Ammunition, A Key Ingredient for VC Fireworks
Dan Primack and every other deal-monitoring daily told me that 2014 was the busiest year for VC deals in recent history. VC lingo is rife with explosive metaphors, and last year people were ready to strike a match. I’m a sucker for the way they describe part of what happens between startups with investors. The right ingredients, in the right ratios, with the right spark at the right time can trigger the kind of fireworks that make everyone happy.
Getting those elements in place calls for calculation. That’s where the ammunition from companies figures in, and that’s where I invest most of my energy.
The ammunition I’m talking about is a team’s quantified progress toward product-market fit. What are a B2C’s MAU’s, a B2B’s retention rates? How’re revenue, burn rate? Andrew Chen’s metrics on traction, namely the holy 3:1 LTV to CAC ratio, stand as the benchmark.
Without these numbers, I might as well be doing a less-passionate soft-shoe than a green sales intern. I’m a decent dancer, but this isn’t my baby. The best thing a company can do is keep me updated on their numbers, which can stand on their own in a noisy coffee shop where I’m likely to trot them out to a potential investor.
Numbers get the attention of angels and institutional investors, and fresh progress from a company is a handy excuse to call someone up. Funders want to stack a potential investment up against their criteria, and the metrics allow them to easily track a team’s work over time. If they like what the numbers say, I can make the warm intro and get out of a founder’s way.
This focus on just the facts, ma’am, might cast me as a little cold, but it’s in everyone’s best interest. Yes, real, human relationships matter a whole lot, but they aren’t enough to make deals on their own. I don’t think I can overstate the power of regularly arming supporters, advisors, and cheerleaders with traction metrics. These people can harness the potential of access to capital and a startup’s demonstrated momentum to spark something spectacular.
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Follow Lizzy Hazeltine on Twitter @LizzyHazeltine.