As a venture capitalist, what metrics do you use to evaluate startup performance?

Revenue, Revenue Growth Rate (yoy), gross margin %, and pipeline conversion. Another important insight is the trending expansion of contracts within the same customer. This is usually a good indication of value creation and validation.

As a VC it’s all about point A to point B. It’s not about revenues or customers etc. When u raise seed funds you would have showcased point A to point B. That’s what counts. If point B includes revenues then we see that else not. Post this the next round of funding is point B to Point C. The matrix is given by the promoters usually and vetted by my team and experts.

Mangement stil er afgørende for en opstart. Ikke penge men stil i ledelses gruppen. Hvordan udnytter man virksomhedens viden resourser og forbedrer dem så virksomheden får en platform at stå på. Pengene kommer af sig selv blot der er råd til det første par år. Finn Helmer.

I’m a firm believer in betting on the jockey not the horse. Every has ideas, there is rarely something new under the sun. Execution, execution, and execution !

Everyone points to CAC and LTV, but really investors are looking a few levels down. For CAC, what’s the composition across channels? Are you building CAC with returns to scale through channels like original content and SEO or through the hamster wheel of ads? LTV is a function of average revenue per user, or ARPU, retention, and churn, so how do these levers impact LTV? Gross margin is good, but if you factor in all costs of goods sold and CAC, are your net contribution margins positive? In other words for every dollar in is there more than one dollar out? If there are short run short falls, that’s fine to invest in growth, but how will this change over time? Again, what are the returns to scale or what are the drivers of things changing?

CAC and LTC offer critical insights into the company's long-term sustainability and profitability. A low CAC suggests a cost-effective customer acquisition strategy. On the other hand, LTV, which estimates the total revenue a business can expect from a single customer over their lifetime, demonstrates the potential return on investment. A high LTV to CAC ratio, such as 3:1 or higher, is generally considered favorable as it indicates the ability to generate substantial revenue from each customer. For instance, a SaaS startup with a CAC of $50 and an LTV of $500 showcases an effective customer acquisition strategy and significant revenue potential per customer, making it an appealing investment prospect for VCs.

While it’s tempting to think that the lower the CAC, the better, and the higher the LTV, the more interesting the contradictory spin in these metrics, a minimum CAC is not always a win. Sometimes it can mean you are not investing enough to make progress or you are just picking low-hanging fruit, which is not sustainable. On the flip side, a high LTV is not only about long-term revenue, it can also mean the need for diversification. If you rely too heavily on a few big spenders, that might be dangerous. What's better is a balanced equation where CAC is optimal, not discounted, and LTV is permanent, not temporarily fixed.

Growth is still the absolute North Star. LTV/CAC is still a popular efficiency metric but LTV is often fantastical imagination at work, especially at early stage businesses that don't have rich cohort data. Focus on demonstrating what value customers derive from your product and how you retain and grow them, while consistently dropping your cost of acquiring them -- and the rest will follow.

For many VCs, CAC/LTV is the "be all and end all" to figure out how efficient a company is at acquiring customers. What most VCs are reluctant to admit are that almost all of these metrics and benchmarks are a GUESS. Prior to a customer going through the full sales lifecycle (Startup spends money, customer signs up as a result of it, customer upsells or increases # of seats, then ultimately churns out), no VC (or even the comapny itself) will know: 1. How much it will really cost to acquire a customer (enterprise or B2B SaaS) 2. How much more customers will spend each additional year (Net Dollar Retention) 3. When they will ultimately reduce seat spend or stop paying entirely (Churn). CAC/LTV > 2/3/4/5 are nice, but really just a guess.

A lot of founders will consider firing employees, or cutting expenses to increase runway/reduce burn. But instead I recommend taking out a 2nd mortgage on your home & selling your most prized possessions. This shows conviction to your investors & lights a fire under you.

Forget about burn rate, the burn multiple is where it's at! It's all about how you generate new revenue compared to your spending. Here's how you calculate it: Burn multiple = Net Burn / Net New ARR The lower the ratio, the more bang for your buck you're getting when acquiring new customers. Amazing: Less than 1x Great: Between 1 and 1.5x Good: Between 1.5 and 2x Bad: Between 2 and 3x Very bad: More than 3x If your burn multiple is high, you're using much capital to achieve growth. Once your burn rate is out of control, you won't be able to keep up the pace. And good luck trying to raise more capital. Investors will see that you can't manage money effectively. The key is to optimize your burn multiple for maximum capital efficiency.

While not as prevalent if a company is super early, (Pre-Series A/Seed), burn rate and runway are probably one of the MOST important metrics (after topline revenue growth). There's a time to burn and a time to churn. For most young companies, it makes sense to spend up to acquire growth (topline revenue). However, as a company gets more mature and growth naturally slows (due to the law of large numbers) a company NEEDS to focus on burn rate. The more efficiently you can run a startup, the less dilution and more sustainable the business will be. Runway is like oxygen. Most don't notice it, but you definitely will if you start to run out. For many startups, runway is the one thing they should be paying MORE attention to (before it's gone).

A low and sustainable burn rate suggests efficient financial management, while a high burn rate might indicate potential financial instability. The runway, which is the duration a company can continue to operate before running out of cash, provides critical insight into the startup's ability to weather market uncertainties and reach key milestones, generally aiming at minimum 18 to 24 months of runway per fundraising round.

Burn and runway are tricky to discuss with a potential investor. On one hand, you want to raise more capital when your revenues have growth (ie burn rate is high), while on the other hand, you don't want to show that you could run out of money soon (no one wants to see their money go down a hole). One trick is to start your conversions when you have spent half the previous rase so you can aim to close your current fund raise by the time ⅓ of your previous round is still in the bank.

