5 Key Metrics You Need to Crush for Fundraising Success

Logan Burchett
LOGAN BURCHETT , CO-FOUNDER & COO , FORECASTR
22 Jun 2022

This post originally appeared on Forecastr‘s blog.

A good fundraising pitch should be laser-focused on the needs of the investor. This means you’ll need to do your homework ahead of time to find out what they’re looking for and how your opportunity matches up.

One way to demonstrate your value in a way that makes sense to investors is to present key metrics that show your company to be a good match for their needs. At the Series A funding stage, metrics are a must-have for any startup.

The metrics we feature below are a great starting point to show how your business stacks up against industry benchmarks, competitors, and the investor’s other deals.

The ideal metrics for you to use may vary slightly depending on the investor’s needs and your unique business model, but these five metrics are a great starting point, and they’re numbers most investors will want to see.

Metric 1 – Revenue Growth

(CURRENT PERIOD REVENUE ﹣ PREVIOUS PERIOD REVENUE) ∕ PREVIOUS PERIOD REVENUE ✕ 100

A successful raise will depend on convincing the investor that your business is growing consistently towards long-term success.

Revenue growth is the best indicator of this growth for most young companies. Consistent revenue growth shows traction and potential, even when your total revenue is still relatively small.

When you’re pitching, it’s typically best to show your historical growth and future growth projections. This shows investors that you’re a viable competitor, you’re on the right track, and you have achieved some degree of product-market fit.

Metric 2 – Run-Rate Total Revenue

TOTAL REVENUE IN PERIOD ✕ # OF PERIODS IN ONE YEAR

Run-rate total revenue is a good metric for investors to gauge your company’s current health and performance.

Hopefully, you’re telling them a great story about where you’re going in the future, but this metric shows them exactly where you are right now, along with a simple projection to show annualized growth.

Metric 3 – LTV:CAC

(CUSTOMER LIFETIME VALUE) : (AVERAGE CUSTOMER ACQUISITION COST)

LTV:CAC measures the lifetime value of a customer relative to the cost of acquiring that customer. In other words, it tells you how much profit you can expect to make from each new customer.

Because LTV:CAC considers both the revenue generated by a customer and the costs associated with acquiring that customer, it’s an essential scalability metric, especially for startups that rely on new customers for growth.

If you rely on subscriptions or recurring revenue, investors will do their homework on this one, and you should too.

Metric 4 – Gross Margin

(TOTAL REVENUE ﹣ COST OF GOODS SOLD) / TOTAL REVENUE ✕ 100

As an early-stage startup, this is one of the most important metrics you can track. Gross margin shows what percentage of revenue is left after you cover your direct costs, like materials and labor.

Cost of goods sold shouldn’t include indirect expenses such as marketing, overhead, or salaries.

Gross margin is a fairly universal metric that should be included in most fundraising pitch decks because it’s an excellent way to gauge whether or not a business model is sustainable and scalable.

Make sure your gross margin is in good shape before you approach investors. If your number isn’t where you want it to be, address this head-on and make sure your investors know that you understand the cause and have a plan to address it.

Metric 5 – Gross Churn

(CANCELED MRR + DOWNGRADED / MRR AT THE END OF THE PREVIOUS MONTH) ✕ 100

Gross churn is a powerful metric that can be used to demonstrate customer loyalty and used as an indicator of product-market fit.

Basically, gross churn measures the percentage of revenue lost each month to cancellations and downgrades.

This metric is critical for SaaS startups, and it can be usefully applied to other business models as well.

Investors want to see a healthy customer base that is growing, not shrinking. If you anticipate higher-than-normal customer attrition for any reason, make sure investors understand that going in. Build this into your revenue and profit projections, and discuss it openly.

Otherwise, investors may assume a high churn rate is an indicator of an underlying problem with client satisfaction.

Extra Credit – Net Revenue Retention Rate

MRR AT THE START OF THE MONTH + EXPANSIONS + UPSELLS – CHURN – CONTRACTIONS / MRR AT THE START OF THE MONTH

Net revenue retention rate is a metric that measures the amount of recurring revenue you retain each month. It accounts for new customers, lost customers, upsells, and expansions. It’s a universal health metric, and it makes a great addition to early-stage pitch decks.

Different Fundraising Metrics For Different Business Models

We mentioned above that the perfect set of metrics might depend on your unique business model, and now we’ll take a look at a few examples.

SAAS

SaaS startups need to demonstrate value by focusing on the lifetime value of their customers. Sometimes it’s not enough for investors to see recurring revenue, and they’ll want to see details around lifetime value and how much of your retained revenue comes from new versus existing customers.

Gross churn rate is critical here. Investors will likely interpret a high churn rate as an indicator of bigger problems with your user experience.

Monthly active users (MAU) are a great way for SaaS companies to show overall growth. Investors may also want to see history and projections around your margin, which can expose scalability issues.

MARKETPLACES

Marketplaces are unique in that they rely on two separate groups of users: buyers and sellers. Gross merchandise value (GMV) is frequently measured against revenue to show that the growth of these two groups is proportional.

It’s also important for marketplaces to showcase metrics like EBITDA margin and net income margin. Profitability metrics like these show whether or not the cost of running the marketplace is sustainable and scalable.

ECOMMERCE

eCommerce startups need to focus on engagement and conversion. Conversion rate (CR) shows whether or not an eCommerce business can effectively convert visitors into buyers.

The LTV:CAC ratio we discussed above will be important. If you can demonstrate an upward trend in lifetime value over time, you should emphasize that.

If you’re generating traction on social media, you should show it by sharing engagement metrics like views, shares, and an overall engagement rate (ER). Sometimes it’s enough for an eCommerce investor just to see that your product generates a buzz and the public is interested in it.

Summary

The ideal set of metrics for your business might vary, but this list covers some key universal metrics that should be included in most pitch decks.

What’s most important is that you understand your investor’s interests and provide data to demonstrate that your opportunity is a good match for their investment profile.

If you’re aware of anything in your metrics that investors might consider a red flag, don’t try to conceal it. Be transparent, explain the causes, and share your plans for addressing them.

If you don’t already have a good financial model, you should start working on one before you talk to investors. A model lets you walk your investors through the details and assumptions behind your metrics, answering any questions they might have.

About Forecastr

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Gust Launch keeps your docs straight and cap table clean for whatever your first raise is.

Gust Launch keeps your docs straight and cap table clean for whatever your first raise is.


This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.