“KPIs and performance metrics on their own are not the most important factor for an investor to consider investing in a company. More often, it's the founders’ understanding of data related to business operations and what they will do based on that data that distinguish a successful investment pitch from the rest.”
Last week, I spoke to a startup that seeks funding. 30 minutes into the pitch, I realized the founder did not grasp the key metrics related to his startup’s operations.
For example, he was not sure how many people visit his website monthly. In addition, he did not know the conversion rate from website visitors to customers, or the cost of each customer acquired. He could not even provide the average number of purchases each customer makes.
Not surprisingly, I decided to pass on his startup.
Truth be told, I did not pass on the investment because of “weak” performance metrics. I passed simply because the founder did not seem to know how well his startup performs.
On the other hand, even if the initial metrics were not too encouraging, I would still consider further due diligence, and even an investment, in the startup if the founders demonstrate their understanding on the key performance metrics, for 2 reasons:
- The founders have invested their time and effort into understanding their customer and business model.
- They have identified their startup’s strengths and weaknesses; therefore, they will be able to pivot or adjust accordingly.
Here’s the bottom line: if you do not have a firm grasp on the key performance metrics for your business operations, how can you be capital efficient enough to scale your startup, especially with a limited amount of time and resources at the early-stage?
Below, I’ll share the key performance metrics that our investors at Hustle Fund often ask founders.
1. Data on revenue
- What is your monthly revenue for the last three months?
- Which advertising channel performs the best?
- How much does your product/subscription cost?
- Which product line or segment performs the best?
- What is your gross profit margin*?
*Gross profit margins: an important indicator of the financial health of a company with high cost of goods sold.
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2. Data on business performance
- What is your cost per acquired customer (CAC)?
- What is the percentage of your site/app visitors being converted into paid customers (conversion rate)?
- How many daily active users (DAU) and monthly active users (MAU) do you have?
- What is your customer retention rate?
- What is your churn rate?
*Churn rate: an important metric for subscription-based service/business.
3. Data on fundraising
- How much have you raised to date?
- What were the terms for your last round?
- How much are you raising?
- What is your valuation expectation for this round? Have you had any other investors committed?
4. Data on milestones
- What is your run rate after this round of financing?
- What’s your current burn-rate? How much do you expect the burn rate to go up after this round?
- What are the milestones you want to achieve with this fundraise?
5. Data over time
- How have your performance metrics changed over time?
- How have different market channels performed for you over time?
This list of data is not exhaustive, but it is nevertheless a good starting point for startup founders who want a clearer idea of what will be asked of them in an investor pitch.
Mai Ho is a venture partner at Hustle Fund, covering the Vietnam and Southeast Asia markets. Mai was born and raised in Vietnam, and later graduated college in the U.S. with a double major in Accounting and Finance.
Mai has 10 years of experience working in London, Singapore, and San Francisco, from Equity Research at Goldman Sachs to Growth/User Acquisition in Silicon Valley. Previously, Mai also co-founded and exited e-commerce marketplace BigBalo.