5 Key Financial Metrics with Formula for Fund-raising. Fundraising pitch should be completely focused on the investor's requirements.
An effective fundraising pitch should be completely focused on the investor's requirements. To discover out what they're looking for and how your opportunity aligns, you'll need to do your research in advance.
Presenting key indicators that show your business is a good fit for their needs is one technique to convince investors of your value in a way that makes sense to them. Metrics are a must for any startup at the Series A funding stage.
The indicators we highlight below are an excellent place to start when illustrating how your company compares to industry benchmarks, rivals, and the investor's prior agreements.
Depending on the needs of the investor and your particular business model, the ideal metrics for you to use may change slightly, but these five metrics are a great place to start and are figures that most investors will be interested in seeing.
(CURRENT PERIOD REVENUE ﹣ PREVIOUS PERIOD REVENUE) ∕ PREVIOUS PERIOD REVENUE ✕ 100
A successful fund raise will depend on your ability to persuade the investor that your company is expanding steadily in the direction of long-term success.
For the majority of start-up businesses, revenue growth is the best sign of growth. Even if your overall revenue is still rather tiny, steady revenue increase indicates traction and promise.
It's usually advisable to demonstrate your past growth and future growth estimates while pitching. This demonstrates to potential investors that you are a strong competitor, you are moving in the right direction, and you have some kind of product-market fit.
TOTAL REVENUE IN PERIOD ✕ # OF PERIODS IN ONE YEAR
Investors can evaluate the performance and health of your business using run-rate total revenue.
This statistic gives them exactly where you are right now, coupled with a straightforward prediction to indicate annualised growth, so hopefully you're telling them a terrific story about where you're headed in the future.
(CUSTOMER LIFETIME VALUE) : (AVERAGE CUSTOMER ACQUISITION COST)
LTV:CAC calculates a customer's lifetime value in relation to the cost of acquiring them. In other words, it informs you of the potential earnings from each new client.
LTV:CAC is a critical scalability statistic, particularly for companies that depend on gaining new customers for growth because it takes into account both the revenue produced by a client and the costs involved in obtaining that customer.
Investors will research this if your business depends on subscriptions or recurring revenue, and you should too.
(TOTAL REVENUE ﹣ COST OF GOODS SOLD) / TOTAL REVENUE ✕ 100
This is one of the most crucial indicators you can monitor as a young firm. Gross margin is the portion of income that remains after direct expenditures, such as materials and labour, have been paid.
It is not appropriate to include indirect costs like marketing, overhead, or salaries in the cost of goods sold.
The majority of fundraising pitch decks should include the gross margin number because it's a generally accepted indicator of how scalable and sustainable a business strategy is.
Before approaching investors, make sure your gross margin is strong. If your number isn't where you want it to be, face it head-on and let your investors know that you know why it isn't where you want it to be and that you have a plan to fix it.
(CANCELED MRR + DOWNGRADED / MRR AT THE END OF THE PREVIOUS MONTH) ✕ 100
Gross churn is a potent metric that can show customer loyalty and be used to determine whether a product is a good fit for the market.
Gross churn essentially calculates the percentage of monthly income lost due to cancellations and downgrades.
This statistic is crucial for companies in the SaaS industry and it may also be used to other business models.
Investors prefer to see a strong consumer base that is expanding rather than contracting. Make sure investors are aware of any reasons you expect higher-than-average client churn. Include this in your revenue and profit forecasts and be transparent about it.
If not, investors would infer a high turnover rate is a sign that there is a larger issue with customer satisfaction.
MRR AT THE START OF THE MONTH ＋ EXPANSIONS ＋ UPSELLS – CHURN – CONTRACTIONS / MRR AT THE START OF THE MONTH
A metric called net revenue retention rate calculates how much recurring income you keep each month. It takes into account acquisitions, retention, upsells, and growth. It adds a lot to early-stage pitch decks and is a universal health metric.
The ideal set of KPIs may rely on your particular business model, as we said previously. Let's now look at some instances.
Focusing on the lifetime value of their clients will help SaaS firms show their products' value. Investors occasionally require more information than just recurring income, such as lifetime value and the proportion of new vs existing clients that make up your retained revenue.
Here, the gross churn rate is crucial. A high churn rate is likely to be seen by investors as a sign of more serious issues with your user experience.
MAUs are a fantastic tool for SaaS companies to demonstrate overall growth. Investors could also ask to examine historical data and future forecasts regarding your margin, which can reveal scalability problems.
The distinction between the buyers' and sellers' groups of users makes marketplaces special. Gross merchandise value (GMV) is usually compared to revenue to demonstrate the proportionality of the growth of these two groupings.
Marketplaces must also display indicators like net income margin and EBITDA margin. These profitability indicators demonstrate the scalability and sustainability of the operating costs of the market.
Startups in the e-commerce space should prioritise engagement and conversion. The conversion rate (CR) reveals whether or not an online store can successfully turn visitors into customers.
The LTV:CAC ratio that we previously discussed will be crucial. If you can show that the lifetime value has increased over time, you should accentuate that.
Share engagement data like views, shares, and an overall engagement rate if you're gaining momentum on social media (ER). Sometimes all an eCommerce investor has to know about your product is that it's popular and people are interested in it.
Even though the ideal set of metrics for your business may be different, this list comprises some significant overall indicators that are suitable for inclusion in the majority of pitch decks.
Understanding your investor's preferences and providing proof that your opportunity is a suitable fit for their investment style are the most important things.
Do not attempt to obfuscate anything in your analytics that investors could find troubling. Be open and honest, identify the core problems, and define your strategy for solving them.
If you don't already have one, you should start building a solid financial model before approaching investors. You can answer any questions investors might have by using a model to go over the intricacies and underlying assumptions of your KPIs.
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