Question

What financial and non-financial KPIs do venture capitalists look for when they finance a startup organization? Also, identify what factors should be kept in mind by the entrepreneurs in choosing the right set of investors for them.

Answer 1

The financial KPIs that venture capitalists (VC) look for when they finance startup organizations are cash flow, revenue, customer acquisition, and churn and renewal rates. A VC will start by looking at gross burn rate and net burn rate and then look at free cash flow metrics. In terms of revenue it will look at committed monthly recurring revenue (CMRR) , annual recurring revenue and annual run rate revenue. It will then look at customer acquisition cost payback period and CMRR churn and renewal rates. Revenue growth rates and IRR (internal rate of return) are the primary financial KPIs for VCs.

In terms of non-financial KPIs that venture capitalists (VC) look for when they finance startup organizations the primary KPIs are customer satisfaction, market share, innovation index, employee loyalty, and product metabolism. Product metabolism is the speed with which decisions are made with regards to a product and then implemented.

The factors that should be kept in mind by the entrepreneurs in choosing the right set of investors are the ability of the investors to provide managerial guidance and support, ideological fit with the investors, reputation for funding repeat round of investments, and the level of influence that they command in industry.