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You crossed $1 million ARR in May. The number has been on your board deck since the seed round closed, the line that meant Series A conversations could start. You booked lunch with your lead investor, walked through the growth curve and waited for the words you'd spent two years working towards.
You didn’t hear them.
Sure, he was warm and friendly. Seemed happy. “Great company, love the momentum, let's reconnect when you're closer to $2.5 million.”
Come again? Where the hell did that number come from?
You spent the drive home hunting for the miss, but there just wasn’t one to find. Churn is down. The roadmap is landing. The team is stronger than it was a year ago. Each of those gauges shows a company doing what you told your investors it would do, and the partner across the table was too enthusiastic for the meeting to count as a brush-off.
He asked good questions and took notes. He meant the compliments, but he still moved the target 150% past the number you'd been running toward. Somewhere between the seed round and the Caesar salad, the rules changed. You were the last to hear about it.
What changed?
Your company is fine. The milestone moved.
Where the bar is now
Take a look at recent data, because it backs what you heard at that lunch. Crunchbase reported in May that the ask behind a Series A has climbed. Andy McLoughlin, managing partner at the seed firm Uncork Capital, told them startups are now expected to show $2 million to $3 million in ARR, sometimes $4 million, as proof the business has the momentum to scale. Until recently, $1 million cleared the same bar.
The clock stretched, too. The gap between a seed round and a Series A now runs past two years, according to Crunchbase, and Forum Ventures CEO Michael Cardamone said it without decoration: "It's going back to where it's two-plus years to get to an A [round]. And you really need to have meaningful traction, early signs of product-market fit and good growth."
And he looks to be correct. Through 2020, more than half of U.S. companies that raised a seed round of $1 million or more went on to a Series A or beyond, or an exit; Crunchbase puts the old rate at 55% or better. A drop started with the 2021 cohort, 36% of which have graduated, and 2022 behind it, at 20%. For 2023, 24% have progressed so far. The 2024 class stands at 16%. Those figures will inch up as late rounds get reported, but McLoughlin isn't waiting for them to recover.
"We're going to see the mortality rate from seed to A will be much, much higher," said McLoughlin.
The bar rose, the clock ran longer, and the pass rate fell by more than half. You wrote your plan before any of the three had shown up anywhere you could see them.
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Ironically, the record money is the reason.
