How Much Monthly MRR Growth Should SaaS Startups Aim for to Secure a Series A Round?

When SaaS founders are preparing to raise a Series A round, a common benchmark for monthly recurring revenue (MRR) growth is typically around 10-20% month-over-month. This growth rate demonstrates strong traction and scalability, which are critical factors for investors. However, it is important to note that the ideal growth rate can vary depending on several factors, including market conditions, the stage of the company, and the business model.

Key Factors Influencing Monthly MRR Growth

Market Conditions

The overall health of the SaaS market and investor appetite can influence expectations. During favorable market conditions, investors may have higher tolerances for slower growth, while in less favorable conditions, they may demand higher growth rates.

Stage of the Company

Early-stage companies might be expected to show higher growth rates compared to those that are more established. The earlier the stage, the more investors are looking for rapid expansion as a sign of potential.

Business Model

Certain niches or business models may have different growth trajectories. For example, freemium models might have a slower MRR growth rate compared to subscription-based models.

Evaluation Metrics for Investors

In addition to MRR growth, investors will also look at other metrics such as customer acquisition cost (CAC), lifetime value (LTV), churn rates, and overall market size. Founders should aim to present a comprehensive picture of their business's health and potential for scalability.

Startup Growth Benchmarks

Y Combinator's Perspective

According to venture capitalist Paul Graham, co-founder of Y Combinator, 'During Y Combinator we measure growth rate per week. A good growth rate during YC is 5-7% per week. If you can hit 10%, you’re doing exceptionally well. If you can only manage 1%, it's a sign you haven’t yet figured out what you’re doing.' The best thing to measure the growth rate of is revenue.'

Given that there are approximately 4.3 weeks in a month on average, 5-7% per week translates to a 23-33% monthly MRR growth rate for early-stage startups.

Redpoint Ventures' Perspective

Tomasz Tunguz, venture capitalist at Redpoint, suggests that a 15-20% MRR growth number is a reasonably good target for post-Seed/pre-Series A SaaS startups to aim for. This is based on his reasoning that the valuation of these startups should grow by a factor of 3.75 between the Seed and Series A stage, and this should translate to an MRR growth rate of around 15% over about 10 months.

Another interesting benchmark is the median annual recurring revenue (ARR) of SaaS startups that have gone public. According to Jamie Robinson’s analysis of Crunchbase data, these startups had a 120% annual growth rate in year three, which translates to a 7% monthly growth rate over 12 months or about a 2.25% weekly growth rate.

Scaling SaaS Startups

According to Jason M. Lemkin, “10% a month growth is a good target until you get to 20m ARR.” This means a 2.25% weekly growth rate.

These benchmarks provide a range for SaaS founders to aim for in terms of MRR growth. While these rates can vary depending on the specific circumstances, achieving and maintaining strong growth is crucial for securing funding and scaling operations.