Growth rates investors look for

A startup has been famously defined by YC as a “company designed to grow fast”. 

Achieving growth rates of 5% to 7% per week is good. 10% per week is exceptional. But 10% can’t last forever, if it did a company making $100 in week 1 would generate billions of dollars in just three years.

So if the success of your startup is measured by your growth rate, how do you know if you’re growing fast enough?

As a rule of thumb, a startup on the unicorn track will have growth rates in its first 4-years of:

Year 1 – triple (300%+) 

Year 2 – triple

Year 3 – double (200%+)

Year 4 – double 

And any growth rates above the following will satisfy most VCs.

Year 1 – 15% month on month (MoM) growth (180% YoY)

Year 2 – 15% MoM (180% YoY)

Year 3 – 10% MoM (125% YoY)

Year 4 – 6% MoM (72% YoY)

As companies mature the growth rates slow down. And whilst every company and market is different, aggregated growth rate data at different revenue ranges shows:

Revenue < $25m, top quartile YoY growth = 160%

Revenue < $50m, top quartile YoY growth = 100%

Revenue < $75m, top quartile YoY growth = 80%

Revenue < $150m, top quartile YoY growth = 60%

Revenue < $500m, top quartile YoY growth = 60%

To successfully get to IPO, you need to stay above 20% year-on-year growth (preferably 30%) and maintain quality revenue: predictable revenue streams, high-gross margins, and low customer churn vs. services and other one-time revenue.

The average revenue multiple at IPO for companies with growth rates above the median is 7.3x. Conversely, the average revenue multiple for companies with growth rates below the median was only 3.8x.

Competition explained

Competition is any alternative solution your target customers are using, or could use to achieve their goals.

Many entrepreneurs don’t see current alternative providers as competition – but this is an unhelpful position. A provider that’s been in business for decades, or another startup attempting to enable the same target customers to achieve the same goal: these are both competition. 

Even solving the problem manually (or not at all) is competition.

Competition is almost guaranteed, even if you seem to be originating a new industry. If you think you don’t have any competition, think harder; if you’ve not found any competitors, look harder (our ML tool will help a lot here).

Discovering a competitor can be disheartening – but competition isn’t really the issue. It can even be a positive sign; competitors indicate an attractive market.

More vital is the way your business competes in the areas that matter most to your customers, and how your startup will help them achieve their goals more completely. 

Analysing your competition will give you the advantage of knowing what aspects to compete with (or not), helping you strategically position your business and drive your growth strategy.

How to find Angel investors for your startup

Many startups face the challenge of finding the funding to bring a product or service to market. Though some may still have to bootstrap, securing financing has fortunately become easier to secure.

Startups can now crowdfund, join a startup incubator or accelerator, or approach angel investors or venture capital firms, among many other options.

Here we explain how to find angel investors for your startup.


What is an angel investor?

Angel investors are high-net-worth individuals who invest in the early stage of a startup, usually in the pre-seed or seed stage.

In exchange, the angel investor receives equity or convertible debt, which can be changed into equity at a later date.


About angels

An angel investor is typically a wealthy individual who funds a startup for a stake in the company’s ownership. Angel investors are a good option when a startup doesn’t qualify for bank financing, or is too small for a venture capitalist (VC) to invest in.

As opposed to venture capitalists who demand fast high-revenue growth rates, angel investors are more concerned with the passion and commitment of the founder or co-founders, and the market opportunity they’ve identified.

Angels have a more hands-on approach and invest where they can play a part. Therefore, do your research to identify an angel investor who would be a suitable fit for your startup. Consider their money, personality, experience, and network.


Where do angel investors get their money?

The average angel investor is usually someone who has sold their own startup and wants to invest in others. Alternatively, they may be successful individuals who have made money from their careers and want to get into startups. Lastly, wealthy families may invest through their family offices. 


Do you need an angel investor?

At the beginning of your startup, you will most probably use your own money. Later, you may borrow from friends and family – but in due time, you will need more money in order to grow. At this point, you might need an angel investor.


