From working with hundreds of founders we often hear, “what metrics and data should I be sharing with potential and current investors?”
Every investor will have a different preference for how you share things and when you should share them which complicates the process even further. Some may ask for data before the first meeting, some may want access to a data room, while some may not care about your metrics until later in the process. Regardless of the different opinions, it is important to have a firm understanding of your business before you set out on your fundraise to speed up the process.
As Fred Wilson, Founder of Union Square Ventures, puts it, “So the lesson for entrepreneurs is that you really need to have your house in order when you go out and raise capital. The more eyebrows you raise with investors, the worse it gets. And hair can get in the way of an otherwise financeable opportunity.”
Check out our 3 key areas you should have in order below:
Where to Start — The Market
When heading out to pitch a new investor it is important to remember that the conversation will likely start and stop at TAM (total addressable market). At the end of the day, a VCs job is to create outsized returns for their limited partners. One of the quickest ways to gauge if an investment can satisfy this is by evaluating their market. The ability to paint a picture of the market and where your company fits is vital in attracting a VCs attention.
Many early investors passed on Uber because their failure to model their full market size. Uber’s initial market size was presented as $4B and were only assuming that they would be the black car leader in the US. They failed to account for worldwide expansion, a lower price point ride offering, and their venture into food delivery.
Growth & Momentum
To further the conversation, you’ll need to display that your company is growing and headed in the right direction. More often than not comes in the plan of a business/financial model and historical data (which often ties into the market info above). However, it is important to be pointed in what specific metrics you share. Sharing too much data can lead to unneeded discussion and complicate the process. Sharing too little data and lacking transparency can be an easy way to start your investor relationship on the wrong foot.
Ultimately, you’ll want to make sure you are sharing significant momentum. While small wins are nice, you’ll want to make sure your company is firing on all cylinders. As Elizabeth Yin, Founder of the Hustle Fund puts it, “You also need to be having significant momentum. For example if you are surveying customers and then you start designing mockups for a prototype, that would be momentum but not significant.”
Margins & Customers
Customers (AKA revenue) are the lifeblood of any business venture. Without the ability to attract, convert, and retain customers a business fails to exist. Share the proper sales and marketing metrics that show you have a proven sales process that can retain customers.
Additionally, investors are looking to return a profit on their investment. Margins on your product or service are a large part for a company to become profitable and return capital to their investors. There are countless different resources for benchmarking your gross margins by industry. We suggest getting started with Baremetrics’ guide here.
Fundraising can be a long and stressful process. While we can’t guarantee what an investor will ask to see along the way, having an understanding of your metrics and a game plan for sharing them in advance will help ease the process.
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This guest post was written by Matt Preuss of Visible. Visible is on a mission to redefine the investor <> startup relationship to drive more success for everyone.