VCs often have limited time and only want to hear the important figures when startups pitch to them. How can entrepreneurs know what are the metrics that VCs wish to see? In this post, Cem Sertoglu shares the kinds of metrics startups should share when presenting to VCs.
Cem Sertoglu is an entrepreneur and venture capital investor, focused on technology ventures in Turkey and CEE since 2006. He is currently a Partner at Earlybird Venture Capital in Istanbul. Cem Sertoglu is also a Mentor of the Istanbul Founder Institute.
The article "How to Share Metrics with a VC" originally appeared on Cem Sertoglu's website. It has been republished below with permission.
We see about 1000 pitches every year. That's about 20 per week. With the majority of these, we know that it's not for us within the first 15 minutes. We do engage further with about 400 startups every year.
The first engagement is either an in-person meeting or a call. This is the step where we start to demand metrics and data from these startups, and frequently, it's a painful process.
What we typically like to see is three sets of information:
1. Historic financials
Here, I don't necessarily mean the statutory income statment, but sometimes, they work as well, as long as they reflect the management's view of the company's operations. What we look to see is a summary of the monthly economic activity or the business, and perhaps, the unit economics. Typical items we looks for are:
- The Top-Line Figures (GMV, Gross Revenues, etc.)
- Cost of Goods Sold
- Gross Margins
- Operating Expenses (Salaries by function, Marketing Expenses, G&A, etc.)
- EBITDA
We prefer seeing these in your local currency, monthly, and broken down to its natural components, that tell the story of your business.
2. Forecasts
In your forecasts spreadsheets, we like to see both a top down and a bottom up approach, to make sure they support each other. By top down, I mean starting with the total addressable market data, and narrowing to get a sense of what size a slice you'll ultimately have of that market. By bottom up, I mean checking your growth projections agains the historic patterns. Ideally these numbers are broken down monthly. If you are foreseeing any jumps, we like to discuss why.
3. Other Key Metrics
Non-Income Statement Metrics
The third spreadsheet we like to see is your non-income statement metrics. These give us the best sense of how you see your business. Essentially, this is the KPI dashboard you look at to manage your business. It may include data on your traffic, level of engagement, the number of suppliers, salesperson productivity or hours of content, etc.
Customer Data
One set of metrics we find useful in almost all types of businesses is customer data. Whether you are an enterprise or a consumer business, the most valuable assets of most startups are their customers. Therefore, demonstrating to us how your customers behave once you acquire them, using data, is critical. Tools like cohort analysis allow us to have productive discussions with you about your business.
I'd urge any startup talking to VCs in iterating and refining these three sets of information before proceeding too far in their conversations. Not only will it keep the process with VCs more efficient, it will improve your understanding of your business.
For more insight from Cem, check out his website or follow Cem on Twitter @CSertoglu.
Click here to sign up for the Founder Institute's newsletter.
