Another Week, Another Report on Venture Funding
This week we are bringing you Carta’s full report on 2024 venture activity, advice for what to include in a data room, and the metrics Series A SaaS investors evaluate.
Greetings! Argh… another winter storm 🥶❄️
📊 State of Private Markets: Q4 and 2024
Carta’s latest report on funding activity reveals a mixed bag for venture funding. While overall VC funding grew by 18.4% in 2024 compared to 2023, Seed and Series A funding experienced a decline in both deal count and dollars raised. The growth was concentrated in later-stage funding rounds. Series B rounds saw a 17.8% increase in capital compared to last year, while Series C and D rounds experienced a substantial jump in funding too, with increases of 41.8% and 78.8% respectively.
STV Take: While the amount of Seed-stage capital decreased, pre-money valuations increased, likely because the competition among early-stage investors to get into perceived quality deals is higher than ever. I think the obvious question to ask here is what makes a deal “hot”? Why do investors gravitate to one company and not another? Ultimately, my take is that team matters A LOT. This isn’t news, and it’s always mattered at the early stages, but I feel like it is more important than ever for founders to demonstrate compelling, unique reasons for being able to build a massive business.
One of the more surprising stats for me in this report was the increase in the percentage of Seed rounds that were considered bridge rounds–it is the highest it has been in the last three years. I think this makes a lot of sense against the backdrop of the decline in the number of Series A deals in 2024, but it will be interesting to watch how these companies grow. Will they be able to hit Series A metrics? My suspicion is that many won’t and 2025 might be the year that proves to be a reality check for so many that just aren’t growing at the pace needed to secure the next round of funding. As I’ve discussed before, I think there will be some pain this year as this plays out in the ecosystem.
Rich also wanted to specifically call out the divergence of Series B+ rounds ticking up while Seed & Series A decreased. This is the inverse of what we saw in Q1 2022: The Pig In The Pipe. It looks like the Series B+ backlog from 2022 is clearing but is working its way upstream to the early stages.
🚪Opening the Door to the Seed-stage Data Room
What goes into a Seed-stage data room can feel a little mysterious for most founders, but it’s a critical part of fundraising. I discovered a blog post by Creandum that does a great job of outlining why founders should think about data rooms early in the fundraising process, and most importantly, what actually goes in one. The article goes into more depth about what to include in each category, but below are the high-level areas a data room should include:
Pitch deck
Team overview
Product overview
Product roadmap
Relevant metrics for the business
Customer deep-dives
Financial plan
“It will impress VCs. A really good data room sets you apart from the majority of other companies raising. A good deck is more of a hygiene factor than a differentiator. But a really good and comprehensive data room is something that most companies never build. It will show that you are planning ahead, take the fundraising process seriously, and, most importantly, it will be a way for investors to understand that you know a thing or two about the market you are operating in and why you are solving a massive problem.”
STV Take: As the article mentions, a great data room doesn’t guarantee investment, but it can certainly help set a founder apart and reinforce an investor’s initial read on the founder. A good data room can signal that a founder is thoughtful with everyone’s time, efficient, and transparent. Similarly, if getting key documents, like a financial model, is a struggle, it can send investors running. The thought going through an investor’s head is that if it’s this much trouble to get information before an investment, how difficult will it be post-investment?
One other pro tip, please have the financial pro forma model in Excel. Investors want to be able to play around with key assumptions and see how certain numerical conclusions came to be. That just isn’t possible in a PDF.
📈The Top 5 Metrics for SaaS Companies
Jon Ma penned an article about the top metrics that investors at the Series A, B, and C evaluate for B2B SaaS businesses. He walks through the five following questions investors are trying to answer during diligence and provides specific metrics for each one:
Does the company have product-market fit?
Is the company growing fast?
Is the company growing efficiently?
Is the company retaining customers?
Is the company selling the product efficiently?
STV Take: As we have discussed, the bar for Series A has increased over the past several years, and while this article is from 2019, I actually think the benchmarks are still generally relevant for today’s Seed-stage companies. Meaningfully quantifying these metrics at the earliest stages is not always possible, but understanding them early in the journey can be instrumental in laying a solid foundation for the business. Plus, knowing that these will eventually have to be tracked and building out a process to do that will give founders a competitive advantage against many of their peers.