1 | Business development phase | FOUNDING | VALIDATION | SCALE-UP | STRATEGIC-GROWTH | ||
|---|---|---|---|---|---|---|---|
2 | Core competency | Planning | Product | People | Processes | ||
3 | Validation type | Problem-market fit | Product-market fit | Vision-market fit | Business model-market fit | ||
4 | Funding round | Preseed | Seed | Series A | Series B | Series C | Series D & beyond |
5 | Goal | Reach / achieve product-market fit | Maximize speed of growth | Expand or exit | |||
6 | Entry criteria for each phase | Pilot ready to test with real customers; founder(s) or team leader(s) in place; lean funding plan based on 6 to 18 months runway to validate key hypotheses | Market appetite for product is validated by paying customers; unit economics tested; leadership team hired; business plan delivers rapid scale in 3 to 5 years | Business model validated through scaled economics; first-class and scaled operating team in place; business plan transitions to lower-growth phase | |||
7 | Evaluation criteria: traction & product-market fit (PMF) | Pre-product, or pre-launch, or launched but pre-revenue, or launched but with very-early customers (2-10 who can serve as references); raising money to get product to market for early market feedback; evidence of problem-market fit with strong indication of a large opportunity (based on customer validation or user interviews) | Product is launched with some traction (usage or revenue) and loved by early users with strong engagement and stickiness which validated a real business opportunity; raising money to further develop product and a compelling Go-to-Market (GTM) strategy to get into a large Total Addressable Market (TAM) over time; strong founder-market fit | Early/clear evidence of PMF with meaningful traction (e.g. $1M ARR) high usage, low churn, high net promoter score, etc.; strong customer references, compelling "why now", and large TAM potential; team growing to support growth and product expansion | Predictable, scalable and profitable sales-&-marketing machine that is able to unlock new levers of growth; evidence of strong PMF, signs of a succesful brand, platform, data play, and unique position in a multi-billion dollar market with more than $300M ARR potential | ||
8 | Employees size (persons) | 3 (1 - 8) | 18 (8 - 38) | 63 (38 - 88) | 113 (63 - 176) | 176 (176 - 626) | 626 (226 - 907) |
9 | Monthly recurring revenue (MRR in USD) | $21K ($0 - $42K) | $167K ($42K - $167K) | $500K ($167K - $500K) | $1.25M ($500K - $1.25M) | $500K ($1.25M - $2.92M) | $4.17M ($2.92M - $4.17M) |
10 | Annual recurring revenue (ARR in USD) | $250K ($0 - $500K) | $2M ($500K - $2M) | $6M ($2M - $6M) | $15M ($6M - $15M) | $15M ($6M - $35M) | $50M ($35M - $50M) |
11 | Year-on-Year (YoY) growth rate (%) | 20% (10% - 50%) | 100% (41% - 304%) | 100% (30% -180%) | 61% (30% - 150%) | 35% (25% - 60%) | 42% (23% - 59%) |
12 | Monthly burn rate (USD) | $6K ($1K - $60K) | $50K ($50K - $175K) | $375K ($50K - $625K) | $625K ($375K - $1.25M) | $1.75M ($188K - $1.88M) | $2M ($1.25M - $20M) |
13 | Investment size (USD) | $750K - $1.5M | $2M - $5.M | $5M - $15M | $10M - $40M | $43M - $100M+ | $100M - $100M+ |
14 | Equity stake (%) | 5% - 15% | 20% - 27% | 13% - 25% | 10% - 17% | 5% - 8% | 2% - 10% |
15 | Post-money valuation (USD) | $5M - $15M | $8M - $20M | $20M - $60M | $80M - $200M | $538M - $2B | $1B - $5B |
16 | Funding sources | Founders, friends, family, angel investors, incubators, accelerators, micro-VCs, dedicated preseed venture studios, grants offered by governments or non-profit organizations or universities, startup competitions, dedicated preseed VCs | Angel investors, accelerators, micro-VCs, seed VCs, dedicated seed venture studios, solo capitalists, grants offered by governments or non-profit organizations or universities, startup competitions | Super angels, seed VCs, early-stage VCs, solo capitalists, grants offered by governments or non-profit organizations, startup competitions | Early-stage VCs, growth VCs, solo capitalists, government grants, startup competitions, secondary market in private equity | Growth-stage VCs, late-stage VCs, CVCs, solo capitalists, secondary market in private equity, private equity funds, investment banks | Late-stage VCs, private equity funds, CVCs, family offices, IPOs and SPACs (public markets via stock exchanges), hedge funds, SPVs and secondaries, investment banks, buyout funds, sovereign wealth funds |
17 | Defensibility moat | Great ideas with proof-of-concept or MVP (Minimum Viable Product) | Great tech with product development velocity | Early signs of an emerging mini-brand | Increasing conviction that you can create strong defensibility (e.g. by leveraging proprietary algorithms and data, network effects, etc.) | ||
18 | Evaluation criteria: conviction | Prove: pre-PMF with non-to-early revenue while proving the hypothesis; belief in $10M+ ARR potential | Build: PMF with revenues, building organization with repeatable and scalable sales, and GTM growth playbooks; conviction in $100M+ ARR potential | Scale: pushing ARR to multi-million with a method for strong profitable growth | Breakout: possible fund returner | ||
19 | Belief capital = crowdfunding (community) to angel | Proof capital = seed to pre-series A | Scale capital = series A to series B | Exit capital = series C to pre-IPO and beyond | |||
20 | Primarily evaluating the founders' clear, ambitious, and enterprising vision | Primarily evaluating the team's strength and product differentiation | Primarily evaluating the growth traction | Primarily evaluating the validated strong business unit economics for further market expansion and great returns | |||
21 | *Last updated on 8 February 2024. | ||||||
22 | |||||||
23 | Note: | ||||||
24 | 1) Disclaimer: The information shared above is for general reference only and do not constitute any legal, business and/or investment advice; please check the accuracy and verify the information | ||||||
25 | |||||||
26 | 2) Post-money valuation = investment size (USD) / equity stake (%) | ||||||
27 | |||||||
28 | 3) Should you wish to estimate your pre-revenue business valuation with proven models and frameworks, you may use our roiquant's pre-revenue business valuation simulator | ||||||
29 | |||||||
30 | 4) Published by Paul Lee, Dr. Daphne Lai, and Josshua Chong of roiquant.com - an intelligent decision support system helping early-stage startup founders to reduce risk of failure and build business defensibility | ||||||
31 | |||||||
32 | 5) These venture capital funding benchmarks for startups were adapted from Index Ventures (Rewarding talent: a guide to stock options for European entrepreneurs, 2017), Brex (Startup cash burn report, 2018), Parul Singh (Seed gradient, 2018), Sebastian Quintero (Predicting a startup valuation with data science, 2019), | ||||||
33 | |||||||
34 | Point Nine (SaaS funding napkin, 2016-2023), OpenView Venture Partners (Financial & operating benchmarks, 2021), Jonathan Kendall (Understanding the pre-seed ecosystem, 2021), McKinsey & Company (Scale or fail: how incumbents can industrialize new-business building, 2021), | ||||||
35 | |||||||
36 | Courtney Powell (COO & Managing Partner of 500 Global, 2022), Fred Destin (Founder of Stride VC, 2022), Ben Murray (Founder & SaaS CFO of The SaaS News, 2022), Leo Polovets (General Partner of Susa Ventures, 2022), and Parul Singh (Partner of Initialized Capital Management, 2022) | ||||||
37 | |||||||
38 | 6) Citation and republishing: roiquant's articles and reports may be republished in accordance with our Citation Policy and Terms of Service | ||||||