With all respect to Dan, I'm not seeing anything like that.
You said "pre-revenue." If it's pre-revenue and enterprise, you don't have anything proven yet. You would have to have an insanely interesting story with a group of founders and execs on board with ridiculous competitive advantage built in.
I have seen a few of those companies. It's more like $3m-$5m pre.
Now, post-revenue is different. I've seen enterprise plays with $500k-$1m revenue/yr, still very early (because in the enterprise space that's not a lot of customers yet), getting $8m-$15m post in an A-round.
I do agree there's no "average."
Finally, you will hit the Series A Crunch issue, which is that for every company like yours with "cutting edge tech" as-yet-unproven, there's 10 which also have cutting edge tech except they have customers, revenue, etc..
So in this case, it's not a matter of valuation, but a matter of getting funded at all!
There's so many variables to consider but let me provide some general rules of thumb.
Average I'm seeing is around $12M Pre-Money for a series A. That's considering
- Strong team (technical, ux, startup experience)
- DEEP tech (no first client usually means it took a while to build and should be super interesting and deep.
- Notable existing investors (TechStars/YC, FirstRound, Dave McClure, etc)
- San Francisco or NY
If you don't have any of those, then I would subtract $3M per.
Honestly, I haven't seen any startup recently raise a decent Series A without a strong customer base to prove there's a real need in the market.
Product & Distribution is key.
I'd agree with Jason. Early, aka pre-revenue, it is more a function of the venture math. Generally, it about how much capital does a startup need to prove a thesis. Over time this feels like $500k-$1MM at the seed stage. Using basic venture math from an institutional investor of 25% ownership in the company. That puts the company at $2-4MM pre-money valuation.
It changes post revenue, not post consulting revenue, it needs to be revenue that demonstrates a valid hypothesis about the Customer Acquisition Costs (CAC) or the Customer Lifetime Value (CLTV). Targeting $50k/month and the valuations starts to go up. But this looks like an Series round with a much higher valuation $8-12MM pre-money (maybe higher - depending on team, market and other factors).
The "enterprise" thing is less important. What I want to know is how well you know your potential customers, how full is the top of your funnel, what are the decisions that a buyer makes at each stage of the funnel, and how many prospects are at the different phases.
I believe that you shouldn't be looking for the "average" amount for a round of funding, but rather- what you need to get the product done and get traction.
Going right to series A without a client or traction is going to be really hard.
Starting with a smaller seed round is a safer bet and then you can segway that into a larger round a few months later.
I have backed many startup companies, at first round/seed stage premoney valuations ranging from under $1 million to over $25 million. Some companies formed by superstars get much higher valuations than that. Some companies rely on angels to set the early valuation, which is a little like asking a customer how much they want to pay for your product. Other companies sell enough SAFE to get to a viable product and revenue and then rely on a competitive process with professional investors to set the Series A valuation. If you would like to discuss this further please feel free to get in touch with me.
To understand what would be an series A funding of a firm with a cutting edge technology we have to meticulously look at the funding process itself. Once that is clear, it will be easy to determine how much funding will be required.
A start-up with a brilliant business idea is aiming to get its operations up and running. From humble beginnings, the company proves the worthiness of its model and products, steadily growing thanks to the generosity of friends, family and the founders' own financial resources. Over time, its customer base begins to grow, and the business begins to expand its operations and its aims. Before long, the company has risen through the ranks of its competitors to become highly valued, opening the possibilities for future expansion to include new offices, employees and even an initial public offering (IPO). If the early stages of the hypothetical business detailed above seem too good to be true, it's because they generally are. While there are a very small number of fortunate companies that grow according to the model described above (and with little or no "outside" help), the large majority of successful start-ups have engaged in many efforts to raise capital through rounds of external funding. These funding rounds provide outside investors the opportunity to invest cash in a growing company in exchange for equity, or partial ownership of that company. When you hear discussions of Series A, Series B and Series C funding rounds, these terms are referring to this process of growing a business through outside investment. There are other types of funding rounds available to start-ups, depending upon the industry and the level of interest among potential investors. It is not uncommon for start-ups to engage in what is known as "seed" funding or angel investor funding at the outset. Next, these funding rounds can be followed by Series A, B and C funding rounds, as well as additional efforts to earn capital as well, if appropriate. Series A, B and C are necessary ingredients for a business that decides bootstrapping, or merely surviving off the generosity of friends, family and the depth of their own pockets, will not suffice.
