Startup Metrics: Which Ones Matter Most to Investors?

What metrics are investors actually looking at when evaluating a potential startup? How do the key metrics change as the company seeking funding matures? What intangibles do VCs look for in a founding team? When you’re growing your startup and seeking funding, these are the questions you often think about.

It’s easy to find angel and venture capital investing advice out there, but not always as easy to parse through it all. We browsed through our LIVE Chats to date in search of advice from investors, and here’s what they said they look for when it comes to evaluating a new startup idea or founding team.

When you invest in a seed round, what are the most important metrics you look for in a consumer software startup? — Matt Silverman

Generally it follows a lot of the same concepts applied in reverse:

  • Is there a shipping product?
  • Are there users or customers?
  • What’s their experience like? Is it easy to “activate” or engage with the product or service or app?
  • How many users or customers are “active” and keep coming back? What does retention look like?
  • Are the unit economics cashflow positive, or can they be in the near future?
  • HOW DO WE GROW THE BUSINESS? What channels are currently working & scalable & profitable?
  • How do we get to sustainable/scalable growth, or sustainable/scalable revenue?
  • Are we sure the business will have downstream investors/acquirers?

Also: What color is the sky, and how do I feel about having lunch with this founder several times a year for the next 5 years? (Some things aren’t always analytical, and life is too short to work with assholes — except me, of course. ;))

Dave McClure, Founder of 500 Startups

There’s been a lot of discussion about inflated startup valuations and the venture market drying. What are your thoughts and what advice would you give to startups seeking funding in the next year? — Ryan Hoover

I hope you don’t mind a couple of links to my blog, but I just wrote about this topic:

But in short:

  • Keep burn as low as you can, but certainly “cut to scale” for your cash balance
  • Start raising early
  • Expect it to take longer (at all stages, but especially later stages)
  • Have the confidence to go for the investors and price you want, but the wisdom to accept a lower price or lessor target investor if the round is too slow. Capital matters more than maximizing price.

Mark Suster, General Partner at Upfront Ventures

How much growth would you need to see for [a startup] pitch to stand out above the rest? — Mike Hince

It really depends on the category/business. But for most companies, MoM organic growth is a very useful metric and depending on the base, 20–50% MoM growth can be good. Retention, referral, and churn are all things we look at, too.

Aileen Lee, Founder of Cowboy Ventures

Is there any particular pivotal moment, from either your own businesses or one you invested in, that turned the company from a slow-growth trajectory to a fast-growth one? — Lukas Fittl

Oh yes, most didn’t just explode. PayPal needed to discover the eBay listings. Yelp needed to wholly revamp its model from email to SEO and community — not friends. LinkedIn needed Outlook Uploader, reminders for invitations, SEO later, and finally identifying how to communicate the mainstream value prop. At Square, when I joined, it was not all obvious how to acquire customers/SMBs in a cost-efficient manner.

Keith Rabois, Partner at Khosla Ventures

How much do you value cost projections? — Jeffrey Doucet

At the early stage, I care more about costs than revenue because revenue is tiny and often unpredictable, whereas costs tell me how you plan to build your business. But what I’m really evaluating is (70%) the quality and ideas and capabilities of the team and (30%) how much I believe in the market opportunity.

Mark Suster, General Partner at Upfront Ventures

What kind of metrics you look at when evaluating an investment? Do you have an analyst on your team who gets involved?Alex Cook

We do have some great folks on our team who help us dive into metrics. But metrics even in the early days are too hard to forecast forward from. What we really look for are signs that some groups and communities of users are addicted, and any ways we can predict whether more groups and communities can become active on a product together. Broad–but light–engagement metrics are much less useful than finding at least some users who are very heavily engaged.

Josh Elman, Partner at Greylock

What is on your opinion, the best way to valuate a startup making no revenue? — Gauthier Maire

It’s really really fucking hard to assess valuation for early-stage startups, particularly those with limited usage and/or early or no revenue. I’ve been doing this for over ten years, and i still don’t fucking know! We guess a lot.

Dave McClure, Founder of 500 Startups

For a tech startup less than a year old, what should the focus be: growth or profit? — Tefo

Well, first focus on usage/activation. Then consider focusing on growth, as long as you can satisfy the capital needs of the business. Otherwise, you might have to focus on profit or revenue first before optimizing growth. Each startup is probably a little different, although growth is usually more important in the beginning.

Dave McClure, Founder of 500 Startups

What product metrics do you look for in a consumer investment, and how do you think about helping those companies once invested? — Derek Chu

We look for products that people are adopting organically, that they love, that stay on their phone’s home screen. That’s more qualitative than quantitative. Once we invest, however we can help we will. Lots and lots of recruiting. Lots of everything else. Company building is fun, but also tough, so we just try to help however we can. Greylock is a little unusual in that all of us have done company building before at scale, so we value it and can help.

John Lilly, Partner at Greylock & former CEO of Mozilla

When building something, how do we balance between what we feel strongly about and getting users to validate it? — Rajesh Agarwal

I have no fucking idea, but if you ignore users/customers and focus on your own gut instinct, you better goddamn be right. Most people are not Steve Jobs…and even Steve Jobs wasn’t Steve Jobs all the time. Watch customer behavior. Test all the fucking time. Keep iterating based on real-world data, not in your own fucking head. Your intuition will be 1000x better if you test it against the real world and users/customers.

Dave McClure, Founder of 500 Startups

How do you know when to give up and search for acqui-hire/soft landing, and when to plow forward? — Erik Torenberg

There’s no clear cut answer, but it usually comes down to a few things:

  • Are the founders still in love with the problem and their customers?
  • What’s the path to at least a break-even?
  • Is the strategy to 100M revenue business still solid?

Then I walk them through these questions and the opportunity cost of: a) keep going, b) soft landing, c) shutting it down and starting something new. [What I suggest] all depends on the context.

Dan Martell, Angel Investor & Founder of Clarity

Is it more important for entrepreneurs today to dream big dreams or attainable ones?Daniel Mirolli

You have to have a huge, big vision but take small steps. So for Uber, you need to make sure that the first 100 riders in the system get a great ride and don’t wait a long time, while still imagining 1,000 riders an hour across 300 cities getting a great ride. [Those are] two very different challenges. The important thing to remember is that products are experienced, typically, one user at a time. So, if you can’t make the experience magical for one person, don’t focus on anything else but making that one person delighted.

Jason Calacanis, serial entrepreneur & angel investor

It seems like most investors just focus on growth and metrics, but not all great things grow quickly. What do you say to entrepreneurs building products that take more technology to build up front? — Josh Elman

Mostly I think that all of these overnight successes are, generally, experiencing that in about the thousandth day or more of existence. Everything interesting takes time. So have a view of the world you want to build, and start to figure out how to make it. Find people who believe in your vision, get them to come along with you. Raise enough money to go. Don’t grow burn too fast. But mostly, make sure you know what your north star is; why you’re doing it; what you want to build eventually.

John Lilly, Partner at Greylock & former CEO at Mozilla

For more LIVE Chat insights follow @ProductHuntKeys and @ProductHuntLIVE on Twitter, and check out the full list of past and upcoming guests on Product Hunt.