The world of venture capital is often a mystery to the public, but it’s not that hard to understand. If you know what factors are important to investors, you can better understand how your business stacks up against others in its space. The following metrics are what most investors look for when analyzing startups:
Traction is the most important metric for investors, as it demonstrates how well a startup is performing. Investors want to know how many customers are using your product, what their retention rates are and if they’re growing at all.
There are a few ways to measure traction: customer acquisition cost (CAC), customer lifetime value (CLTV), monthly recurring revenue (MRR) and customer churn rate. All of these numbers can be found on your company’s financial reports or in its SaaS business intelligence software like Baremetrics or Klipfolio Financials
The growth rate is the percentage of revenue or users that a company is adding each month. It’s typically calculated as the change in revenue divided by the beginning balance, or it can be calculated as net additions (new users) over time. Investors are interested in seeing high growth rates because they indicate that a startup has momentum and potential to become a large company.
Investors also want to see how your startup stacks up against its competitors, industry peers and its own projections for future performance. If you’re growing faster than everyone else in your space but were expecting even faster growth, then investors might worry about whether this pace can be sustained over time–or whether it’s too good to be true!
Market share is a measure of how much of the market a company has. It can be measured in terms of revenue or users, but it’s usually expressed as a percentage.
A high market share means that your startup is doing well and has established itself as one of the top players in its industry. Investors like this because it shows that customers have come to rely on your product or service–which means they’ll keep coming back for more!
On the other hand, low market share means that people don’t think highly enough about what you’re doing yet (or at least not enough for their wallets). This may be due to lack of brand recognition or poor marketing efforts; either way, it shows that there’s room for improvement before anyone will start throwing money at you
Valuation multiples are a way to determine the value of a startup. The most common valuation multiple is the price-earnings ratio (P/E), which compares a company’s share price with its earnings per share. Other common multiples include:
- Price-sales ratio (PSR) – compares company’s market capitalization with its revenues or sales figures
- Enterprise value/EBITDA – measures how much it would cost to buy all assets and liabilities of the business, then subtract out interest payments and taxes
Investors look for startups that have traction, growth, and market share.
Traction and growth are two key metrics investors look for in a startup. Traction is the number of users or customers you have, and growth is the rate of that growth. Market share refers to the size of your market–how many people could be buying what you’re selling?