Explaining Series, A Financing: The path for each start-up is somewhat different, as is the timeline for funding. Many businesses spend months or even years in search of funding, while others (particularly those with ideas seen as truly revolutionary or those attached to individuals with a proven track record of success) may bypass some of the rounds of funding and move through the process of building capital more quickly. Once you understand the distinction between these rounds, it will be easier to analyse headlines regarding the start-up and investing world, by grasping the context of what exactly a round means for the prospects and direction of a company. Series A, B and C funding rounds are merely stepping stones in the process of turning an ingenious idea into a revolutionary global company, ripe for an IPO.
Before exploring how a round of funding works, it is necessary to identify the different participants. First, there are the individuals hoping to gain funding for their company. As the business becomes increasingly mature, it tends to advance through the funding rounds; it's common for a company to begin with a seed round and continue with A, B and then C funding rounds. More on that here: https://www.startups.com/library/expert-advice/series-funding-a-b-c-d-e
On the other side are potential investors. While investors wish for businesses to succeed because they support entrepreneurship and believe in the aims and causes of those businesses, they also hope to gain something back from their investment. For this reason, nearly all investments made during one or another stage of developmental funding is arranged such that the investor or investing company retains partial ownership of the company. If the company grows and earns a profit, the investor will be rewarded commensurate with the investment made.
Before any round of funding begins, analysts undertake a valuation of the company in question. Valuations are derived from many different factors, including management, proven track record, market size and risk. One of the key distinctions between funding rounds has to do with the valuation of the business, as well as its maturity level and growth prospects. In turn, these factors impact the types of investors likely to get involved and the reasons why the company may be seeking new capital.
Seed funding is the first official equity funding stage. It typically represents the first official money that a business venture or enterprise raises. Some companies never extend beyond seed funding into Series A rounds or beyond. You can think of the "seed" funding as part of an analogy for planting a tree. This early financial support is ideally the "seed" which will help to grow the business. Given enough revenue and a successful business strategy, as well as the perseverance and dedication of investors, the company will hopefully eventually grow into a "tree." Seed funding helps a company to finance its first steps, including things like market research and product development. With seed funding, a company has assistance in determining what its final products will be and who its target demographic is. Seed funding is used to employ a founding team to complete these tasks. There are many potential investors in a seed funding situation: founders, friends, family, incubators, venture capital companies and more. One of the most common types of investors participating in seed funding is a so-called "angel investor." Angel investors tend to appreciate riskier ventures (such as start-ups with little by way of a proven track record so far) and expect an equity stake in the company in exchange for their investment. While seed funding rounds vary significantly in terms of the amount of capital they generate for a new company, it is not uncommon for these rounds to produce anywhere from $10,000 up to $2 million for the start-up in question. For some start-ups, a seed funding round is all that the founders feel is necessary in order to successfully get their company off the ground; these companies may never engage in a Series A round of funding. Most companies raising seed funding are valued at somewhere between $3 million and $6 million.
Once a business has developed a track record (an established user base, consistent revenue figures, or some other key performance indicator), that company may opt for Series A funding in order to further optimize its user base and product offerings. Opportunities may be taken to scale the product across different markets. In this round, it is important to have a plan for developing a business model that will generate long-term profit. Often, seed start-ups have great ideas that generate a substantial number of enthusiastic users, but the company doesn’t know how it will monetize the business. Typically, Series A rounds raise approximately $2 million to $15 million, but this number has increased on average due to high tech industry valuations, or unicorns. The average Series A funding as of 2020 is $15.6 million. In Series A funding, investors are not just looking for great ideas. Rather, they are looking for companies with great ideas as well as a strong strategy for turning that idea into a successful, money-making business. For this reason, it's common for firms going through Series A funding rounds to be valued at up to $23 million. The investors involved in the Series A round come from more traditional venture capital firms. Well-known venture capital firms that participate in Series A funding include Sequoia Capital, Benchmark Capital, Greylock and Accel Partners. By this stage, it is also common for investors to take part in a somewhat more political process. It is common for a few venture capitals firms to lead the pack. In fact, a single investor may serve as an "anchor." Once a company has secured a first investor, it may find that it's easier to attract additional investors as well. Angel investors also invest at this stage, but they tend to have much less influence in this funding round than they did in the seed funding stage.
It is increasingly common for companies to use equity crowdfunding in order to generate capital as part of a Series A funding round. Part of the reason for this is the reality that many companies, even those which have successfully generated seed funding, tend to fail to develop interest among investors as part of a Series A funding effort. Indeed, fewer than half of seed-funded companies will go on to raise Series A funds as well.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
For an enterprise startup with cutting-edge technology on the verge of acquiring its first client, the average Series A funding round at pre-revenue valuation can vary depending on the industry, location, market conditions, and the specific technology involved. However, a rough estimate could be in the range of $2 million to $15 million, but it's essential to conduct thorough market research, financial projections, and seek advice from experienced investors or advisors to determine a more precise valuation and funding target.
