8 Critical Things Top VCs Look for When You Pitch Them

What do venture capital investors look for when you walk through their door? The first thing is that you know your business. For cloud or software-as-a-service (SaaS) companies, this means knowing the metrics that drive the break-out companies in the industry.  As this year’s SaaStr Annual starts, and many of the upwards of 10,000 attendees meet with the 300+ potential investors, this is top of mind.

I recently had a chance to sit down with Paul Morrissey of Battery Ventures to chat about what he looks for when SaaS entrepreneurs come meet with him. As you will see, there are a series of key metrics you need to know backwards and forwards when you are raising funding for a growing subscription-based business. You want to start thinking about these metrics, understanding their nuances, and managing them for your business at least six months before you start trying to raise your next round.

If you aren’t familiar with Paul, he has a wealth of experience in this area, having invested in firms like Gainsight, PrimeRevenue, and WebPT. Paul was also named to the Forbes 30 under 30 list of game changers and innovators. Here are the top things he looks at when evaluating potential investments:

  1. What are your New Logos. You will want to focus on explaining what your Ideal Customer Profile looks like. Show the brand names and penetration you are getting into your target market and the repeatability of your approach.
  2. Total Monthly Recurring Revenue (MRR). Don’t just present the growth in your revenues. Keep digging deeper and illustrate the results by each area of your business and highlight any new areas you are expanding into.
  3. Committed Monthly Recurring Revenue (CMRR) added in a month or quarter. You want to show where you are headed. Detail how your recent investments in Sales & Marketing are paying off with your most recent sales trajectory.
  4. The amount of Upsell in CMRR. This is important for several reasons. First, it shows the growth you are getting out of your existing revenue base. It also shows the increase in Customer Lifetime Value (CLV) and that gets you a great return on your initial investment in acquiring the customer. But perhaps most importantly, it shows the value you are bringing to your customers and how they are leveraging the impact you are making for them to making their business better.
  5. Churn. The counter to growth is when someone leaves you for some reason. This can happen from death or marriage (bankruptcy or acquisition), but it can also show a shift in what customers want or what your competitors are doing. Know the data behind your losses, both in terms of logos and in revenue. And have the ability to analyze it through all the different dimensions of your business, such as customer segment, geography, or industry.
  6. Downsell. When it is not outright loss, where do you have leakage in revenue? You want to be prepared to discuss the reasons and your plans on how you are addressing it.
  7. Sales Rep Productivity. This is good indicator of a company’s ability to continue to deliver growth. You will want to look at this by overall average and also the rep stack ranking. This metric also gives you the opportunity to coach your team, as well as understand what is happening upstream in the lead funnel.
  8. Average Contract Value (ACV). This metric gives you a great gauge on the results of your marketing positioning. It also shows where your product roadmap decisions are giving you differentiation so you can deliver higher ROI to your clients.

Confidence is contagious. Having real-time access to these metrics and broader financial and operational data allows you to know your business and drive its growth. It also gives you and your management team facts to make decisions upon, instead of those emotional meetings rife with disagreements based on opinion and conjecture.

One of the best ways to be more metrics driven when running your business is by leveraging a modern, cloud-based financial system. You will want to look for a solution that offers a multi-dimensional general ledger that allows you and your finance team to capture the business context of your transactions, operational measures, and budgets. This enables you to more quickly access reports, dashboards, and Digital Board Books that go beyond just the basic financial aspects of the company and analyze real-time business performance by business drivers–without having to manage a chart of accounts with hundreds of segments.

After all, nobody likes getting information from five-page reports or month-old PowerPoint charts. But everyone benefits from anytime, anywhere access to better insight. And for those of you fund-raising from VCs like Paul, it shows your potential investors that you truly know your business.

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[ Published: February 6, 2017 ]