Top Metrics to Evaluate During Startup Screening
Screening startups is getting harder every day. New startups are coming to the market with different ideas and shapes, and having a clear screening structure is more important than ever.
Asking about metrics during screening could lead to rich insights. Metrics are a common language between investors and all startups and sometimes a source of truth too. This article brings you the top metrics, relevant to most startups, that you can ask during the application phase, live pitch, or due diligence.
North Star Metric
In astronomy, the north star is always standing still in the north’s direction. Wherever and whenever you are, as long as you’re in the northern hemisphere, the star will always lead you to the north.
For companies, a north star metric is a never-changing metric that all departments walk towards. Every department should be concerned with growing this metric, which directly reflects the company’s growth and health.
In Uber, for example, the north star metric could be the number of weekly rides. No matter what any team is doing at Uber, if their work is increasing the number of weekly rides, they’re doing a good job.
Ask the founders of the subject startup what their north star metric is. If they give you a metric that is fundamentally aligned with their business model, this is a good sign for a rich, leading mindset.
The north star’s numbers may not be in the best shape at the time of fundraising. This is still okay. The goal is to see how the founders think and how they are driving the company.
TTM Revenue
TTM Revenue stands for Trailing Twelve Month Revenue. It is the revenue for the past twelve months. Major accelerators like Y Combinator and 500 Startups include this metric as a question in their application forms.
The TTM Revenue is relevant to all startups that are expected to generate revenue soon after launching. This may not apply to some healthcare startups. For any startup that fits this description, it is a hugely positive sign if the startup is generating consistent, growing revenue.
Number of Customers
Many metrics measure the number of customers. In SaaS companies, this includes the number of traffic, sign-ups, free users, and paying customers. The list goes on. The longer the process of payment, the more metrics companies can measure.
When you ask the founders, make sure you get to know the number of paying customers. How many people are willing to pay for their product is a highly relevant customer indicator of their success.
You can also drill into details by checking how many signups v.s. paying customers or checking for the churn rate. This is helpful to your decision-making as long as the startup has been running for more than a year after launch. If this is not the case, knowing the number of paying customers is most likely enough.
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