Capital raises have gotten larger over the past few years but so have investor expectations, Christoph Janz, founding partner of venture fund Point 9 Capital, said in a SaaStr webcast. 

“In terms of valuations and round sizes, we almost see a shift,” said Janz, whose company provides pre-seed, seed, and A, B and C round investments to tech companies. “What used to be called a seed is now a pre-seed, what used to be called a Series A is now a seed, what used to be a Series B is now an A, and what used to be an A is now a B.”

When his company first started tracking investment trends in 2016, Janz said, the typical pre-seed round was between $200,000 and $500,000 for a pre-revenue company with a valuation of between $1 million and $3 million. 

Today, the typical pre-seed round is between $300,000 and $1 million for a company valued at between $2.5 million and $4.5 million and generating up to $600,000 in annual recurring revenue (ARR). 

“But expectations have gone up, too,” Janz said. 

For a company that raises $1 million pre-seed and $5 million in seed funding, for example, Series A investors will come to the table with an expectation that it show at least $1 million in ARR. 

“We previously considered that to be a rule of thumb,” he said. 

Richer rounds

Although capital raises have gotten larger, the numbers are like nothing he’s seen before for the hottest companies in the most sought-after markets. 

“In terms of valuation and round sizes, the hottest 10% to 20% defy the rules,” he said. “An exceptional team in a hot market can raise Series A style at pre-seed and a Series B style at seed.”

Five years ago, a Series A round typically meant between $3 million and $12 million in capital raise for a company valued at up to $40 million and generating between $100,000 and $250,000 in ARR.

Today, those numbers are between $5 million and $12 million in raise, $18 million to $52 million in valuation, and between $500,000 and $4 million in ARR.

The shift in expected ARR for a Series A is especially big, but it’s in line with the deeper resources companies are getting in earlier rounds.  

“Pre-seed and seed have become bigger, so companies have more runway than before,” he said.

For a company to be ready for a Series C round, in many cases the last round before it starts looking at public markets, investors will expect it to have a valuation of between $100 million and $900 million with an ARR of between $5 million and $40 million. The typical capital raise for the round is between $35 million and $120 million. 

Team and story

Investors haven't changed the criteria they focus on at each stage. In the earliest rounds, when the company is making little or no revenue, and might not even have a product ready for market, team and story are everything, he said. 

Once it has a product and early users, investors look for product-market fit and how well the company can attract talent. As the company refines its product and is generating ARR, they look at customer feedback, retention, and the level of executive talent it’s attracting.

For companies that meet the hurdles, the market for capital is strong. 

“We’ve seen companies raising at really remarkable terms in the last year or so, especially in the last 12 months,” he said.