Finance & Operations

Raising Your Next Funding Round? Here’s What to Know

November 19, 2020

Raising a company’s next funding round is one of the hardest and most important things a founding team has to do.

And that’s exactly why—using the 1,200 (!) data points from our 2020 SaaS Benchmarks survey—we made this guide. Regardless of the round, fundraising breaks down to three distinct components: non-negotiable value drivers, spending money to make money, and signals of sufficient scale.

The non-negotiables

In any funding round, there are metrics you just can’t miss.

Across all round types (Seed through Series D), the median gross margin profile was 75-78%. Investors can use your gross margin profile as a “sniff test” to see if you’re really building a B2B SaaS business*.

Similarly, gross and net dollar retention is a strong signal your value proposition is resonating in the market. As public companies continue to raise the bar (the average net retention to go public was 126% in 2020) investors’ expectations climb. Greater than 85% gross dollar retention and greater than 100% net dollar retention is table stakes for the next round—across all round types, no segment’s median was below 85% GDR or 100% NDR.

It’s important to recognize that your target customer profile impacts ability to upsell and net retention. So when in doubt, prioritize gross dollar.

Spending money to make money

At first, it’s counterintuitive that one of the most important things is proving your ability to spend investors’ money! But… that’s exactly the case. Despite investors liking the rule of 40, growth matters more than anything else*.

Optimize for growth—and don’t be afraid to spend to do it. Monthly cash burn (i.e., the amount of money leaving your company’s bank account) needs to go up with every round raised. Early-stage companies see a median cash burn of $50,000 with that number increasing up to $375,000 for the median Series D+ company.

“Optimize for growth—and don’t be afraid to spend to do it.”

And not only do you need to spend more of your investors’ money as you grow, but you need to lower your ROI expectations. CAC Payback (i.e. Cost of Customer Acquisition / monthly gross profit) strictly goes up with every round raised. Early-stage companies see a median CAC Payback of 8 months while their median Series D counterparts see 15 months.

Again, these results can be unintuitive to first-time founders, but as you continue to raise rounds you need to spend more and lower your ROI expectations.

Spending capital drives incremental returns. It’s as simple as that.

Signals of sufficient scale

When your non-negotiable value drivers are in range and your company is healthily spending your next fundraising process is imminent. With your ducks in a row, there are a few high level KPIs you can use to gauge if you’re at scale to talk to investors:

Full Time Employee Count (FTE): FTE count is one of the best predictors of a fundraising process. Based on our data, a good rule of thumb is to double your headcount between rounds starting with 10 FTEs at your seed round.

Annual Recurring Revenue (ARR): Annual Recurring Revenue is another great KPI to queue a fundraising process. Common wisdom is for high growth software companies to “triple-triple-double-double” every year. However, our data suggests a best in class company only needs to “triple-triple-double-double” every fundraise. This is an important distinction and can hopefully take the pressure off of your executive team.

Year-Over-Year Growth Rate (Growth): Your top line growth rate is likely the best signal of time to raise. In the earlier stages, be sure to see at least an 80% increase year-over-year with that slowly tapering to at least 25% by your Series D.

Ready to raise your next funding round?

Fundraising is a tricky topic and there’s a lot of conflicting information. When in doubt, remember to hit your non-negotiable value drivers, prove you can spend to make money, and have achieved sufficient scale.

For more data-driven insights, check out OpenView’s 2020 Expansion SaaS Benchmarks Report.


* Based on the data, the only possible exceptions are the earliest stage companies. Bottom quartile gross margin was 40% for the “Angel/Seed” segment. For comparison, the second lowest bottom quartile gross margin was 62%. Early-stage companies are a clear outlier.

* Valuation is an incredibly complex topic, but, for a quick heuristic, compare Snowflake (121% year-over-year growth) to Sumo Logic (50% year-over-year growth). Both are excellent companies, but growth drives multiple expansion.

Dan works with OpenView’s portfolio companies to drive and sustain best-in-class growth.