Metrics and data

The world of Venture Capital is full of jargon and acronyms that can make the industry seem intimidating. When it comes to Venture Capital metrics, it’s important to have at least a high-level understanding of what they mean so that you can contribute meaningfully to team discussions and evaluate investment performance accurately. This post breaks down common VC investment metrics that you’ll likely come across in venture. Related resource: The Only Financial Ratios Cheat Sheet You’ll Ever Need VC Fund Performance Metrics Multiple on Invested Capital (MOIC): The current value of the fund as it relates to how much has been invested. Related resource: Multiple on Invested Capital (MOIC): What It Is and How to Calculate It Distributions per Paid-in-Capital (DPI): The amount of money returned to Limited Partners, relative to how much capital Limited Partners have given the fund. Residual Value per Paid-in-Capital (RVPI): The ratio of the current value of all remaining (non-exited) investments compared to the total capital contributed by Limited Partners to date. Gross Total Value to Paid-in-Capital (TVPI): The overall value of the fund relative to the total amount of capital paid into the fund to date. Internal Rate of Return (IRR): The expected annualized return a fund will generate based on a series of cash flows taking into consideration the time value of money. (Read more about IRR for VC’s) Visible lets investors track and visualize over 30+ investment metrics in custom dashboards. You may also like → Venture Capital Metrics 101 (and why they matter to LP’s) Fund Operations Metrics Management Fees: A fee commonly paid annually by the fund to cover things like General Partner compensation, insurance, and travel. This is typically 2% of committed capital. Escrow: Capital temporarily held by a third party until a particular condition has been met. Typically occurs as a part of paying distributions to Limited Partners. Expenses: Money used to complete investments by the fund, such as legal costs, and other ongoing operational expenses of the fund, such as an annual audit. Carried Interest: The amount of money returned to the General Partners of a fund after a liquidity event such as when a portfolio company gets acquired. Carried interest is typically 20% of profits, although it can vary depending on a GP’s track record and management fee. Distributions: The transfer of cash or securities from a venture capital fund to its investors, called Limited Partners, after the fund exits its position in one of the companies. Typically 80% of distributions are returned to LPs. The timing of fund distributions varies from fund to fund. You may also like → Venture Capital Fee Economics Valuation Metrics Fair Market Value (FMV): The value of an investment at a certain point in time. The most common trigger for a change in the FMV is when there is a company raises a subsequent priced round and a new company valuation is established. Realized FMV: The value of an investment that has actually been realized through a liquidity event such as an acquisition. Unrealized FMV: The perceived value of an investment that has not yet been realized through a liquidity event. You may also like → 25 Limited Partners Backing Venture Capital Funds + What They Look For Capital Metrics Total Invested: The total amount of capital invested in portfolio companies. This includes initial capital and follow-on capital. Committed Capital: The amount of money a Limited Partner promises to a venture capital fund. Capital Called: The capital called from Limited Partners. Typically capital is called on an as needed basis before making a new investment. Capital Remaining: Capital remaining in a fund that is yet to be invested into companies. Also referred to as ‘dry powder’ and unspent cash. Uncalled Capital: Capital that has been committed by Limited Partners but not yet called by the fund. Track & Visualize Your Fund Metrics in Visible Visible lets investors track and visualize over 30+ investment metrics in custom dashboards. Additional VC Metrics Supported in Visible Visible auto-calculates common investment calculations so investors can more easily understand and communicate their fund performance. Total Number of Investments: A sum total of investments made into individual companies. Average Investment Amount: The average check size for all investments out of a fund. Total Number of Exits: The number of companies that have exited the portfolio. % of Fund Deployed: The ratio of capital deployed compared to the total committed fund size. % of Fund Called: The ratio of capital called compared to the fund size. Follow On Capital Deployed: The amount of capital deployed into existing companies in the portfolio. Total Portfolio Company Capital Raised: The total amount a portfolio company has raised. Follow on Capital Raised: The combined amount all companies in the fund have raised. Visible supports over 30+ investment metrics and unlimited custom KPI’s for portfolio monitoring.

