Raising a Series B round is a significant milestone in the life of any startup. By this stage, you’ve proven product-market fit, scaled your team, and likely have some solid revenue growth under your belt. But, as you head into your Series B, investors are going to be scrutinising your financial metrics more closely than ever. They’re no longer just betting on potential—they want to see solid evidence of scalability, profitability, and operational efficiency.
In this blog, we’ll explore the key financial metrics you need to strengthen as you prepare for your Series B and how to ensure your startup stands out to investors.
Revenue Growth: Show Scalability
By the time you’re raising a Series B, investors expect to see impressive revenue growth. This round is all about scaling your business, and your financials should clearly demonstrate that you’re on the path to rapid expansion.
How to Strengthen Your Revenue Growth:
- Focus on Consistency: Series B investors are looking for steady, predictable growth—no erratic spikes and dips. If you’ve had a few rough months, now’s the time to stabilise your growth curve and show a clear upward trend.
- Diversify Revenue Streams: If all your revenue is coming from a single product or market, it’s time to diversify. Investors want to see that you’re reducing risk by tapping into multiple revenue streams, whether that’s through new products, services, or markets.
- Increase Recurring Revenue: If possible, shift more of your revenue to recurring models such as subscriptions or retainers. Predictable, recurring revenue is more attractive to investors than one-off sales, as it provides a clearer path to long-term growth.
Tip: Show investors not just where you are now, but where you’re headed. Use projections to highlight how revenue will continue to grow post-Series B.
Gross Margins: Optimise for Efficiency
Gross margins are another critical metric for Series B investors. At this stage, it’s not enough to simply be generating revenue—you need to demonstrate that your business is efficient and that your costs aren’t eating into your profits.
How to Strengthen Your Gross Margins:
- Refine Your Pricing Strategy: Make sure your pricing is optimised to reflect the value you’re delivering. If you haven’t revisited your pricing in a while, consider a price adjustment to improve margins, especially if you’ve added new features or services.
- Streamline Operations: Look for ways to reduce your cost of goods sold (COGS) without sacrificing quality. This could mean renegotiating supplier contracts, finding more cost-effective production methods, or automating parts of your operations.
- Outsource Wisely: Outsourcing can be a great way to cut costs, but make sure you’re doing it strategically. Don’t sacrifice quality or customer experience for the sake of saving a few pounds.
Tip: Show investors that you’re continuously working to improve margins. Highlight recent efforts to streamline operations or optimise pricing.
Customer Acquisition Cost (CAC) and Lifetime Value (LTV): Find the Right Balance
As you scale, keeping a close eye on your Customer Acquisition Cost (CAC) and Lifetime Value (LTV) becomes crucial. Investors will want to see that you’re acquiring customers efficiently and that those customers are sticking around long enough to generate a solid return.
How to Strengthen Your CAC and LTV:
- Optimise Your Sales Funnel: If your CAC is high, look at where potential customers are dropping out of the funnel. Are there inefficiencies in your marketing or sales process that are driving up acquisition costs? Now’s the time to address them.
- Increase Customer Retention: Boost your LTV by focusing on retention. This might mean improving your product, enhancing customer support, or offering incentives for loyalty. The longer customers stay with you, the higher their value.
- Experiment with New Channels: If your current acquisition channels are costly, experiment with new ones. This could mean testing new digital marketing strategies, exploring partnerships, or leveraging referral programs.
Tip: Aim for a strong LTV-to-CAC ratio—investors generally like to see a 3:1 ratio, meaning your customers are generating three times more value than it costs to acquire them.
Burn Rate and Runway: Show Fiscal Discipline
As you prepare for your Series B, investors will be looking closely at your burn rate—how quickly you’re burning through cash—and your runway, or how long you can continue operating at your current burn rate. Investors want to see that you’re managing your finances carefully and not burning through cash too quickly.
How to Strengthen Your Burn Rate and Runway:
- Extend Your Runway: If your runway is looking short, it’s time to either reduce expenses or find ways to increase revenue. Look at where you can cut non-essential costs or boost cash flow without compromising growth.
- Show a Path to Profitability: Investors know that early-stage startups often run at a loss, but by Series B, they’ll want to see a clear path to profitability. Demonstrate how this round of funding will help you get closer to that goal.
- Control Overheads: Keep an eye on your overheads. While you’ll likely need to invest in growth during this stage, make sure those investments are strategic and won’t put undue pressure on your finances.
Tip: Highlight any cost-saving measures you’ve already taken to control your burn rate. Investors will appreciate seeing that you’re thinking ahead.
EBITDA: Prove Your Profit Potential
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a key metric investors use to assess your company’s profitability and operational efficiency. While you may not be focused solely on profit at this stage, having a positive or improving EBITDA shows that your business is moving in the right direction.
How to Strengthen Your EBITDA:
- Increase Efficiency: Focus on driving revenue growth without significantly increasing expenses. This might mean automating more processes or focusing on high-margin products or services.
- Control Costs: Keep a close eye on your operational expenses. If costs are creeping up without a corresponding increase in revenue, it will hurt your EBITDA and raise red flags for investors.
- Focus on Profit-Generating Activities: As you scale, prioritise activities that have a direct impact on your bottom line. This could mean cutting back on experimental projects that aren’t delivering returns or focusing on core products with higher margins.
Tip: Even if you’re not yet EBITDA-positive, show investors a clear strategy for improving this metric over time.
Wrapping It Up
Preparing for a Series B round is all about demonstrating that your startup is ready to scale, and that starts with strengthening your financial metrics. Investors will be scrutinising your revenue growth, gross margins, CAC and LTV, burn rate, and EBITDA, so make sure you’re optimising these key areas before entering discussions.
By showing investors that your business is not only growing but doing so efficiently, you’ll position yourself for a successful Series B raise and the next stage of your startup’s journey.
Need help preparing for your Series B? At Standard Ledger, we specialise in helping startups optimise their financials and prepare for successful fundraising rounds. Get in touch today for a free consultation!
