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Private Equity

8 KPIs that matter most to VCs in a bear market

Posted by sayam

August 9, 2022

8 KPIs that matter most to VCs in a bear market

Before considering an investment, venture capitalists require precise information as to what the business seeking funding has accomplished, as well as what remains to be done. To do this, VCs rely on an array of key performance indicators to help minimize risk and maximize returns.

In an economic downturn in particular, KPIs that convey efficiency come to the forefront for VCs. They want to know that you’re building a highly efficient business before making an investment decision. Among the most important KPIs that VCs will be considering are:

Revenue growth rate

The revenue growth rate KPI measures the rate at which your annual recurring revenue (or sometimes month over month revenue) is growing and provides an indicator of how fast your startup is scaling.

Cash runway

Businesses should aim to have enough cash on hand to continue general operations for at least 18 to 24 months. Cash runway refers to the duration of how long your cash reserves will last before you’ll need additional funding.

This figure should be recalculated at regular intervals since it can change over time. Maintain as much runway as possible to attract potential investors.

Gross profit margin

The gross profit margin KPI measures how much profit you earn on each sales dollar before factoring in expenses. It helps investors evaluate your business’ efficiency at generating profit for each dollar of costs involved and lets them compare its performance against competing firms.

Talk to us about how our outsourced business services can provide your business with metrics to create forecasts and drive improvements.

Average sales cycle length

The average sales cycle KPI refers to the average amount of time from first contact with a lead to closing a deal, which varies depending on the type of industry.

This KPI is used to assess the overall performance of your sales strategy. The shorter the length of the sales cycle, the better.

Burn multiple

The burn multiple KPI represents a business’s burn relative to its revenue growth. First coined by entrepreneur David Sacks, this KPI measures the efficiency of growth.

The smaller the burn multiple is, the more efficient the growth is; the higher it is, the more you're burning to achieve every unit of growth.

Customer acquisition cost

The customer acquisition cost KPI represents the amount of money your business must spend, including sales and marketing efforts, to acquire a single new customer.

Monitoring your business’s CAC confers the benefit of helping you stay on top of which marketing strategies are working best. When times are lean, you do not want to waste cash on ineffectual tactics.

Customer acquisition cost payback period

The CAC payback period KPI measures the number of months required by a company to recoup the initial costs to acquire a new customer. It shows investors how well the business drives return on invested capital.

Customer churn rate / retention rate

The customer churn rate KPI measures the number of customers you lose in each period. A high churn rate and low monthly recurring revenue necessitate immediate action, as retaining customers is easier than acquiring new ones.

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sayam

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Private Equity

8 KPIs that matter most to VCs in a bear market

Revenue growth rate

Cash runway

Gross profit margin

Average sales cycle length

Burn multiple

Customer acquisition cost

Customer acquisition cost payback period

Customer churn rate / retention rate

Want more?

Authors

sayam

Featured Downloads

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