Numbers Investors Care About When Looking at an Early Stage Startup.

🌈 Abstract

The article discusses the key performance indicators (KPIs) and numbers that angel investors, like the author, look at when evaluating early-stage startups for investment. It covers startup KPIs like engagement, growth, churn, and "magic KPIs", as well as market/business KPIs like market size, annual contract value (ACV), annual recurring revenue (ARR), burn rate, runway, and prior investment numbers. The article aims to provide insights for seed and pre-seed startup founders on the metrics that investors care about.

🙋 Q&A

[01] Startup KPIs

1. What are the key startup KPIs that the author looks at when evaluating an investment?

• Engagement: Understanding the startup's ideal customer persona, their motivation for using the product, the usage patterns, and whether the usage grows organically.
• Growth: Number of customers, growth rate, customer acquisition cost, go-to-market strategy, and whether the product becomes more valuable as it grows.
• Churn: Reasons for customer churn, whether inactive users are counted as churned, and what the startup is doing to prevent churn.
• "Magic KPI": A specific usage pattern that indicates a healthy, engaged customer.

2. What is the author's view on the importance of numbers versus other attributes when evaluating a startup investment? The author emphasizes that numbers are not everything, and that other attributes like the team's ability to build and launch an amazing product, and the investor's ability to help them do that, are also top considerations.

[02] Market/Business KPIs

1. What are the key market/business KPIs that the author looks at when evaluating an investment?

• Market size: Total addressable market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM).
• Annual contract value (ACV) / Revenue per customer: How much customers pay and the pricing model.
• Annual recurring revenue (ARR): The current revenue, its predictability, and growth rate.
• Burn rate: The monthly spending and plans for growth.
• Runway: The number of months the company can operate without further investment.

2. What does the author look for in the prior investment numbers?

• Current valuation
• Amount raised so far and from whom
• Cap table structure and potential issues like "dead equity"

3. What does the author consider when evaluating the deal terms?

• Pre/post-valuation
• Raising amount and who is leading the round
• Cap and discount in case of a SAFE (Simple Agreement for Future Equity) investment