The perfect seed round, valuation data, SaaS benchmarks, why companies stay private longer & more
by Dr. Andre Retterath, Partner at Earlybird Venture Capital | Author of Data-Driven VC
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Guest post by Dr. Andre Retterath, Partner at Earlybird Venture Capital | Author of Data-Driven VC | Originally published on Data-driven VC.
In the competitive landscape of startup funding, the ideal seed round is becoming clearer. Episode 1’s Adam Shuaib analysed data from 15,000 startups to find out what the optimal seed round looks like these days:
Optimal Raise Amount: Startups that raise $2M are most likely to successfully secure Series-A and Series-B funding. Raising more than $2M offers diminishing returns, showing no significant advantages.
Avoid Under-Raising: Companies raising less than $1M face significant challenges, being less than half as likely to advance to Series A.
Speed Matters: Startups that secure seed funding within 12 months of incorporation double their chances of progressing to Series A compared to those taking three years or more.
✈️ KEY TAKEAWAYS
Aiming for a $2M seed round and securing it quickly after incorporation can significantly boost a startup’s chances of reaching subsequent funding stages. Speed and optimal funding amounts are crucial in the early stages of growth.
Bootstrapped vs. VC-Backed Startups: Weighing the Pros and Cons
A question that many entrepreneurs struggle with in the early stages of their companies is whether to bootstrap or seek VC funding. Each path offers unique benefits and challenges that can significantly impact a startup's growth and sustainability. A recent analysis by Mark Birch reveals the details:
Control & Independence: Bootstrapped startups retain full ownership and decision-making authority, free from investor pressures.
Financial Discipline: Limited resources necessitate frugality and creativity, fostering efficient financial management.
Slower Growth: Without substantial capital, growth is often slower, making it harder to compete with VC-backed rivals.
✈️ KEY TAKEAWAYS
Bootstrapping = Ideal for founders seeking full control and independence, who can operate with limited resources and prefer a steady growth trajectory. This route is suited for startups in niche markets or with sustainable, organic growth models.
Venture Backing = Rapid scaling and operating in competitive markets where speed is crucial.
Fresh Q2 2024 Data on US Startup Valuations
New data from Carta’s First Cut—State of Private Markets: Q2 2024 reveals current trends in US startup valuations across various funding stages. Here's what they learned:
Pre-Seed and Seed Valuations: Pre-seed rounds saw median valuation caps rise from $9M in Q1 to $10M in Q2. Seed rounds on SAFEs increased slightly from $13M to $14M in the same period. Priced Seed valuations climbed from $12.6M to $14.1M, nearing all-time highs.
Series A and Series B Stability: Series A valuations remained steady at $40M from Q1 to Q2. Series B valuations jumped 13%, reaching $124M in Q2.
Series C Surge: Series C rounds hit a median valuation of $200M in Q2, indicating strong growth potential at this stage.
✈️ KEY TAKEAWAYS
While startup valuations are trending upwards from the lows of 2023, the number of funding rounds has decreased. Q2 shows slight improvement over Q1, suggesting a selective yet promising funding environment.
Companies Stay Private Longer
Tomasz Tunguz at Theory gathered data on US venture-backed software companies that went public between 2010 and today. His comprehensive analysis reveals the following:
Revenue at IPO Has Increased: Before 2018, the median revenue at IPO was $90M (adjusted for inflation). Today, it's $189M. Only one company pre-2018 IPOed with more than $200M in revenue. Post-2018, this has become the norm.
IPO Costs Are Prohibitive: A company with $100M in revenue might pay $9M-$26M to go public, equating to up to 16% of its revenue. Private financing costs are significantly lower, often under $1M.
Private Market Trends: Late-stage private capital offers higher valuations and lower costs, deterring smaller companies from going public. This trend is underscored by large companies like Databricks, Stripe, and Canva still opting for private funding.
✈️ KEY TAKEAWAYS
The bar for IPOs has risen significantly over the past 15 years, driven by high costs and the availability of private capital. Companies tend to stay private longer and go public at a much higher revenue threshold, slowly but surely changing the landscape of public offerings.
2024 Halftime - What's Next?
ChartMogul’s June SaaS Growth data is here, painting a steady growth landscape for SaaS companies in the first half of 2024. Here's what the report says:
Steady ARR Growth Rates: The ARR growth rate for June remains unchanged from the end of 2023 at 23%. Growth rates have remained steady between 23% and 24%, showing no gain but steady growth.
ARPA Segment Growth: SaaS companies with ARPA (Average Revenue per Account) over $1k saw a 4 percentage point improvement, reaching 45%, the highest since early 2023. Companies with $250-500 ARPA grew by 4pp to 26% in June, marking gradual improvement for the first time in three years.
Improved Net Revenue Retention (NRR): Companies with ARPA over $1k recorded a median NRR of 97%, improving by 16pp from May. This is the highest NRR since late 2022.
✈️ KEY TAKEAWAYS
Despite challenges, the SaaS industry shows resilience with stabilized growth rates and a focus on retention. Growth rates have remained steady, with certain ARPA segments showing signs of improvement. The data suggests SaaS companies are increasingly relying on expansion as a growth driver.
Corporate Investors Increase Stake in Startups
Corporate venture capital (CVC) is increasingly dominating the European startup funding landscape, with a significant uptick in activity reported in 2024. Here's what the latest data from Sifted reveals:
Increased Participation: CVCs now participate in one in four startup deals in Europe, a stark increase from just 10% in 2010.
Growing Investment: 89% of corporate investors plan to increase or maintain their level of startup investments over the next three years.
Preferred Stages: Most corporate VCs favour investments between seed and Series B, with 91% particularly targeting Series A rounds.
✈️ KEY TAKEAWAYS
The growing involvement of CVCs highlights a shift towards strategic investments in startups, emphasizing access to business opportunities and enterprise customers over mere capital infusion. For some founders, this might be complementary to traditional VC, depending on their market and exit strategies.
Thanks to Jérôme Jaggi for his help with this post.
Stay driven,
Andre
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