Startup Metrics for Seed and Early Stage Startups
Whether you’re a startup founder or investor, there are certain metrics to consider when looking at your own business or evaluating an investment opportunity. These can be specific to the type of business you operate (a software company will have different metrics than say a manufacturing company), but the point is, investors will want to know what they’re buying into and how your business will ultimately perform. Here are a few of the metrics we recommend looking into before you invest.
Monthly/Annual Recurring Revenue or Revenue Growth Rate: investors will want to know what your financials look like - how much revenue you have on a monthly or annual basis, how much your revenue has grown MOM or YOY. All of this will be important for them to determine how to value your company and what to invest and expect for growth over the next months or years.
Months of Runway: super important to investors - how much cash you have and how long it will last you at your current spending rate. Investors talk about Runway all the time, so having a good understanding of yours will be key to communicating to them how long funds will last.
Total Addressable Market: the Total Addressable Market (or TAM) is how many people could use your product or service. If you’re a service that is specific to a niche group, your TAM is that group's size.
Customer Acquisition Costs: key to knowing how valuable your customers are is also understanding how much it cost you to get them. If you have a super high customer acquisition cost, but their lifetime value is low, you may need to alter your strategy for acquiring or retaining them. Investors will want to understand what this cost is and how you got there to determine the next metric.
Long Term/Lifetime Customer Value: This metric is an estimate of the long term or lifetime value of a customer. How much are they spending with your brand over time. It’s helpful for mid-to-late-stage startups to understand if their customer acquisition cost is worth the investment when comparing it to their lifetime value.
Daily Active Users: More specific to software companies, investors will want to know how many daily users your company has. You can have 10,000,000 “users” but if they only use your software once a year, that says much more than having 100,000 daily users in terms of the value you provide.
Churn Rate: Your churn rate is your percentage of customers lost during a given period. A low churn rate would indicate your customers are happy and satisfied with your product or service and a high churn rate could indicate issues. It’s important to note that churn rate only refers to the number of paying customers - not free/freemium ones. Also good to note that the inverse of churn rate is a retention rate - that is, the percentage of customers who stay with your brand over a period of time.
There is a ton of available research and tools you can use that are specific to your industry. If you’re a SaaS company, we like Saas Capital. They can help with relevant market research, market comparables and other resources that will help tell your financial story to investors.
As always, if you need support in building out your dynamic financial model to include KPIs that will help tell your story to investors, we can help!