As a corporate strategic investor, valuation and exit potential potentially make investment relationships and partnership propositions seem generic—with subpar strategic ROI to business units. Although, rationale differs when a strategic investor is involved, there are direct correlations with a startups ability to position themselves ripe for partnership engagement fast-tracking them to PMF with the largest shareholders in adjacent markets. Many times, founders are in direct conflict on their own operative objectives and that of a strategic investor. This where the most savvy thrive and position themselves well to achieve market share. Here, we value success beyond valuation and exit potential and focus on ability to run the business.

In the early stages, the hard metrics such as revenue, CAC and LTV are still somewhat unreliable, but if you've created a product that customers are desperate to get and that they keep recommending to others you are on to something. Entrepreneur and startup advisor Sean Ellis discovered a good leading indicator of product/market fit that can be used here: Ask users “how would you feel if you could no longer use the product?” and measure the percent who answer “very disappointed.” - over 40% and you are in a good positition.

You don't need to have traction if you never launch. The goal is to keep raising and promising that you're going to release "soon", while actually surfing in Hawaii.

Traction and engagement are key indicators of market validations. Consider a cloud-based B2B software startup that offers a project management tool. If the startup manages to secure contracts with several well-known corporations and demonstrates a consistently growing client base, this signifies strong traction. Additionally, if the software shows high engagement metrics and positive feedback from users, VCs would perceive this as a promising sign of product-market fit and potential for long-term growth. These metrics collectively illustrate the startup's ability to effectively serve the needs of businesses, establish a reliable customer base, and position itself as a valuable solution.

Market Validation and Adoption refers to the level of acceptance and adoption of a startup's product or service within its target market.It's important to assess whether the startup has demonstrated traction and validation from its customers or users. This can be indicated by metrics like user growth, testimonials, case studies, or partnerships with reputable companies. Strong market validation indicates that the startup has a product or service that addresses a real need or pain point, increasing the likelihood of continued success and potential interest from acquirers or investors. Venture capitalists often seek startups with a demonstrated ability to gain market traction as it reduces the perceived risk associated with market acceptance.

Prof. Aswath Damodaran put it best. Startup rounds are "priced" by the market, and not empirically valued. You have to demonstrate the potential of a large business, strong performance metrics and a driven and committed management team to be able to raise a strong early stage round.

If your startup can't be sold in the next 5 years for at least $200B, you should give up RIGHT NOW. A portfolio founder of mine once told me they were offered $100M for their 2 year old startup and I nearly spit my coffee in their face.

Valuation, often determined by the company's financial health, market position, and growth prospects, plays a crucial role in estimating the potential return on investment. For instance, if a tech startup demonstrates a substantial increase in valuation due to its innovative technology and growing market share, VCs perceive this as a positive sign for potential future returns. Furthermore, VCs closely analyze the startup's exit potential, assessing the likelihood of an acquisition or an IPO that would allow them to cash out. For example, if a biotech startup's groundbreaking research is attracting the attention of major pharmaceutical companies, VCs may view this as a promising indicator of a potential lucrative acquisition.

Well, Valuations are best priced by the market for sure. At times markets and FOMO leads investors to value a startup unrealistically. Invariably it also leads to founders indulging in bad governance. Good Investors care about the valuations and generally will be ok if the markets and the lead investor are aligned. Exit potential is certainly a driving factor behind returns from funds. High valuations can hurt the startup if the revenue is not in play or the burn rates are higher than the revenue and there is no chance of a turn around in near future. The next round can be a down round, hurting investors and founders both. For founders: When in doubt, default to the basics. Care about value to consumers, not valuations.

For startup company DCF is rarely used in practice as reliability of input data is low. Price paid is usually the result of expected return of the investors (their risk appetite) and estimated time to exit.

As an angel investor, looking at companies pre-Series A, in addition to the abovementioned metrics, we also focus on the Management team themselves - what is their background, how relevant is to the technology / solution they are building, do they have the network to drive commercialization, and / or provide diverse expertise? In addition, as early stage investors, we have the ability to help and advise entrepreneurs as they develop the initial social and governance infrastructure to support long-term growth and resiliency. The human capital component is critical as to how Management builds a team and creates a culture that aligns incentives and supports innovative thinking.

"Show me the incentive, I'll show you the outcome" - Charlie Munger. One of the most overlooking things that VCs don't pay enough attention to is SUFFICIENT FOUNDER OWNERSHIP LEVELS. As companies raise more and more capital, typically the founders will get crammed down from 80% to 60% to <50% (less than the majority) - and with this decrease in ownership comes less control and less invested interest in seeing the business through. One of the most underrated metrics that VCs very rarely track (over things like churn, revenue growth, long term EBITDA margins ,etc. etc.) is FOUNDER OWNERSHIP. We want to see high levels of founder ownership. The more the founders own, the more incentives they will have to do right by the business.

I've always been focused in very early stages, such as FFF and pre-seed. My attention is on these top five elements to consider: 1. Team 2. Team 3. Team 4. Market 5. Geographic match between the above and local ecosystem

People. The most important component when assessing startups. What's driving them? Can they execute? Can they lead and get people behind them? Are they "all over the problem"? And traits like tenacity, optimism, perseverance, etc.

Bonjour. Je trouve étonnant qu’en 2023 les critères que vous proposez soient strictement et exclusivement pure création de profit. Ce sont des critères du XXe siècle. En tant qu’investisseur, la toute première chose que je regarde c’est le but de l’entreprise. Son utilité pour le monde de demain. Vouloir « uniquement » faire fortune est un objectif pathétique quand on voit l’état du monde et de la planète. Ensuite, je regarde les valeurs des dirigeants et leur ouverture à partager cette valeur. Économique bien sûr mais aussi humaine. La manière dont ils vont développer les talents chez eux. Bonne journée à vous.