. The narrative is usually the same as well, we are not raising now, but if you are interested and want to get something done now rather than in 3 months, we are open to the conversation. Since this is inbound, you skip many of the initial steps and get right into your business. There may only be a few investors that fit these criteria, but 🔑 is selling them on the big vision and how you and your team have the confidence and experience to get it done. Note, this is not a high probability round but one that can happen and only reserved for the most experienced entrepreneurs. It is especially harder to pull off in these economic times.
3. Metrics A round — you are cranking, have hit the MRR/ARR numbers and have a repeatable selling process. If your market is huge and team solid, then this is one of the easier A rounds to get done, although the bar to success is rising. 🔑 here is to aim for a 30% plus month over month growth rate). If you hit the absolute numbers without a high growth rate, you can’t get this done. Note, this has the highest probability of success but in these times you will need higher metrics to raise the same size round as 6 months ago.
4. Hybrid A round — this is, I suspect, where many startups find themselves. This is one of the harder A rounds to get done as you are caught between a rock and a hard place. You launched your product, the numbers and product look solid, but not the exponential growth you are looking for. So how do you get this round done? If you don’t have the MRR metrics, then you need to think about other metrics you can provide as an alternative proxy to revenue — it may be number of enterprise pilots, number of installations, users at large companies, etc. Yes, it is tougher, but you need to show a story of success and growth the best you can. Also you need to layer on some of the vision pitch as well — this round will require talking to a number of investors and require the most work to close your Series A. My strong opinion is to do whatever it takes to make your company become a metric-driven round. This includes raising additional capital from existing seed investors as an extension to give yourself more runway to realize your goals.

I hope these thoughts are helpful and as you are in your next board meeting, ask yourself if you are a vision, metrics, or hybrid round and figure out how to put the best story together to make it happen.