The Pre-Seed Angel Fund for SaaS Startups

bumpy road to Series A

Seed rounds have become a prevalent step in funding early stage companies. A new pedigree of European VC funds has emerged. They use phrases like”Seed VC”, “Startup VC” in their tag line and invest between €0.5M – €1.5M in a startups’ first institutional funding event. At the same time the established league of Series A, B and C funds have raised the KPI bar for SaaS companies.
With the typical €600k  – €1M Seed money the way to Series A can nowadays become a long haul route on a bumpy road.

The SaaS business model is well understood by now and no longer an VC insider’s playground. Most IT startups are now distributing their Software as a Service and all of them are chasing after the same Series A money. To better sort the wheat from the chaff, investors have raised the KPI bar for a Series A round. In recent years Anglo-Saxon VCs led solid Series A rounds at European SaaS companies with ARR levels of €1M – €1.2M, they now raised the bar to a minimum of €$1.6M, some even to €2M –  €2.5M.

Providing evidence that a SaaS company can “get legs” requires a critical mass of Enterprise customers, of which 10 – 20% should already be from the United States, all willing to pay substantial monthly subscriptions not below €2k – €3k, with 20% – 30% ARPA growth (expansion revenues) after 12 – 15 months. Not to foget that all of that is expected to grow by 200% during the first years. 

We love tripple – tripple – double – double – double SaaS companies

KPI Development Curve

In the ancient times of the mid 90s, godfather Geoffrey Moore’s sales & marketing bible  “Crosssing The Chasm” was the weekend reading of every softare entrepreneur and manager. Much has changed since then, but The Chasm is still around, also for SaaS companies. While Geoffrey was talking about the adoption of new technology and its life cycle, I see the SaaS Chasm related to lead gen and (B2B SaaS) sales cycles.

To cross this Chasm, founders of B2B SaaS companies have two options:

Option 1     Drive your startup company like you would drive an Offroad car on one of those endless corrugated dirt roads (“washboard roads”) in Africa:

Fill the tank, speed up your vehicle to 80km/h – 90km/h and hope that you can reach and keep the speed point needed to quietly slide above the road and hope to reach your destination safely. If you dont reach that speed point, your car will start falling apart, your fellow passengers will panic and try to leave the car.  

This means, you raise sufficient Seed money and go the full monty: aggressively invest in marketing and sales; hope that everything goes as planned, as maneuvering becomes difficult. Trust that you reach all the expected Series A KPIs and collect €5M – €7M in time to continue your journey. ¹

Option 2    Already when you start your journey, plan for a slight deviation on a less bumpy road, which will safely get you to your destination.

This means, you raise your typical Seed round and plan for a €1.5M – €2 intermediary ( Pre A ) financing in 9 – 12 months in order to boost your then €800k – €1M annual subscription revenues above the magic €1.8M mark. This will open doors for your company to raise a successful Series A financing round. ¹   

¹ assuming that all other relevant success factors, e.g. international large market, solid, defendable technology, world class executive team, are met.

If you are interested in more details on this topic, you may want to check out my fact collection Financing a SaaS Company

My take on this:

Almost all SaaS companies (B2B) that I am either involved in or have close relatioships with, have gone the way via a Pre A financing round. If planned in advance and done right, this round brings sufficient money to allow some early proof of the anticipated growth model,  a nice step up in valuation and – above all – avoidance of an untimely bridge funding.   


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