When to bring an angel investor aboard

It’s best to bring an angel investor on board when you have exhausted all other financing channels. Other appropriate times include when you want to reach your goals faster than you would alone, or to minimise your own financial risk.

You can also look for angel investors if you need to hire talent, buy equipment, are short of cash flow, or need office space, among other potential needs for your startup.


Some quick pointers about raising money:

1) Have your pitch on point

An angel investor may have 50 startups pitching to them in a month – yet, in a year, they may invest in only 10. So, make it easy for them to say yes to you: spoon-feed them everything they want to know; don’t make them have to work hard to understand your pitch. 

2) Create some FOMO

Create an underlying fear of missing out (good old-fashioned FOMO) in potential angels. To do this, generate a perception of traction in the investor community and show the early adoption of your product.

3) Converting the first angel is the hardest

Once you have one angel investing in your startup, it’ll be easier to attract others. In line with the human behaviour of looking for social proof, a potential angel investor might say, ‘If another investor has put in their money, then I will too.’ Therefore, work tirelessly to get your first angel investor through the door.

4) Accept that timing is out of your control

For example, some angel groups meet monthly or quarterly, meaning waiting to meet them and receiving a decision about whether you’re a good investment option for them. 


Angel investors’ typical investment profile 

Angels favour investing in startups within their own industry. For example, a real estate mogul is more likely to invest in a real estate startup. In this case, angels would know the industry’s ins and outs, and have the contacts helpful for building and growing the startup.

Nonetheless, this doesn’t mean that angel investors never invest in startups outside of the industries they have experience of. 

It’s good for startup companies to evaluate what additional value potential angel investors may bring to the table, beyond money. Having active angel investors will be an asset to your startup.


How to find an angel investor

Getting to the meat of the matter, where do you find angel investors? This may feel daunting, like looking for a needle in a haystack.

Nothing could be further from the truth. Angel investors are all around you, and have become much more accessible in recent years. 

Here are some places where you may find an angel investor:


1) Friends and family

Friends and family are an excellent starting point. If they include a network of high-net-worth individuals, you can pitch them your business idea.

This can be one of the easiest ways to secure funding for your startup; studies show that people prefer to invest in people they know over people they don’t.

If there isn’t a high-net-worth individual in your circle, don’t be afraid to ask around; your friends and family may know someone. The six-degrees-of-separation rule couldn’t be more accurate when looking for an angel investor. 

Lastly, if you’re comfortable going into business with family, ask a well-off family member to invest in your startup. This option isn’t for everyone, but if it feels right, go for it. 


2) Angel groups and networks

Another place to look is in angel groups and networks, where individual angel investors come together to invest collectively. 

The amount of these groups has grown exponentially in recent years: according to the Angel Capital Association (ACA), there were only ten in 1996. 

A group of angel investors usually has between 100 and 200 members. Advantages of a group include a lower risk of investment for individuals, and better due diligence, owing to their numbers. Additionally, they can make more sizable investments, have a diversified portfolio of investment, and groups gain easier access to startup deals.

To find an angel investor group, search LinkedIn, seek personal introductions, attend pitch night events, and attend local coworking spaces, incubators, and accelerators. 

Look for groups in your region and those that invest in your industry, and establish whether mentoring is offered. The ACA website may be helpful in the USA, or if you’re in the UK check out the UK Business Angels Association.


Angel investor events

If your startup is in its early stages, angel investor events may be one of the best places to find an angel investor, allowing one-on-one opportunities to pitch your idea. 

If you are passionate and exude enthusiasm about your idea and go to enough of these events, you may bag an angel investor sooner than you think. To find the next angel investor event, go to Eventbrite and search in your area.


Online platforms

Technology has increased accessibility to angel investors. A quick search online can give access to thousands of angel investors. 

Here is a list of platforms in the US and the UK:




The nature of funding and operation varies across these platforms. Some charge, others are free, and each has its own terms and conditions. So, do your research before choosing which network to engage with.


