Building a Contract Foundation That Scales to Series B

By Jacky Junek

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The mistake that kills your Series B rarely shows up in your board decks.

It hides in your contracts.

At Series A, you're rewarded for logos and ARR. At Series B, investors underwrite the quality of that revenue. They want to see gross margins that look like SaaS (not services), revenue that isn't concentrated in a handful of customers, and contracts that don't bury you in unlimited liability and bespoke obligations.

The Pattern We Keep Seeing

Every Series A company makes its own mistakes, but there's one I see repeatedly: great logos sitting on structurally bad contracts.

On paper, everything looks fantastic.

You land your first big enterprise deal. The board is thrilled. Sales hit their number. The logo looks perfect on your website.

Then your Series B lead opens the data room.

They don't just look at ARR. They look at:

Liability caps that are effectively unlimited relative to your enterprise value.

"Profitable" enterprise deals that run at 45-55% gross margin once custom work, bespoke hosting, and white-glove support are fully loaded.

Three customers representing 50-60% of revenue, each holding one-off rights and outsized leverage over price, renewals, and roadmap.

MSAs that are so inconsistent that every renewal and upsell becomes a one-off legal project.

Your Series A wins just became Series B problems.

What Went Wrong

At Series A, the pressure is real and rational.

Your board wants clear enterprise traction. Your investors want you to move upmarket. Your sales team needs credible ACVs to justify the plan. You've already spent $30,000 to $100,000 in legal fees just getting through the round, and now your runway is ticking down.

So when that first enterprise prospect asks for unlimited liability, custom security reviews, specific data residency, and dedicated support bundled into the subscription price, it's easy to say: "We need to be flexible." The cost of saying no feels immediate. The cost of saying yes won't show up until your next round.

Then customer two asks for the same carve-outs. Customer three wants their own twist. Each decision seems reasonable in isolation. In aggregate, you've built a professional-services business wrapped in SaaS pricing.

Eighteen months later, your Series B investor runs the numbers:

Subscription gross margin should sit around 70-80%+ for a healthy SaaS business, with benchmark data showing median subscription margins near 79% and best-in-class north of 85-90%. Your "hero" enterprise accounts are sitting at 45-55% once all the bespoke obligations are correctly allocated.

Your largest customer accounts for over 20% of revenue, and your top three customers are well above the 40-50% threshold that most acquirers and CFOs consider high-concentration risk.

Operationally, you are running 10-15 different infrastructure or security configurations to serve a small number of customers.

There is no repeatable contracting or sales process. Every deal is negotiated from scratch, which shows up in longer cycles and inconsistent terms across the base. When each negotiation takes 2-4 weeks for definitive documents and another 4-8 weeks through due diligence and closing, your entire sales motion slows to enterprise speed without enterprise pricing.

The math is brutal. You wanted a $100M valuation. Once these issues are priced in, you end up closer to $40M. The gap (and the extra dilution) comes directly from contract decisions you made while chasing growth.

What Strategic Companies Do Differently

The companies that raise strong Series B rounds don't avoid pressure. They manage it with a framework that investors recognize as scalable.

They Build the Framework Before Deal One

Before closing their first enterprise deal, they align sales, legal, finance, product, and operations on a standard contracting playbook.

Liability capped at 12 months of fees as a default position, with narrow, clearly priced exceptions rather than blanket "unlimited liability."

Standard SLAs and support tiers, with premium pricing or separate SOWs for enhanced obligations.

Data residency is restricted to a small number of regions (US/EU, for example) supported by a standard architecture instead of one-off country-by-country builds.

Custom work is sold separately at defined professional-services rates. Services often carry gross margins in the 0-25% range and cannot be blended indefinitely into subscription pricing without eroding overall margins.

They document what's non-negotiable, what's tradeable, and who inside the company can sign off on exceptions.

This upfront work pays for itself. While founders often worry about legal costs (incorporation alone can run $5,000 to $20,000 at the seed stage), the cost of not having a framework is far higher. One bad enterprise contract can destroy millions in valuation 18 months later.

They Trade, They Don't Cave

When customers ask to move outside the framework, strategic teams trade rather than simply saying yes.

Higher liability cap? Ask for a longer, non-cancelable term, a multi-year commitment, or a higher price to compensate for additional risk and improve revenue visibility.

Custom integration or security work? Clearly scope it as a professional services fee, keeping subscription gross margins aligned with the 70-80%+ range investors expect.

Expanded data rights? Ask for stronger commitments on term, minimum seat counts, or agreed-upon upsell paths.

Every exception is evaluated against scalability: can we do this for 50-100 customers and still meet SaaS margin benchmarks?

Sometimes, They Walk Away

In a market where 42% of corporate legal departments received explicit cost-cutting mandates in 2024, investors now favor efficient growth and strong unit economics over "growth at any cost." Declining a major logo on destructive terms is a rational decision, not a luxury.

A $500K logo that demands unlimited liability, termination for convenience, and extensive custom features at margin-killing pricing can easily destroy more value than it creates once the Series B investor builds their model.