As a venture capital investor, it’s critical to maintain accurate, up-to-date information about your portfolio companies and investment data. This helps investors make data-informed investment decisions, provide better portfolio support, fulfill audit requirements with relative ease, and not to mention, impress LPs. What’s even better than just having your data well-organized and easy to find, is when investors can seamlessly turn that data into meaningful insights that are easy to share with internal team members and stakeholders. Below we describe three different dashboard types supported in Visible that help investors surface and communicate important updates about their portfolio. Flexible Dashboards for Internal Portfolio Reviews Flexible dashboards in Visible allow investors to integrate metric data, investment data, and properties directly into a dashboard. The flexible grid layout means investors have control over how they want to visualize and communicate updates to their team. Investors commonly use these dashboards to facilitate internal portfolio review meetings which keeps their team up to date and engaged about important updates across the portfolio. View flexible dashboard examples in the guide below. Fund Performance Dashboards for Communicating with LPs Visible allows investors to track, visualize, and share key fund performance metrics. Investors can choose from 14+ different chart types and use custom colors to incorporate their branding into their dashboards. The fund metrics supported in Visible include: TVPI DPI RVPI MOIC IRR Unrealized and realized FMV Total Invested Capital Called and more. Learn about the 30+ fund metrics supported in Visible. Related resource: VC Fund Performance Metrics 101 View a Fund Performance Dashboard example in the guide below. Portfolio Metric Dashboards for Cross-Portfolio Analysis As a venture capital portfolio grows, it’s helpful for investors to be able to pull quick insights across all their companies. Visible’s Portfolio Metric Dashboards let investors compare performance across the entire portfolio for a single metric. This view can be filtered by a custom segment and time period. Visible also automatically calculates quick insights such as: Total Min Max Median Quartiles View a Portfolio Metric Dashboard in the guide below. Visible’s dashboards give investors control over how they want to track and visualize their portfolio KPIs and investment data. Learn more about Visible.

Webinar Recap Throughout a fundraise, founders are expected to share the data and financials that fuel their business. Jonah Midanik of Forum Ventures joined us on March 21st to discuss all things SaaS metrics and fundraising. Watch Recording A few things you can expect us to cover: The SaaS metrics every founder should know What metrics a founder should expect to share with potential investors What metrics and financials a founder should expect to have prepared for due diligence How early-stage founders should think about more “advanced” SaaS metrics About Jonah Jonah has spent the last twenty years at the intersection of marketing and technology as a serial entrepreneur in Canada. He has experienced several different lenses on the founder’s journey from bootstrapping his own startup, to launching new corporate divisions, and raising 8 figures of venture capital. At Forum, in supporting hundreds of founders’ growth, Jonah has carved out a niche in the market of teaching founders how to build and deliver pitch decks and which metrics to include to convey traction to raise capital successfully.

