A reader recently asked, "What revenue and EBITDA is required to receive investment?  The answer to this question (as with many others) is, "it depends".

First, the sector likely serves as a significant determinant of the necessary revenue and profit. It typically takes less capital to get an IT company to market than a Pharma company. As a result, it's likely that financial performance expectations at each round of investment varies. While series B investments in Pharma may be done with no expectation of revenue, most healthy IT companies seeking a series B investment have revenue.

Second, within a sector the investment strategies of VC funds varies substantially. There are several funds in the tri-state area that target series A investments in companies with at least $5 million of revenue. Others will do series A rounds with companies that do not have revenue.

When thinking about the financial requirements of each type of fund it's worthwhile to think about the other implied aspects of their investment strategy. First, a fund's financial requirements are an indicator of risk tolerance. Funds that invest in pre-revenue companies are generally willing to take bigger risks. Second, (because their risk tolerances vary) return requirements also vary. Firms that take more risk by investing pre-revenue generally seek higher returns.

To give you a sense about the relationship between risk and return profiles: VCs that invest in pre-revenue or early revenue companies commonly target 10x+ returns, while VCs investing in companies with at least $5 million of revenue often seek 4x to 6x returns [You might note that IRR requirements are not so widely variant, but the longer the holding period, the larger the multiple to achieve the same IRR. Revenue/profit are predictors of holding period].

In sum, investment strategies vary substantially by fund. As a result, you should make sure that you target VCs that have an investment thesis that is aligned with your company.