Why Do KPIs Matter? The Most Comprehensive Guide on What it Takes to Raise a Growth Round
DDVC #52: Where venture capital and data intersect. Every week.
šĀ Hi, Iām Andre and welcome to my weekly newsletter, Data-driven VC. Every Thursday I cover hands-on insights into data-driven innovation in venture capital and connect the dots between the latest research, reviews of novel tools and datasets, deep dives into various VC tech stacks, interviews with experts, and the implications for all stakeholders. Follow along to understand how data-driven approaches change the game, why it matters, and what it means for you.
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Hot Off the Press!
Iām excited to share āThe Series B Blueprint: A Guide for Early-Stage Foundersā, the result of a strong collaboration between our team at Earlybird and our friends at XAnge aiming to provide the most comprehensive summary of what it takes to raise a successful growth round. In light of my work around Data-driven VC, I was lucky to contribute the probably most data-driven part of the project: Startup KPIs.
Why Do KPIs Matter?
KPIs play an essential role in the life of early- stage founders and investors. They are often the best indication on the surface level of a businessās underlying operational health. So it is helpful to understand from which perspective a potential investor will look at metrics ā before and after an investment.
Pre Investment
Analyzing a start-upās KPIs is a crucial part of the screening and due diligence process, providing the basis for informed decision-making. Depending on the stage of the initial investment, our evaluation criteria range from soft factors like team or value proposition assessment over more product-related metrics like usage or retention to commercial KPIs such as topline growth, unit economics or net dollar retention.
Showing oneās past achievements through meaningful KPIs can help a founder stand out among the high volume of pitches an investor looks through on a daily basis. It also lets the investor benchmark opportunities in a straightforward and objective manner. A classic quote within the Earlybird team is: āTraction never liesā - meaning if a company shows great metrics, there must be something getting done right, even though it may not be obvious at first glance.
On the flip side, looking into KPIs often also reveals early red flags in a business model, such as unhealthy unit economics; that can become troubling later on as the company grows. In many cases, a companyās current KPIs will also form the basis of valuation range expectations, (though some might say early-stage valuations are more of an art than a science).
Post Investment
With increasing maturity of a company comes increasing focus on KPIs. While at the early stages it is more often about a strong team, product, and differentiation, later stage investors will increasingly look for operational metrics.
Working together with the founders post investment, KPIs are an ideal way of setting and aligning goals and tracking achievements towards these. It also makes steering strategic decisions easier as youāll see their impact black on white. It quickly becomes all about predictability of generating revenues and a clear path to profitability at scale.
Your Northstar Metrics
Revenue, EBITDA, cash burn, gross margin, CM1/2/3, ARR, cARR, ARR per employee, new ARR, magic number, net dollar retention, CAC, LTV, payback timeā¦ the list goes on but there are few Northstar KPIs that help you to quickly get a health check of any startup/scaleup. Below is an extract from some of the KPIs included in the report. Full report below.
