Metrics to Know Before Your Next Investor Meeting
Isadora Teich wrote this article
Getting investors interested and convincing them to believe in your business and overall vision can be key to a startup’s success.
However, knowing exactly how to do this might seem like a mystery, especially if you are new in the game.
For typical jobs, they tell you exactly what they are looking for, and you know from the outset if you meet the basic requirements or not. Enticing investors is far from being cut and dry. How do you show that your company is a strong investment that shows promise?
A big way to do this is by being able to understand and concisely explain your metrics.
The Importance of Knowing Your Metrics
In business, everything comes down to numbers. These numbers will show whether your company is a worthwhile investment or not.However, more than just showing your conversion rates and profit in plain terms, knowing these metrics shows that you are serious about what you are doing. Click To Tweet
Sure, lots of people out there have cool ideas, but few people have the discipline and know-how to execute them with intention. Especially if you are in the early days of your business, your metrics might not seem all that impressive.
Angel investors tend to offer more forgiving terms for startups than venture capitalists, and should be prioritized when possible.
Remember, it’s quite rare that something goes from an idea to a billion dollar business. All serious investors know this.
Even if your metrics are lacking at first, your understanding of them is what shows promise. Investors can trust you know what’s going on in your business. Without this information, investors would be flying completely blind. They would have no idea how your business is actually doing and what changes could be made to improve and scale it.
In this case, it’s unlikely that anyone who knows what they are doing will invest in your business. Here are some solid metrics you can offer investors at your next meeting.
This one might seem obvious, but it involves a lot more information than you might think at first. Remember, you don’t want to just hand over a bunch of numbers without context, and not be able to discuss them. You essentially want to paint a complete picture of your business.
Be able to break down your revenue monthly and yearly. You want to be able to show exactly what you have made, and also why and how you have come to that revenue. Your startup’s potential to make revenue is one of the biggest contributing factors to piquing an investor’s interest.
For example, you should know which acquisition channels drove your revenue. Did you run an incredibly successful influencer marketing campaign for example?
Have the foresight to keep track of any advertising you do. Before you launch any campaign, social media account, or anything else, know how you will track it. It is very difficult and sometimes impossible to get these numbers accurately far after the fact.
Know your revenue, your costs, and your margins. Margins are especially important if you have a high cost of goods, or are an ecommerce company with delivery expenses.
At the same time, investors want to see that you are responsibly investing back into the business and making an overall profit. Keeping operating costs and unecessary expenses low to show potential investors their investment is in good hands. Your startup will be better off observing the art of frugality for the sake of its long-term viability.
To keep it simple, you want to know exactly how much you are spending and making, where your money is going, and where it’s coming from.
1. How much did you earn last month, what are you projected to earn this month, and next month.
2. What channel in your funnel provided the best customer conversion rates.
3. What is the monthly premium for your product or subscription?
4. How much of your revenue is due to your product vs. consulting.
5. What are your margins excluding marketing?
Margins are especially important in E-commerce and companies with high cost products.
This comes down to showing that you understand who is using your services, how they are using it, and how much it cost to get them there.
How much are you spending per acquisition? How successful are your website or social media profiles at generating conversions. Show investors exact numbers of who is clicking and how much it cost to get them to click.
For apps especially, these next numbers are incredibly important, but they can apply to different business offerings as well. However, the same ideas of “good and bad numbers” cannot be applied universally.
For example, an engaging and effective daily bullet journal app would be more likely to have active daily users than an app that aggregates recipes. While you should use a daily journal everyday if you choose to do so, not everyone tries out a new recipe every day.
Regardless of what your business is or offers, you need to know how many active daily and monthly users you have. You need to know if the people who download your app are continuing to use it, use it only occasionally, or are abandoning it entirely.
If you have a subscription service, is churn high? Why might that be? Provide as many answers as you can.
1. What is your cost per acquisition?
2. How well is your website converting customers?
3. How many active users do you have daily?
4. What is your retention rate?
5. What is your monthly churn?
Investors in the early days of start-ups are not looking for something that is already a powerhouse, but something that they believe can become one. Click To Tweet
You need to be able to quickly and honestly tell them exactly how much money you have raised to date, what you are currently raising, and the terms attached. If you have raised a lot of money but don’t have a handle on it, that will not likely inspire investors to work with you.
If you have not raised any money yet, be open about that as well.
Even the Airbnb’s and Doordash’s of the world all started at initial investor meetings with little to no funding. It is more important that you convey the exact truth of your circumstances and show that you are knowledgeable, professional, and in control.
If you’re wondering about the impact of the pandemic on fundraising, a recent survey shows us that other than the initial slump seen when the world first locked down, valuations remain steady and VC firms have no plans to slow down investing in 2021.
1. How much have you raised so far?
2. How much are you raising now?
3. What were the terms in your last fundraising round?
4. What are the terms in this round?
Pragmatic Milestones, By The Numbers
Here is where many start-ups, and even sometimes larger companies, run into trouble. It is easy to use buzzwords and get excited about “disrupting the industry” and “revolutionizing” things. In fact, in some cases, theatrics do land investors. However, what theatrics rarely accomplish is long term success.
This one is simple. In crude terms, you are asking someone for money. Of course, they want to know exactly what you are going to do with it. Even amongst friends on a small scale, it would be strange if your friend asked you to lend them $50, but was vague about why they needed it.
How likely would you be to give it to them?
When it comes to business, we are talking about large sums of money, being exchanged between strangers usually, so you need to get specific.
Tell them what you are going to do with their investment and what milestones you expect to hit due to it. Also, let them know exactly which metrics you use to measure success, and why.
1. What milestones are you expecting to hit with the current fundraiser?
2. What metrics do you care about when measuring the health of your business and why?
Again, there are so many metrics that you can look at to figure out the health of your business.
Only a few of them are covered here. While it is unnecessary, and likely unproductive, to track every metric that exists and present them in one shot, you want to make sure that you have enough to give a clear picture of how your business is doing.
You may even decide to focus on more, less, or different metrics than we have talked out.
Do what works for your business.
While business is a numbers game, it is also a people game. That is why even showing lackluster numbers puts you miles ahead of beginners who have no idea of what their metrics are at all. Your business will not succeed, fail, grow, or stall, in a vacuum.
A good part of this will depend on the choices you make, the quality and quantity of your information, and how prepared you are.
Showing investors that you are serious, organized, and know what is going on in your business will only build their confidence in your venture.
What do you think? Which metrics do you think are the most important?
Talk to me.
About ChopDawg.com: Since 2009, we have helped create 350+ next-generation apps for startups, Fortune 500s, growing businesses, and non-profits from around the globe. Think Partner, Not Agency.
Follow us on Twitter
Like us on Facebook
Double-tap us at Instagram
Connect with us on LinkedIn
Find us on social at #MakeItApp’n®