How investors will value your startup

Ever watched Dragons’ Den and seen the Dragons baulk at the value of a startup company? It happens all the time. And not just on TV, but in day-to-day business life, too. It’s not unusual for the startup’s valuation and the potential investor’s valuation to vary considerably. 

If a startup begins to gain traction, it can be easy for the team behind it to start making wild valuations. In some cases, if the potential investor believes the hype as much as the startup’s owner, they may agree with this valuation. It could be that the investor has a heavy dose of FOMO (fear of missing out) and wants to be the first on board. 

This kind of scenario sends valuations skyrocketing – but these situations often end in disappointment. 

After all, being a paper millionaire doesn’t count for much.

To clear things up, this article will explain what investors look for in a startup, how a startup valuation works, and average startup valuations for different stages.

What do investors value?

Before making an offer, a would-be investor looks at the following:

A strong business idea 

Is the product or service something the investor believes in, and does it interest them? It’s hard for angel investors to get excited about products that don’t stir their passions. For VC funds, it has to fit their investment thesis. 

The team

To an investor, the team behind the product is every bit as important as the product itself. Before making a decision, an investor is going to ask critical questions around the teams:

  • Expertise (domain, startup, growth and technical)
  • Personality
  • Mission and backstory

The stage

Is the startup pre-product, pre-revenue, or post-revenue? Does the company have a minimal viable product? An MVP shows just enough to make an investor want to part with their money, even if it’s not quite ready for market. 

UK and European investors are more concerned with seeing revenue than their US counterparts. Just 8% of VC investors in the UK know what it’s like to work at a startup. For comparison, in the USA it’s 60%. Because the UK VC industry was schooled in banks and consultancies they have been wired to rely on data to make decisions. Therefore, securing a pre-revenue investment in the UK is notoriously difficult.

Intellectual property and technology

One of the most common questions investors ask themselves is how easy the product is to copy. If the startup can’t guard their product or some part of the process with intellectual property (IP) protection, this will reduce its attractiveness to the investor. 

If a product is simple to copy, the market could easily become swamped with similar (and cheaper) versions.

Market size

When VCs assess a startup they are considering whether it can generate $100M+ in revenue and $1B+ in enterprise value reasonably quickly. VCs need investments to meet these levels in order to generate fund level returns.

To support this, a market size at a minimum of $1bn and preferably greater than $3bn is required. 


What’s the competition like from other products or services? Intense competition and a difficult-to-break-into market will give an investor pause for thought. They don’t want to invest vast amounts of money into something only to see it fail to make a dent in the market. 

But on the other hand, intense competition can be the sign of a growing market.


The product or service may well have high demand, but that doesn’t mean it’s profitable. In which case, even with significant financial investments, it could fail long term if profit margins are tight.

How much money does the startup need initially, and will it need further cash injections along the way?

The business model

Are there similar models the investor can compare the startup to, and how well have they performed over the years? What’s the market value of similar startups? And what was their value at exit, or when the company filed an initial public offering (IPO)?

Market forces

While these are all important considerations, there is one factor that is more essential than any other: market forces. That means analysing factors such as:

  • Whether there is a demand and supply
  • Recent market exits
  • Current market conditions.

How a startup’s equity is valued

Investors use several different methods to calculate valuation. The main being:

  • Scorecard method
  • Discounted cash flow with long-term growth
  • Venture capital method
  • Checklist method.

Scorecard valuation method

This is sometimes referred to as the Bill Payne valuation method, after the developer who published it in 2011. However, it was used by angel investors long before that.

This is one of the most popular methods used by investors to value early startup and seed investments. Investors with niche expertise favour this approach because of their industry knowledge. 

Investors divide this method into two steps:

  1. Calculation of average pre-money valuation for pre-revenue startups. There are many sources for this data, including AngelList and Crunchbase.
  2. Comparison of the startup to similar companies. This step is complicated and time-consuming, and includes consideration of:
  • Competition
  • Management teams
  • Market size
  • Whether the investment needs future financing
  • Marketing capabilities
  • Additional assets.

