When raising a Series A round of financing, founders need to focus on the metrics that demonstrate the potential of their company to investors. Post prototype, pre-product market fit. Here are five metrics that founders should track and be prepared to discuss (albeit business model dependent):
1/ Monthly Recurring Revenue (MRR): This is the amount of revenue the startup generates each month from its recurring revenue streams, such as subscriptions or service contracts. MRR is a key metric for SaaS and subscription-based companies as it shows the (current + potential) predictable and sustainable revenue stream over time.
2/ Customer Acquisition Cost (CAC): This metric shows how much it costs the startup to acquire a new customer. A lower CAC means the startup is more efficient in converting marketing and sales efforts into new customers. Ideally, the CAC should be lower than the average customer lifetime value (LTV). CAC is a pretty poor indicator though for early-stage companies, so there are many nuances to consider.
3/ Churn Rate: This metric shows the percentage of customers who cancel their subscriptions or stop using the startup’s services. A high churn rate means the startup may struggle to retain customers and need to focus on improving its product or services (& create better cycles between engineering + product + whoever is selling at the current time).
4/ Gross Margins: Gross margins represent the revenue the startup retains after accounting for the cost of goods sold. A high gross margin means the startup has strong pricing power and can invest more in its growth. Make sure you know yours, as investors will likely understand what your cohort’s GM is.
5/ Runway: This is the amount of time the startup has until it runs out of cash, assuming no new funding is raised. A longer runway provides the startup with more time to achieve its business milestones and demonstrates its financial stability to investors. Coupling this against the burn rate will help you understand if the company is raising the correct amount of capital (and being capital efficient).
It is important to note that these metrics are not the only ones investors may look at when considering an investment in a startup, and the importance of each metric may vary depending on the industry and stage of the startup. However, founders that can demonstrate strong performance across these metrics will likely have a better chance of raising a Series A round.