Metrics VCs want to see

Product value delivered + the associated leading indicators

It’s easy to adopt vanity metrics like “downloads” or “user signups” as your north-star metrics. However, these metrics do not always translate into customer value. No customer value = no product-market fit = no revenue.

  • What value does your product provide?
  • How do you know when the value has been delivered?
  • How can you quantify this event?
  • When do you know you’re on track to delivering value?

Customer retention

No one likes leaky buckets. If you are losing customers nearly as often as you are acquiring them, you may be a savvy marketer, but your product isn’t living up to the expectation set forth in your product marketing. Ideally, you are acquiring new customers (logo expansion) and also generating new revenue from existing customers (dollar expansion). As an early-stage startup, your product may look different today than it did 12, 9, and even 3 months ago. You should track customer retention according to the period in which they were acquired — or better said — according to their cohort. It is logical that these metrics will vary and, ideally, improve between cohorts.

  • Logo expansion (# of net new customers) + churn
  • Dollar expansion (upsells to existing customers) + churn
  • Cohort data (revenue performance tracked against others who became customers in the same period)

Customer acquisition cost (CAC) & payback period

The goal is to buy your customers’ money at a discount: You pay to deliver a product to your customers, and they give you some amount greater than that. Said another way, it costs you less to acquire and deliver a product or service than what you earn from your customers. It’s okay if these numbers are mismatched at the early stages, but we should be able to identify a path to more favorable economics down the road.

  • CAC = Total cost of sales & marketing / # new customers
  • Payback period = The time (usually months) that it takes to recover the cost of acquiring a customer. For example, if it cost $10 to acquire the customer and you charge $2.50/mo, your payback period is 4 months.

Revenue generated + the associated leading indicators

Money talks! VCs want to see revenue tracked on a monthly basis. Depending on your business model, this could be bookings (non-recurring revenue), monthly recurring revenue (MRR; applies to SaaS), revenue (usage-based products), gross merchandise volume (usually associated with the one-time sales of goods and services), and so forth. Note: Revenue is a “lagging” indicator, meaning you don’t earn it until the end of the sales process.

  • What are my bookings?
  • What does my sales funnel look like?
  • What are my conversion rates at each stage in my sales funnel?
  • How many prospects are at each stage?

Series conclusion

The framework outlined in this series is a guide, not a prescriptive grading rubric. Hitting impressive metrics, knowing when to raise money, having a pulse of a viable market opportunity, running with a dynamic and complementary founding team, and mastering repeatability and protectability are all essential elements of a startup that’s well prepared for fundraising. Of course, there are always exceptions to each of these attributes — we love non-conventional companies. Regardless, a founding team that can demonstrate some or all of these elements will be in a good position to raise money.



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