Discounted cash flow analysis

This method uses future cash flow forecasts to estimate potential returns (very hard to do in an early stage startup). The calculation provides a measure to decide whether investing now would give a worthwhile return in the future. 

To estimate future cash flows, an investor will analyse the balance sheet from previous years, in order to arrive at a projected growth rate. In a startup there is often little historical data, and even if there is it bears little relevance to the future. Therefore valuations need to be based on forecasts that are hard to predict.

Investors then apply a discount rate (weighted average cost of capital, or WACC) to reflect the time value of money, and risk factors.

Of course, there are no guarantees with this method, as numerous factors outside of an investor’s control could impact the company’s long-term growth rate.


Venture capital method

Investors use the venture capital method primarily to value pre-revenue early-stage companies. To make the calculation, it dismisses any immediate cash flow and instead estimates the exit value. 

As Equidam explains, an investor will estimate the exit value using the earnings before interest, taxes, depreciation, and amortisation (EBITDA) of the last projected years and applying the multiple.

Though the venture capital approach is efficient, it makes multiple assumptions, meaning that provides no certainty (but no valuations at this stage really provide much certainty).


Checklist or Berkus method

Used for pre-revenue startups, the checklist method is more widely known as the Berkus method. It takes its name from well-known angel investor Dave Berkus, who’s been using this model since the mid-nineties.

The checklist method values intangible assets. It begins by placing a fixed maximum price on the startup, based on its location, then applies a score for each of the five criteria set out in the method.

It uses the most significant risk factors that each startup faces:

  • Technology
  • Market
  • Execution
  • Production.

The startup can then award itself $500,000 for reducing those risks, plus the startup automatically gets $500,000 for the idea itself. If it earns a perfect score, its valuation tops out at $2.5 million.

Typical valuations by stage

Naturally, a company’s value will vary depending on its stage. So, as a startup, what can you expect typical valuations to be? This will depend on region, competition, and long-term potential, as well as other factors.

Angel round

  • Funding range: from £50k to £150k in the UK/EU, and up to $0.5m in the US
  • Valuation: from £0.5m to £1m (UK/EU), and $1m to $2m (US)
  • Equity and runway: Expect to sell 10% to 20% of your startup to fund 9-12 months of runway


  • Funding range: from £250k to £500k in the UK/EU, and up to $1m in the US
  • Valuation: from £1m to £2m (UK/EU), and $3m to $5m (US)
  • Equity and runway: Expect to sell 20% to 30% of your startup to fund 12 months of runway


  • Funding range: from £750k to £1.5m in the UK/EU, and $2m-$3m in the US. 
  • Valuation: from £4m to £6m (UK/EU) and $6m to $10m (US)
  • Equity and runway: Expect to sell 15% to 25% of your startup to fund 18 months of runway

Series A

  • Funding range: from £3m to £10m (usually in the £4m to £6m range) in the UK/EU, and $5m-$10m in the US. 
  • Valuation: from £10m to £15m (UK/EU) and $20m to $25m (US)
  • Equity and runway: Expect to sell 15% to 20% of your startup to fund 18-24 months of runway

Ultimately though, any startup valuation depends on how much an investor is willing to pay for it. Investors are not always the most logical of people and therefore a little FOMO and a sense of urgency and you can see valuation swinging wildly from the averages.

Pre-money and post-money valuation

Pre-money valuation is the value of a startup before it receives cash from a round of financing. 

Post-money is the market valuation of a startup immediately after a round of financing.

Post-money valuation includes all the recent cash injections and outside financing from venture capitalists and angel investors.

Here are two simple equations to help you understand:

Post-Money Valuation = Pre-Money Valuation + Investment Amount 

Equity sold = Investment Amount / Post-Money Valuation



With so many factors to consider, valuing a startup takes skill and understanding. Both investors and startups will look at their startup from entirely different angles, making it easy to see why a startup and potential investors may disagree along the way.

There are many factors that influence how an investor will value a startup, including the market size, profitability, and the team behind the investment. Beyond this, an investor will often turn to one of the many tried and tested methods of valuing a startup.

