What data and metrics do you need to convince SaaS investors you’re in good shape and aligned with what they care about? Christoph Janz, Partner at Point Nine Capital, shares 5 key insights during this year’s SaaStr Annual.
These metrics are more targeted to those preparing for a Series A or B round and could make the difference between an excited-to-invest-in-you investor and a pass. Why should you spend the time getting your act together before fundraising? If your data is self-explanatory, in good shape, easy to understand, and aligned with what investors care about, you avoid a lot of unnecessary back and forth.
Less time clarifying what your metrics mean results in more time to talk to more investors in parallel and increased confidence with each of those investors.
#1: The KPI Sheet and Financial Plan
Depending on the stage of your company, this could go back two years or since launch. Projections should be around two years because one year isn’t enough, and looking at many years into the future doesn’t make sense at this stage.
For earlier-stage companies or those with a PLG motion, month-over-month is usually the right choice. For somewhat later-stage companies or those that are more Enterprise-oriented with longer sales cycles, quarter-over-quarter numbers tend to work better.
What Goes into That Sheet?
It’s pretty easy. You can use the famous first principles thinking here and consider what drives your business. You start at the top of the funnel and move down step by step. In PLG, that usually means you have visitors at the top, signups or a trial, and conversions to a paid customer.
The funnel looks slightly different in more Enterprise businesses, with MQLs at the top, SQLs farther down, and new customers. Then, you need to report and budget for logo and revenue churn.
Next on the KPI sheet and financial plan are key metrics like:
- Revenue
- ARR
- MRR
- R&D
- Profit/loss
- Cash-in/cash-out
- Burn
- Money in the bank
These are all things you should be thinking about anyway. One thing to include for SaaS is what’s called the MRR or ARR movement. On the one hand, you have new business and expansion ARR; on the other, you have contraction and churn. These components collectively determine how much ARR you’re adding in every period.
What Investors Want to See
You don’t want to use a different model or logic for projections and historic numbers. It’s hard to process. Investors will look at the historic trajectory at the Series A or B stage and determine if they’re confident you’ll do what you say.
Any big changes or sudden improvements are suspicious, so explain them well and make it easy for investors to connect the dots.
You also want to keep it simple, but not too simple. If you export anything from an accounting system, you need to do a lot of clean-up. It should reflect the business and only be one or two pages long. Page or tab one includes all the relevant metrics, and an extra tab might include additional assumptions or how the sales team will grow.
An investor needs to be able to digest it in half an hour, and you’ll want to include the typical health indicators like CAC, burn multiple, and ARR per head.
What do investors want to see? A combination of growth and efficiency, with growth being number one. As a rule of thumb, a company with $1M-$2M in ARR needs to grow at 2-3x to get investor interest. If you’re at $5M-$10M, usually, it’s still 2x year-over-year growth.
You also need a clear path to 100% NDR, a credible plan to achieve your goals, and realistic expectations that valuations aren’t what they were in 2020 and 2021.
#2: Cohort Analysis Metrics
You should have this ready to share before starting the fundraising process. Cohort analyses are the only way to get a sense of churn and retention, CAC payback, and CLTV in a subscription business.
These should be based on revenue, meaning ARR or MRR, and you should consider having a cohort analysis based on usage indicators like certain activities people do in your software, especially if you’re early.
There are a few cool ways to visualize this data. The chart on the left shows the retention for different cohorts at one month, three months, and six months. You can see that the more recent cohorts are doing better, which is a great sign for this fictional company.
The chart on the right shows the contribution margin over time for different cohorts, which means the gross profit of that cohort minus the customer acquisition costs. After many months after the initial acquisition, you can determine whether each cohort breaks even on CAC.
What Investors Want to See
Some do’s and don’t’s for cohort analyses include:
- Don’t mix monthly and annual plans. If you do this all in one bucket, it doesn’t make sense.
- Similarly, if you serve different types of customers, you should run cohort analyses on a per-segment basis because each segment will provide different insights.
- If your overall retention isn’t great, zoom in on the best-performing customer segment. While a bit of cherry-picking in fundraising is allowed, be transparent and don’t overdo it.
What gets investors excited about this metric? They’re looking for excellent retention. SaaS is about keeping customers in the long run, and they want to see this in at least one segment. They’ll look for positive trends within different cohorts.
#3: Marketing and Lead Generation Metrics
You have to include some data in your fundraising materials about how you’re acquiring customers and where you get your leads from. That’s usually data on how much you spend, how many leads you get, conversions, and customers you get on a channel-by-channel or source-by-source basis.
It can be a spreadsheet, like this dashboard from Geckoboard, showing the cost for every lead, trial, SQL, or customer, depending on your conversion model for different sources.
Another example drills down into a specific channel, LinkedIn. It starts with the entire universe of contactable leads on LinkedIn and goes through the steps.
- How many people are reachable?
- How many emails or messages did we send that month?
- How many people responded?
- How many responded to the second touch?
- How many booked a demo?
What Investors Get Excited About
With these marketing and lead generation metrics, you want to:
- Make it clear how you’ve calculated your CACs.
- Exclude some initial startup or buildup costs in the budget if it makes sense because you’re estimating the cost to acquire the next customer, which might be lower than the first ones when you had nothing. Be transparent and explain it.
Investors want to see one channel or source that’s clearly working and seems efficient and scalable. It sounds simple, but it’s pretty hard to prove until you’ve done it.
#4: Sales and Pipeline Metrics
Investors will ask how you’re doing sales, what the pipeline looks like, and how it’s evolved. This chart is a snapshot of a pipeline evolution chart.
This second chart shows how the dollars are flowing through different pipeline stages month-over-month or quarter-over-quarter. Here, investors are looking for a new quarterly record regarding new pipeline added and closed-won. That’s not always achievable, but it does get investors excited.
Many companies show the middle or top of the funnel growing, but closed-won numbers don’t go up in proportion. That usually means something isn’t quite working. You need to be disciplined enough to remove deals from the pipeline that don’t fit your ICP.
Here is another helpful sheet that tells investors a lot about the performance of the entire sales team, quarter-over-quarter, relative to their targets. The chart shows the company added salespeople early on, and there’s a lot of yellow and red. That means it took the company time to find the right sales playbook.
Over time, most of the salespeople hit their targets, and it’s proof for investors that you can hire and train AEs and get them to reach their quota in a repeatable, predictable manner.
We Have to Mention AI
A lot of AI is less about data and more about explaining what you do, the product, and your vision. However, some investors will ask about usage data because many companies have revenue numbers through the roof and have a lot of churn.
Depending on the product you’re building, investors want to see your revenue and usage retention. Some of the questions investors might ask include:
- Do you train your own model or fine-tune existing models?
- How is that model’s performance?
- How does it improve with more data? Is it proprietary?
- Does it give you an edge over time?
Investors want to see if you have real usage and retention vs. a fad, if people are sticking around and paying for the product, and if it can become a defensible part of your business.
Key Takeaways
- Have clear, high-quality data ready to share before fundraising meetings.
- Have a logical, credible plan based on the trajectory of the last months or quarters.
- Investors are looking for growth, efficiency, and strong signs of a scalable GTM motion.
- Zoom in on segments, especially if your overall numbers aren’t awesome.