The Real Issue

The real mistake isn't agreeing to a bad term. The real mistake is not designing your contracts around the questions your Series B investors will ask in 18 months.

Your Series A investors care that you can win credible customers and grow ARR.

Your Series B investors care whether that ARR is scalable: are your subscription gross margins trending toward 70-80%+, is your revenue diversified enough that no single customer can dictate your roadmap, and do your contracts support standardization rather than fight it?

You can hit both targets, but only if you are intentional. This means thinking about contract strategy the same way you think about product strategy: not just "will this work today" but "will this scale to 100 customers."

The Audit You Need Now

If you're raising (or planning to raise) Series B in the next 12-18 months, you should be able to answer these questions as clearly as any investor reviewing your data room:

What is your aggregate liability exposure across all customer contracts, and how does it compare to your company's enterprise value?

What are your gross margins by product and customer segment, and are your subscription margins trending toward the 70-80%+ band investors consider healthy for SaaS?

What share of revenue comes from your largest customer, top three customers, and top five customers? Do those profiles fall into low, moderate, or high-concentration categories based on common thresholds?

How consistent are your enterprise contracts in core terms such as liability, data rights, SLAs, and termination?

How many different infrastructure, hosting, and security configurations are you running to meet bespoke customer commitments?

Do you have a repeatable sales and contracting process, or is every deal a fresh negotiation?

If you cannot answer these questions confidently, you're building valuation risk into your foundation.

If you haven't closed enterprise deals yet:

Spend the next few weeks defining your contract framework. The upfront investment (whether you build templates in-house or work with experienced counsel) will pay for itself many times over.

Get alignment across sales, legal, finance, product, and operations. Everyone needs to understand not just what the framework is, but why it matters for your next round.

Train your team on what's non-negotiable, what's tradeable, and how to communicate both. Research shows 71% of clients prefer flat fees for entire cases, and 51% prefer them for specific tasks. Your prospects aren't looking for complexity. They're looking for clarity and predictability.

If you already have problematic contracts:

Audit what you've signed. Map your liability exposure, margin profiles, and concentration risk across your existing base.

Stop making new bad deals now. Whatever pressure you're under to close this quarter, it's nothing compared to the pressure of losing 60% of your valuation in your next round.

Use renewals and expansions to bring legacy customers back toward your framework. Many customers will accept more standardized terms if you handle the conversation strategically.

Start preparing for Series B diligence before the term sheet, not after. Investors spend 4-8 weeks in diligence after signing a term sheet. The issues they identify during that period directly affect valuation.

The difference between a $100M Series B valuation and a $40M one often comes down to contract decisions you're making today. Which path are you on?

References

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Beyond Border Global. "Startup Attorney Rates Analysis."

Clio. "Legal Trends Report: Client Pricing Preferences."

Corporate Finance Institute. "Customer Concentration." https://corporatefinanceinstitute.com/resources/valuation/customer-concentration/

Eagle Rock CFO. "Customer Concentration Risk Management." https://www.eaglerockcfo.com/blog/financial-risk-management/customer-concentration

Hubifi. "B2B SaaS Benchmarks." https://www.hubifi.com/blog/b2b-saas-benchmarks

Jason Cohen. "2024 B2B SaaS Benchmarks Report." https://static1.squarespace.com/static/604f761f40e96b74d9b12032/t/66e2e7c533d8dc65e259acbd/1726146518783/2024+JC+B2B+SaaS+Benchmarks-+FINAL.pdf

Legal Dive. "Corporate Law Department Cost-Cutting Mandates, 2024."

Mergewave Capital. "SaaS Due Diligence Checklist in 2025." https://mergewave.capital/article/saas-due-diligence-checklist-in-2025/

Monetizely. "Customer Concentration Risk: What It Is, Why It Matters, and How to Measure It." https://www.getmonetizely.com/articles/customer-concentration-risk-what-it-is-why-it-matters-and-how-to-measure-it

Network Solutions. "Dependent on One Big Customer?" https://www.networksolutions.com/blog/dependent-on-one-big-customer/

Pavilion. "2024 B2B SaaS Performance Metrics Benchmarks Report." https://joinpavilion.com/hubfs/2024%20B2B%20SaaS%20Performance%20Metrics%20Benchmarks%20Report.pdf

RevPartners. "SaaS Metric Cheat Sheet." https://revpartners.io/hubfs/PDFs/SaaS%20Metric%20Cheat%20sheet.pdf?hsLang=en

Startups.com. "Legal Costs by Funding Stage Analysis."

Stripe. "SaaS Gross Margin Explained: What It Is and Why It Is Important." https://stripe.com/resources/more/saas-gross-margin-explained-what-it-is-and-why-it-is-important

VC Cafe. "2023-2024 B2B SaaS Benchmarks." https://www.vccafe.com/2024/06/06/2023-2024-b2b-saas-benchmarks/

Very Creatives. "Venture Capital Due Diligence Checklist." https://verycreatives.com/blog/venture-capital-due-diligence-checklist

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