However, ultimately, at the end of the day, it’s the amount an investor is willing to invest that is important and the potential they see in an investment

How does venture funding work?


Weekly headlines on TechCrunch and other startup and fundraising blogs make raising several rounds of seven-figure-plus funding sound like a walk in the park. 

It’s easy to get the impression that a crowdfunding page is all it takes to land a million dollars to play with. But this isn’t the case, at least not for most startups. The truth is, when launching your startup, finding the initial capital feels nearly impossible. 

Here, we’ll teach you about each round of investment in detail, including what investors want their money to be spent on, opportunities, and pitfalls. We’ll also answer the following questions:

  • How does funding work?
  • What is Pre-Seed funding?
  • What is Seed funding?
  • What is Series A funding?

How does funding work?

First, it’s helpful to know what venture capital means. Venture capital is money from private investment funds or companies which is used for the development of startups in their very early stages. A venture capitalist (VC) buys an equity stake in the company being funded. Venture funds may invest in startups as early as the idea level, if it looks promising, in hopes of big profits in the future.

The distinguishing feature of venture capital investments is the high degree of risk. CB Insights found that “70% of upstart tech companies fail – usually around 20 months after first raising financing (with around $1.3m in total funding closed).” However, the venture-investment business model aims to find a single successful investment that covers the losses of all the investments that fail.

Venture investors are trying to find a company that may become the next Facebook, Amazon, or Netflix. When investing in this early stage, their aim is to generate a 100-times return on that investment: finding a small startup that might grow into a large company and turn a $100k stake into $10 million. That’s what makes venture investments most profitable – but also the most risky. To better put this into context, 6% of VCs’ deals produce 60% of their returns – but half lose money.

As a rule, venture investment occurs during the first seven to 10 years. Investors subsequently sell their shares in the company on exchanges or to strategic buyers. 

To understand how venture investment works, it’s necessary to be aware of the developmental stages that startups go through:

  • Idea development 
  • Early venture
  • Growth. 

Each of these is associated with an investment stage. Conventionally, there are several defined stages: Pre-Seed, Seed, Series A, B, C, D, and typically as far as E. In theory these stages can go on indefinitely but normally the startup is sold, goes public, or no longer requires investment.

More detail on the first three major stages of investment is given below. 


What is Pre-Seed funding?

The Seed round was typically the first stage of funding – but increased competition within the marketplace has led to the creation of a Pre-Seed round.

The founding team generally receives a small investment to achieve one or more of the milestones required prior to raising a larger Seed investment. Funding comes from founders investing their own resources to start their startup, including funds from family and friends. They may also investigate options including grant financing, funds from private investors (business angels) with expertise in the relevant industry, or a new generation of Pre-Seed-specific funds. 

Not everyone has access to funds from family and friends, or connections to Pre-Seed investors, and therefore may struggle to access sufficient finance. 

Startups raising Pre-Seed finance are still expected to have an initial product and revenues (even if only in the hundreds or small thousands of dollars). This investment allows the hypotheses of the startup to be fully tested, expanding the concept and product. 

By enabling an improved version of the product and access to more revenues, some of the assumptions in the business model can start to be proved. It’s common for the initial product concept to completely alter after the minimum viable product (MVP) release, creating a change in direction at this stage. 

Pre-Seed investors put a lot of emphasis on the startup team, not just its idea. If you or your co-founders have worked in a large company at a senior level, or already have experience in launching startups (if not necessarily successfully, at least ones with good prospects), they will invest much more willingly. Their main questions at this stage will be whether they trust you with their money, and whether you have a good understanding of the startup you’re dealing with.

Average valuation of Pre-Seed-stage startups:

  • Funding range: from £250k to £500k in the UK/EU, and up to $1m in the US
  • Valuation: from £1m to £2m (UK/EU), and $3m to $5m (US)
  • Equity and runway: Expect to sell 20% to 30% of your startup to fund 12 months of runway

What is Seed funding?

