Keys:

1. The KPIs to track and figures to hit when performance tracking can change based on stage and sector. It’s more important to understand how the metrics serve the specific goals of the startup and whether they indicate that the company has the growth, sales, and customers to reach the next level before the zero cash date.
2. For early stage investors, it’s important to learn how “revenue” is tracked when you don’t have any. For startups, pick three metrics to measure early & often to quantify value and product-market fit.
3. Be sure to understand their sales method. There is not just one recipe that fits all startups; it’s more about justifying the rate and showing where the breaking points are.
4. Track churn over time. At the beginning, a company may have a higher churn, but it should refine and decrease as customers buy-in, love the product, and share it with others.
5. Burndown becomes significant when you understand the venture goals. What is the plan? With this level of burn, will you have enough employees and revenue to propel the company to the next level and justify the next round of funding? Map it out and strategize to understand the status of the company’s post-investment growth.

Pitch decks reviewed, due diligence completed, check signed, and capital deployed. What now?

How can you measure the success of your private market investments and portfolio overall? Have you validated your thesis or are there any changes you should make? How can you track your performance post-investment?

Choosing the right KPIs and tools to manage your portfolio is critical to managing your investment fund, but varies based on the company’s stage and sector. Many VCs have their own opinions on what numbers and figures to hit, but I find it more important to understand how the metrics serve the specific goals of the startup.

Based on the strategy laid out to accomplish X, Y, and Z, what are the steps and milestones your portfolio company needs to hit and are the metrics on track? And are they convincing enough to be agreeable?

Growth Rate

Growth rate KPIs change from sector to sector and stage to stage. Besides the obvious, it’s hard to know what growth rate is considered “good” and what’s “bad”. A consumer brand might track number of users, while it would make more sense for a B2B SaaS startup to track revenue and LTV to CAC ratios.

Jason Lemkin of SAASTR wrote about the top portfolio company metrics that VCs track post-investment, which included annualized recurring revenue (ARR). This is key but — depending on stage — there may not be any ARR to speak of.

For early stage investors, it’s important to learn how “revenue” is tracked when you don’t have any. For example, metrics like month over month user growth or product deployment can be used to start measuring traction.

The important part is to determine a baseline level of growth and measure early and often to quantify value and product-market fit over time. fiifi requests KPIs monthly from portco’s streamlining and reducing friction with the process. Productively visualize your metrics over time with our dynamic charts and graphs.

Sales

Sergey Toporov of Leta Capital has written about a number of sales metrics to track post-investment, such as lead velocity rate, TCV & ARPA, average sales cycle, and sales efficiency. These are good to track, but can be difficult statistics to find at the early stage unless your portfolio company already has a head of sales or sales management.

For early stage investors, I find it more important to understand the sales method. Finding the most effective and efficient sales method are key for building a sales team and promoting coopetition. If your startup has found the right sales method for their target customer and is replicating that success, they’re on the right track.

Marketing funnel metrics like conversions by channels can be helpful but it may be hard to measure and take a lot of time-consuming user testing.

A couple of sales methods figures to understand are the Customer Lifetime Value to Customer Acquisition Cost ratio (LTV:CAC) and deferred revenue cash conversion cycle. The months it takes to recover CAC should ideally be less than 12 months, but depend on the type of company. A hardware company will have a different ratio to a SaaS model and will depend on what’s comparable.

There is not just one recipe that fits all; it’s more about justifying the rate and showing where the breaking points are.

Deferred revenue has become more mainstream as companies like Pipe lend against SaaS models to provide money upfront without taking equity. As a VC post-investment, it’s important to understand the amount of cash up front versus the time it take to close and convert.

Customers

In addition to finding the right sales method to contribute to company growth, it’s important to understand the customer base post-investment. As Jason Lemkin wrote, “do your customers love you (so they will beget you more customers)?”

Again, contextualize customer metrics like month-over-month user signups in conjunction with the company’s overall strategy. Startups are constantly reinventing themselves as they learn more about the market and what their customers need. How do their numbers show they’re on the right track?

For example, at fiifi, we recently changed our pricing model from a self-service SaaS to custom service for each individual. The amount of signups per month dropped, but the quality of new user signups went up. In our stats, you would see a month to month dip. But if you look at the longevity of the company, this change will increase revenue and help us hit our milestones in the long run because we are now working with more qualified leads.

Make sure to measure customer type and understand customer retention. A churn model and analysis can be key for performance tracking. When it comes to early stage investments, a 2% churn is reasonable and negative churn is the dream, but make sure to track churn over time.

At front, a company may have a higher churn, but it should refine and decrease as customers buy-in and love the product.

Burndown

Another metric that Jason Lemkin wrote on is burn rate & zero cash date. At the growth stage, founders can analyze and adjust the burn rate to help manage their team. fiifi’s burndown calculator automatically calculates zero cash date for angels, fund managers, and limited partners.

As an early stage investor, burndown analysis gets more complicated. A lower burn rate extends the zero cash date, but a higher burn rate can be a good signal that the startup is spending money on valuable assets like engineers or salespeople. Unless the portfolio company is making little or no revenue, it’s hard to say necessarily if a low or high burn rate is better.

As Brad Feld once told my team and I while I was CEO of villij, “You have to run toward the cliff and just hope there is a net waiting there for you.”

It really depends more on the burn-revenue ratio combined with the venture plan. What is the plan? Was the $8M raise intended to give you 3 years of runway or 2? With this level of burn, will you have enough employees and revenue to propel the company to the next raise, revenue, or esoteric milestone? Map it out and strategize to understand the status of the company post-investment.

How often should you request KPI updates?

It’s never good to bother portfolio companies. CEOs & founding teams have enough to worry about. Some funds like LAUNCH expect KPI updates monthly, but the average angel doesn’t expect any updates at all — although they would love them. At the early stage, quarterly updates are typical.

We aim to reduce the friction involved for CEOs sharing KPIs and investors requesting KPIs. Via the fiifi software, we send monthly requests that founders can opt to fill out by simply replying to the email. This is an easy option for investors to stay on top of stats, and an efficient way for startups to communicate with investors and increase transparency.