The Changing Face of Investor Metrics

Written by Katie Mills, Co-Founder of UK Blockchain Lab, StateZero Labs.

For those of us who have been part of the early stage tech community for some time, we are all accustomed to investor metrics, and to all the acronyms. MRR, ARR, LTV, CAC, ROI… the list goes on.

But have you ever heard that the Eskimo have 50 different words for snow? Similarly, VCs live and breathe investment, so the vocabulary for their business is pretty comprehensive, yet the main theme that runs through all of them is the focus on monetary returns.

Now don’t get me wrong, as an investor myself, of course the money metrics are important. Let’s be honest we are all hoping to invest in a startup that gives us that 100x return, but to what extent are we sacrificing the wellbeing of the people running these startups for our own personal monetary gains?

We hear the term ‘burn out’ a lot in the startup world; in fact, it has become a badge of honour to have suffered, but surely we should be calling this out for what it really is, neglect!

With huge pressure put on the shoulders of founders, especially once they secure investment, is it any wonder that 65 percent of failed startups fail for avoidable reasons like co-founder conflict and relationship breakdowns. All of these experiences are exacerbated when founders are in a time of high mental and emotional strain. We have seen a lot more in the press recently on the mental and physical strains that founders endure.

Remember, you should be working every hour under the sun, not have time for friends and family and be on the verge of either screaming and crying at all times, otherwise do you really know what it feels like to run your own business?

There is no other part of your life that would make this socially acceptable so why is it we accept it in tech and how effective is this mindset for ROI? At StateZero Labs, we strongly believe that investors have a vital role to play in protecting the emotional and physical wellbeing of the human beings behind the companies they invest in, but how as an industry do we change the conversation and act, rather than just always discuss?

Well the answer, I believe, lies in metrics. Yes that’s right, metrics of all things, and more importantly the changing and interconnecting of metrics.

As an early stage investor and supporter of startups, we tell founders all the time how they are uniquely placed as individuals to solve the problems they are tackling because of their own unique insight or industry experience, so why do we not realise that the most important part of our investments are the founders?

Surely this alone highlights the importance of looking after the people who we believe are uniquely positioned to run these businesses. They need to be functioning at peak mental and physical levels in order to deal with the trials and tribulations of running a startup so this is why, at StateZero, we are starting to ask for the following metrics as well as the traditional ones:

  1. Holiday. Are founders taking holiday and if so how much every year? This is just time for them to switch off and recharge their batteries in order to come back fully refreshed to the office. This doesn’t have to be sat on some exotic beach drinking piña coladas. It can literally just be a week of sleeping, making time to relax and doing the things you want to do personally that inevitably get pushed aside. A founder of a very successful startup recently said at an event I went to that burn out was not just about the hours you work but the things you have to give up that you love!
  2. Sick leave. Seems like a no brainer but how many sick days do founders take and when they take them to they actual take a sick day and rest and recuperate or do they do what we all do and just work from home when really should be resting so we can get back to work quicker.
  3. Wellness budget for staff. When looking at budgets and cash flow projections, one thing we are always looking for is how startups are planning on looking after themselves and their staff. Making sure budget is set aside for this, no matter how small, means that wellbeing is a priority.
  4. Team retention rates. If a startup has really high team turnover, it says to us that something is fundamentally wrong with management and/or the environment internally. This is an important metric from an ROI standpoint too as its expensive from both a time and money standpoint to keep training new staff.

The above is just a starting point for us. We are constantly re-evaluating these metrics and now starting to track the tangible effects the above has on the monetary metrics. We ultimately believe in bridging the gap between humanity and tech and what better place to start than with the founders we are investing in.

As investors start to wake up to the fact that a healthy business equals a healthy founder, hopefully we will start to see a change in metrics and conversation and ultimately more successful startups with healthy founders at the helm.