The second stage of investing usually stimulates more substantial growth for a startup. At this point, your startup will be showing strong signs of initial growth, and have not only a team and a product, but also one or more sales channels. 

The task of a startup at the Seed level is to accelerate growth (quantity of customers, client segments, geography, etc). New investments also help fund team expansion and take on additional talent, to grow beyond the founders and a handful of employees – as well as enabling further product development.

When the team is in place the expectation is that sales volume needs to be multiplied without further increases in staffing or overall costs to the company. 

By the end of the Seed stage, the aim is to establish a repeatable business model, and capture the largest possible market share in the shortest possible time. By the end of this stage, your startup should have proved its unit economics and achieved product market fit.

Average valuation of Seed-stage startups:

  • Funding range: from £750k to £1.5m in the UK/EU, and $2m-$3m in the US. 
  • Valuation: from £4m to £6m (UK/EU) and $6m to $10m (US)
  • Equity and runway: Expect to sell 15% to 25% of your startup to fund 18 months of runway


How to get Seed funding

Raising Seed funding is a major accomplishment for a startup. You need to convince investors of your team’s quality, but they will also now be looking for evidence of product metrics and traction. 

By this point, startups should have developed a product prototype, tested the market, and readied investor interests necessary for future financing rounds. Such steps require significant research and planning. In a nutshell, a Seed funding presentation should demonstrate the product’s unique value, the startup’s achievements, and the founders’ reasons for pushing their concept to market. Having done all this, you should be able to create a solid pitch deck. Check out a great template from Sequoia here


What is Series A funding?

The jump from Seed to Series A is often seen as the hardest transition a startup has to make. At the Series A stage, the startup should have a team, a product with verified sales channels, and significant amounts of money flowing into them. 

This is the stage of rapid growth. 

Reaching this point will allow you to attract not only money, but also expertise and connections; the ‘smart money’ that can help your startup hit big. 

By Series A, your startup must have developed a product and customer base with consistent revenue flow. Significant revenue growth needs to come from new customers, as well as an increase in the average revenue per customer. Main goals include the organisation of mass production, or 24/7 service work, 365 days of the year, with the recruitment of a fully fledged team. 

Marketing and sales become a major focal point at this stage, in order for the startup to:

  • Understand its customer base 
  • Develop new sales and marketing processes
  • Identify growth opportunities across different channels.

Average valuation of Series A-stage startups:

  • Funding range: from £3m to £10m (usually in the £4m to £6m range) in the UK/EU, and $5m-$10m in the US. 
  • Valuation: from £10m to £15m (UK/EU) and $20m to $25m (US)
  • Equity and runway: Expect to sell 15% to 20% of your startup to fund 18-24 months of runway


How to get Series A funding?

Before this stage, most startups generate only passing interest among large investors – whereas Series A funding creates competition between funds, and gives access to a new class of investor able to write larger investment cheques. 

To qualify for a Series A funding round, a network of contacts with potential business partners should typically already be well-nurtured among the people that founders have built relationships with. 

Lasting business relationships don’t happen overnight, since it must be possible to demonstrate that your startup is trustworthy and capable. Meeting potential investors ideally takes place as early as possible, to give them an idea of your future goals. This can be very time-consuming, meaning that founders spend the majority of their time doing this instead of building their startup. 


Beyond Series A

The journey continues after Series A:

  • Series B: Series B aims to grow the company fast enough to keep up with the demand generated in Series A. That might mean you need funds to hire sales teams to go after international markets, move into new lines of business, etc. 
  • Series C and beyond (D, E, F…): At this stage startups are gearing up for the exit and are now focused on accelerating activities beyond what was accomplished in Series B. Here, funds might go toward acquisitions, product launches, and other activities aimed at “winning the market.
  • IPO: At the initial public offering (IPO) stage, the focus shifts toward making shares of a private company available to the public on the stock market to raise additional capital. The benefit there is, companies can access more money faster, free up liquid capital, and attract top talent by incentivizing new hires with stock options.