These businesses grow from 10k to 93k in MRR in their first year of commercialization and then to 413k of ending MRR in their second.
On average, they raise $9.5M in Series A, though there is a range from smaller rounds of $3M to rounds of greater than $20M. That range is more indicative of the breadth of different rounds the market calls Series As. The average is more representative.
The average round size has been increasing by 11% annually. And this growth parallels the overall startup Series A size which has reached similar highs to rounds in 2000.
As round sizes have increased, so too has MRR at the time of the series A. Companies in the set who raised in 2014 recorded $50k in MRR at the time of the A. That figure has grown each year by 80%, and for the investments that closed in early 2016, that figure reached $163k. The increase is driven both by larger seed round sizes enabling companies to raise later, hence more MRR, and also the greater expectations in the fundraising market given larger check sizes sought by founders.
Surprisingly, 27% of these companies raise Series A with $0k in MRR, before the business has commercialized the software. At this point, investors are betting on the team’s unique backgrounds, approach to the market or some other characteristic of the opportunity.
Unlike later rounds, Series A pricing has no correlation to MRR or next-twelve-months (NTM) revenue, which is a proxy for growth rate. This lack of a relationship indicates the Series A market pricing is more of a function of supply and demand and the ability of the founders to engender an active auction, than a mark-to-market pricing event.
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The median average contract length is 1.3 years and the average billing term is seven months in advance in 2016. Comparable to 2015, with average contract length shortening from 1.5 to 1.3 years and average billing period increasing by one month from 2015 to 7 months