Startups ask me daily if they are fundable and I tell them one of the key factors is their growth rate. To raise funding you must be able to tell a growth story to the investors. Seed stage companies are growing from $0 to $1M in revenue proving product/market fit. Series A companies are growing from $1 to $10M in revenue proving consistent, repeatable growth. Series B companies are growing from $10M to $100M in revenue proving consistent, repeatable scaling. You are fundable:
For the seed and Series A stage you should be doubling revenue year over year.
For Series B stage there’s the rule of 40.
The rule of 40 says your growth rate plus your profit margin should be greater than 40.
For example, if you have a 50% growth rate and you’re not profitable (most venture companies don’t have profit), then (50 + 0 = 50 total), means you’re fundable.
A company that is growing 20% annually and has a 10% profit margin (then 20+10=30 total) means you’re not fundable.
Here’s a blog post on the rule of 40 by Tomasz Tunguz showing growth metrics on a sample of companies
In summary, if you want to raise funding then bring the message that you are doubling revenue year over year.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more Connect with him about fundraising, business growth, and emerging technologies.