…according to a Venture Capitalist.

Point Nine is a European VC focused on early-stage SaaS companies. They invested in Algolia, Loom, Typeform, ChartMogul, Zendesk and ScreenCloud (the company I co-founded). One of their partners, Christoph Janz recently gave a talk at the SaaStr Annual Conference about the key metrics that investors are looking for.

I think this is an interesting subject not just for companies thinking about going for investment, but for any SaaS company who wants to get things on the right track. Why do I think this?

1. Investors, by and large, know what they’re talking about when it comes to indicators that predict success. So this is just good practice.

2. Getting your ducks in a row now will help if you ever do want to go for funding in the future (or be acquired). As Christoph says, you really want to be able to show about two years’ of historic data. Better for you to start collecting and analysing now than to have a mad scramble at the point when a potential investor asks for it.

3. You may discover areas where you are weak that you hadn’t appreciated. This means you can take action to remedy them now.

So what were the Four Key Metrics that mattered most to Investors? Let’s dive in.

#1 - KPI and Financial Essentials

We all have our financials in a spreadsheet ,right? But as Christoph says, you can go wrong here.

What you need to show is a spreadsheet with a bit of a narrative.

At the top you need to show, if you’re more of a Product Led Growth type of business: the number of Website Visitors > Trialists > Paid. If you’re enterprise: MQLs > SQLs > New Customers.

Below that you want to show your MRR/ARR with each component part. So, what is your MRR/ARR and how was the movement from month to month comprised? How much was New? How much Churn? And how much Expansion?

Below that your P&L. The key thing here is to break it out but not into so much detail that it’s meaningless. As Christoph said “Keep It Simple. But Not Too Simple..” You don’t need to show every Cost Category in the P&L spreadsheet that your accounts platform spits out. Nobody cares how much you spent on postage. Instead break it into the functional parts so they can see how you’re prioritising spend:

Revenue MRR/ARR
CoGS
Gross Profit
R&D
S&M
G&A
EBITDA

Then finally, something about cash:

Cash In
Cash Out
Burn
Money in Bank

He also said that you should include your SaaS benchmarks. Which should at the very least have:

Customer Acquisition Cost (CAC) - with an explanation as to how that’s calculated, eg is it blended across all customers, or specifically the non-organic leads?

Burn Multiple - for early stage SaaS, the burn multiple shows efficiency in the way that the Rule of 40 does for later stage companies.

Burn Multiple is calculated as:

Burn Multiple = Net Burn / Net New ARR.

So if you burnt $100k and made $50k in New ARR then your Burn Multiple is 2. You want your Burn Multiple to be less than 4, but ideally close to 2 (or less).

ARR/FTE - how many people does it take you to generate your ARR? Very early stage it’s a bit irrelevant, but as you get bigger you need to be looking at it. We were always told $125k-$150k was a good target. If it’s too low, it might suggest your team is too junior. Maybe you’ve got lots of relatively inexpensive people who aren’t that productive. What might seem like careful cost management could be costing you productivity-wise.

Other things to consider:

1. You ideally need two years historic and two years forecast (unless you haven’t been going at least two years).

2. Your historic and forecast figures need to be in the same format, covering the same things, using the same monthly or quarterly intervals. Don’t suddenly switch from one format to another because an investor will want to join the dots. The S&M line in your historic figures can’t just disappear and be bundled into one ‘expenses’ line for your forecasts.

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OK - that was the most data-heavy one. It’s also the one you might include in a pitch deck. The next metrics you probably don’t need in a deck, but more likely once the investor has expressed an interest.

#2 Cohort Analysis

Cohort Analysis takes a group of customers from a specific month and looks at how they behave over time. Chart Mogul provides an explanation and an example of a typical Cohort Analysis. In this case representing customer churn.

What this shows is that the oldest cohort at the top has the most months of data (because they became customers earlier). Each month you see how much that Cohort has churned relative to the previous month. A strong green is a low churn and a red month is a high churn and one to worry about.

But you might want to show Net Revenue Retention, too. Or you may want to show usage stats. The key thing is that you want to demonstrate an improvement over time as that shows that you are getting better at finding Product Market Fit (which in turn is making you more efficient and better at scaling the business).

#3 Marketing and Lead Generation

Tracking what you are spending your money on and how that is translating into leads is really important. If you don’t know this information, then how are you possibly managing the investment you do have on Lead Gen?

An ideal report would show:

1. Channels you are spending your money on: Facebook, LinkedIn, Google for example.

2. For each of those, the Conversion to Trial (for a PLG business) or SQL for Enterprise.

3. The Cost per Conversion.

Again, you want to show some method behind your spending decisions. Were you able to make month-on-month improvements? Or were you doubling down on a channel that was outperforming the others?

#4 Sales and Pipeline

There may be a variety of ways you show this, but it has to make sense for your business.

You should have stats that show your different funnel stages in your pipeline (from Awareness to Closed Won) and how much ARR was in each. And it really needs to be month-on-month. What we’re trying to demonstrate here is an improvement and a direction forward that shows greater sales over time.

One thing that Christoph pointed out was that this way of showing your pipeline also demonstrates how disciplined you are and whether you’ve really understood your ICP. If, over time, you see the top of the funnel or the middle of the funnel becoming larger and larger, but your Closed Won figure staying more or less the same, then that suggests you have a problem somewhere along the line moving prospects through the sale process. Maybe it’s a sales team issue or maybe you’re driving poor quality leads.

And whilst investors want to know this, surely as a business owner you really want to know this too?

To sum up

We don’t think this stuff is important only when we’re ready to speak to investors. These things are vital to understanding your business regardless of whether you ever intend to raise money or not.

Start as soon as possible to track and record these things, even if to begin with not much changes month to month.

Make sure you have a regular cadence of pulling the numbers together and presenting them, even if it’s just to your co-founder to begin with. The habit of doing this is something you need to get into. At ScreenCloud I updated our numbers on a daily basis as we had 10,000 customers and every day there was a lot of change. But, at least on a monthly basis, someone should be pulling all of this together.

Then when and if you do come to raise money, you’ll feel super smug as you effortlessly populate your data room. Plus you’ll have all the answers to tricky questions instantly to hand ;-)