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What do I need to show in order to raise my next round? All entrepreneurs face that question at some point and it may be the single piece of advice they most ask. This post will posit a general framework, discuss how the subset of AI startups may be different, and then specifically how monetization comes into play.

General Framework

The nomenclature has got very muddled — why is a company raising a $10M called seed but another raising a $5M is series A? The framework below is grounded on the thinking that what you call a round is not about the amount but what you use the cash for:

  • Pre Seed : Powerpoint
  • Seed : Prototype
  • Series A : Product-Market Fit
  • Series B : Business Model Traction
  • Series C and beyond: Growth, mostly organic and sometimes through acquisition

Typically between series A and B is when you start making money, and what investors look for especially is the first derivative ie what is the growth rate.

As for metrics, the list below is neither exhaustive nor mutually exclusive but typically the divide between B2C and B2B is significant enough to be a framework in itself:

  • most common metrics for B2C: pageviews, daily actives, monthly actives, CTR (click through rate), CPC (cost per click), CPA (cost per acquisition), conversion, K-factor (virality)
  • most common metrics for B2B: TCV (total contract value), ACV (annual contract value), CAC (customer acquisition cost), ARPU (average revenue per user), LTV (lifetime value), sales cycle, MRR (monthly recurring revenue), ARR (annual recurring revenue)

How AI Startups Are Different?

Today we may be talking of AI as a vertical but in a near future, it will be a horizontal ie as an underlying tool for solving problems in a variety of industries. At Tau Ventures we think of this latest evolution as similar to what happened with mobile a decade ago or dotcom two decades ago (does anyone say “mobile startup” or “dotcom startup” any more?).

So what is different about AI startups? It’s far more about the type of industry, for instance if you are solving a problem in healthcare at the highest level investors will want to know how you are converting pilots into paid recurring paid contracts. At a more specific level, the questions will be around the quality of revenue such as how long the contracts are, how many customers are responsible for it, and how long it took to get the contracts.

So Do You Need Revenues To Raise Series A?

The answer to that is really about three questions:

1) Industry aka “What type of company are you building?” If you are B2C you usually get a pass since the expectations are that you are focusing on growing the userbase for now, with monetization happening closer to series B. If you are a B2B chances are yes or at least you need to show a pathway towards revenue in the short-term, ideally recurring rather than one-time. In the US the $1M ARR figure continues being a watermark for a strong series A. 

2) Competition aka “What are other startups in your field doing?” If your peers are making money and you are not, figure out how to tell a story that will still resonate with investors. Perhaps you can argue you are building a larger platform, perhaps you can dissect the competition and show they are doing NREs (non-recurring revenues), or perhaps you are a serial entrepreneur that can stand on your track record.

3) Ecosystem aka “Are you in a developed ecosystem or in an emerging one?” If you are in the former you will see a higher tolerance for risk, from higher valuations because of higher expectations of returns to more convertible notes than priced rounds in the seed. If you are in the latter you should expect the opposite and an earlier push towards monetization from your investors.


This article is inspired by a suggestion from Abhi Anuket. Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.

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