We’ve all heard of “up and to the right” – what every investor wants to see across all of your growth metrics. But this isn’t always the story for even the most successful startups. Scott Jacobson and Tim Porter, Managing Directors at Madrona Venture Group, came by Create33 to give us some insight on what they look for prior to making Series A investments in SaaS companies, and how founders can use metrics to tell a company’s story.
Do you have a product that will sell for years to come?
Net ARR Growth is a great metric to use when showing that you have product-market fit and a repeatable sales strategy. A good target for seeking a Series A funding round is to have $1 million in net annual recurring revenue (ARR), but this isn’t an absolute. It can be just as compelling for investors to see that you have a list of customers who are discerning buyers, even if your net ARR is below the million dollar mark.
Are your customers happy?
Net Retention Rate helps tell the story of customer satisfaction. Are your customers delighted and renewing, or expanding the scope of their contracts? Or are they churning or decreasing their contract scope? While gross retention rate can help showcase how excited customers are about your product, showing that you’re able to bring in and keep more accounts than you’re losing builds a strong case for investment.
Depending on the product, layering Transaction Repeat Rate can show that customers are so delighted, they’re purchasing multiples of your product.
Are you making money?
Gross Margins is critical, as investors look at the financial value of a company based on the margin. After all, that’s the amount that you’re making.
If your young company doesn’t have the historical numbers necessary to calculate Lifetime Value (LTV), you can use payback. Payback is the amount of time it takes to recuperate the cost of acquiring a customer, and thus another indicator that you are, or can, make money.
How efficiently are you running?
Overall Burn Rate tells investors how efficient you’re able to be with your resources. Other useful metrics include Payback on sales and marketing, as well as sales representative productivity in your first year, and how that’s changed leading up to your Series A.
Investors like efficiency so much that they will often give the advice to bootstrap your company for as long as you can before taking investment. This generally means that you’ll have better numbers when you’re raising and will continue to be efficient with any investment dollars.
And of course…
How are you starting to scale?
Win Rate of leads, New Revenue over each quarter, and Sales Efficiency are all metrics that tell the story of how you’re continuing to add new customers. Showing what companies are signing onto your product can make this an even more compelling investment story. With Series A being known as the “scaling round,” it’s critical to show that you’re off to a good start and that you have a strong strategy for how to lean into it as you obtain more resources.
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