We meet thousands of founders per year, and sometimes we’ve walked away not quite sure what stage the company is at, or how it makes money. At times, we’ve had to dig our heels in and ask a series of probing questions. A founder’s job is to be a master storyteller, and seed all the information an investor needs to seriously consider investing in your company. If you are sounding out investor interest for your early-stage startup, here are some tips and tricks around framing your communications.
Commonly, we see founders lead with their most impressive-sounding metrics. But these statements leave questions unanswered, and they don’t tell the full story of how your company is performing. Here are some examples:
We have four tips to help you tighten your narrative and demonstrate to investors you understand the core levers of success in your business, and that you monitor these like a hawk.
1. Define your most important metrics, and showcase your laser focus on these
Avoid metrics that have the highest numbers and instead focus on metrics that are the most important. Investors want to see how you think about your 'north star' metric to understand what moves your growth needle and how additional funds will supercharge your business. You can turn areas of weakness into strengths by showing the investor you understand which levers to focus on to really drive success.
These metrics will be different for different types of companies and may change over time. For example, SaaS businesses have to answer questions that get to the heart of monthly recurring revenue (MRR) like:
- What percentage of your total revenue is recurring?
- How much MRR did you add last month from new customers?
- How much MRR did you lose last quarter from churn?
- How much MRR did you add last year from upselling existing customers?
Meanwhile, marketplace businesses should focus on Gross Merchandise Value (total amount of sales that pass through the platform), Gross Transaction Value (percentage made off the GMV) and one-off transaction fees (like initial set up fees). Be as clear as possible about your model before getting into how much you make.
2. Think critically about the appropriate time-frame to tell your growth story
Revenue doesn't mean anything without context. It's very different to say you've had $300,000 in revenue over the life of your company, to $300,000 in monthly recurring revenue. There are two things to consider:
What interval shows my trajectory best? The answer depends on your sales cycle length and how fast your company is growing. If your sales cycle is short and you’re growing quickly, put your weekly numbers on show. If you have a longer enterprise sales cycle, a monthly or quarterly interval might be more appropriate. No matter what, avoid annual numbers! They don’t provide granularity and things change far too fast in startup land for it to tell a good story.
How far back do I show? As always, it depends on the story you’re telling. It might be best to show the story since you’ve landed on your current model since your latest pivot, or you may want to walk an investor through the entire history of your company explaining the impact of pivots on your traction.
3. Use simple data visualisations to support your story
We love to see simple charts that help us understand your growth story at a glance:
Put it in your pitch deck, or email it over before your meeting - and don't be afraid to show the bad parts! Remember: very few companies grow consistently and predictably, and everyone loses customers and makes mistakes. Show this in your story and explain your learnings along the way.
4. When you update investors, be consistent and comprehensive
If you end up adding an investor to your updates - either before or after they’ve made an investment, be consistent in the metrics you report on. If your ‘north star’ metric is MRR, or number of active customers, or gross marketplace volume, report on these every update, and include the growth rate. If you neglect to report on a key metric, an investor may be inclined to assume that something’s gone wrong.
Importantly, metrics can include non-financial ones. Main Sequence Ventures’ ‘slam dunk financing’ guide has four categories:
- Team — new hires, team size, geographic location.
- Customers & Partners — evidence that people are starting to value working with us.
- Utility & Proof — product evolution, confidence in the usefulness of the product
- Revenue — is it kicking in?
We hope that these tips help you put your best foot forward, and ensure investors come away with a good understanding of your business. As an added bonus, following these tips will help you to pre-empt some of their probing questions, freeing up time to dive deeper into some of the more interesting parts of the business.
Know an early-stage founder who’s starting to pitch to investors? Share this article and send them our way!