This article includes insights from a webinar Visible co-hosted with the corporate venture firm JLL Spark Global Ventures and Counter Club, a network of corporate venture capitalists brought together by common challenges and opportunities to share best practices. To learn more about Counter Club and watch the full webinar recording head to Counter Club’s registration page. Corporate Venture Capital Overview Corporate Venture Capital (CVC) is the practice of large firms investing in small early-stage startups and offering strategic value. They differ from traditional VC’s because they are not only motivated to make impressive returns for Limited Partners (LPs), but are also focused on protecting their corporate strategy and gaining a competitive advantage. The Limited Partner for a CVC is usually the singular firm which means the capital source is highly concentrated. The parent corporation is often heavily involved in the day-to-day of a corporate venture. CVC teams are expected to know what’s going on in their portfolio at all times and be ready to share insights and regular reporting with their corporate partner. What is Portfolio Monitoring? Portfolio Monitoring is taking a holistic approach to understanding what is going on with your portfolio. It can be thought of in three categories: Qualitative Updates, Financial Performance, and Operations Changes. Narrative Updates: Arguably the most important part is understanding the narrative behind changes going on with certain companies. For example, what’s going right for this company right now and what’s hard right now and why? Financial Performance: Other aspects of portfolio monitoring is understanding the financial performance of a company and oftentimes comparing that versus what was forecasted. You’ll want to be able to understand the current value of a companies key performance indicators but also extract insights such as quarter-over-quarter and year-over-year growth. Operational Changes: As a part of portfolio monitoring you’ll want to stay on top of any major operational changes a company undergoes. For example, major changes in total headcount or moving a company’s headquarter to a larger facility could explain the recent change in a company’s burn. Another operational change to monitor is when a company secures additional follow on investment or a change in their cap table. Learn more about using Visible to monitor your portfolio companies. Why is Portfolio Monitoring Important within the CVC Context? Insight into your portfolio companies is critical within the CVC context. By knowing what’s going on with your portfolio companies you’ll be able to provide more impactful, relevant support to your companies. You’ll also be able to gain the confidence of your corporate partner by demonstrating your ability to monitor, manage, and share insights about your portfolio companies. “Communication is the lifeblood of any relationship. If you’re delivering updates back to the corporate partner and they know exactly what’s going on, you’re more likely to continue to get funding and resources.” – Mike Preuss, CEO Visible Benefits of Portfolio Monitoring: Being able to share meaningful insights with your corporate partner Using data to drive future investment decisions Helping portfolio companies succeed Make introductions to talent, investors, customers Provide relevant sector-specific expertise Leverage intraportfolio knowledge to better understand technology trends Staying organized with a central source of truth Building more trust with the corporation “I think what’s really important is having a central source of truth for all of our data whether that be portfolio companies, how much we invested and what was the price, all the information around the deal. Having that in a central location for all the team to look up is really important.” – Mikey Kailis, Counterpart Ventures, Visible User Portfolio Monitoring Best Practices Oftentimes CVCs know they should be monitoring their portfolio companies but don’t know what best practices look like. Here are curated best practices based on Visible’s experience supporting over 400 investors. Ask for only 5-10 metrics and 1-2 qualitative questions Staying below 10 metrics reduces the time it takes founders to complete their reporting so they can get back to building their companies. Most Common Metrics to Track Revenue Cash Balance Monthly Net Burn* Cash Runway* Net Income Total Headcount *Both of these metrics can be calculated in Visible using formulas and don’t need to be requested. For more details check out ‘”Which metrics should I be tracking for my portfolio companies” Use Metric Descriptions Using metric descriptions helps with data accuracy and can reduce back and forth between you and your companies. Visible’s customer sucess team can help you establish the best descriptions to include with your metrics. Collect Data Quarterly According to Visible’s user activity, 70% of investors are requesting updates from their portfolio companies on a regular basis. By establishing a quarterly frequency with your companies you’re getting them into a rhythm of reporting expectations only 4 times a year. It’s also becoming more common to request ESG or DEI information on an annual basis. For more best practices such as high to get high response rates from companies check out ‘Portfolio Data Collection Tips from Visible’. Check out an Example Request in Visible. Providing Strategic Value to Portfolio Companies as a CVC Corporate VC’s are uniquely positioned to provide strategic value to their portfolio companies. CVC’s are often investing in sectors in which they have deep sector expertise, relevant networks, and commercial experience. All of this can be extremely valuable to companies but only if you know what is going on with your companies and have developed enough rapport for companies to share where they need help. By incorporating qualitative questions in your portfolio data Request in Visible such as ‘How can we specifically support you this quarter in terms of customer introductions, talent, or market expertise’, CVCs can unlock rich opportunities to deepen relationships with companies and provide strategic value. The two metrics JLL collects and reports back to corporate JLL to demonstrate strategic value add are ARR and the number of customers. “Visible helped us develop regular communication with our portfolio companies. It helps us understand where our portfolio companies are focused and how we can best align with them. Our investors also are able to look back at these updates to understand if companies are struggling at the moment and how we need to prioritize our support.” — Kelly Wong, JLL Spark CVC Portfolio Reporting You can share updates about your portfolio with your team and wider firm with Visible’s flexible dashboards, tear sheets, and LP Update features. Learn more. Interested in exploring Visible for your Corporate Venture Capital fund?

Accounting and finance are skills that every founder should hone. While you don’t need to be an expert, you should be comfortable with different financial statements and be able to answer questions from current and potential investors. Check out our quick breakdown of startup financials below: What are startup financials? Startup financials are the vitals behind how a company operates. Financials are the metrics and data that drive the different financial statements for a startup — income statement, balance sheet, cash flow, changes in equity, etc. As we wrote in our post, Building A Startup Financial Model That Works, “The goal of a financial model is not to be exactly right with every projection. The more important focus is to show that you, as a founding or executive team, have a handle on the things that will directly impact the success or failure of your business and a cogent plan for executing successfully.” Why are startup financials important for pitch decks? An investor’s job is to generate returns for their investors (AKA limited partners or LPs). In order to invest in the best companies, investors need to leverage data and their own insights to fund companies they believe have the opportunity to generate returns for their investors. Related Resource: How To Build a Pitch Deck, Step by Step Part of this process involves collecting financials and data. Different investors might look for different things when it comes to a company’s financials and metrics — inevitably, an investor will need to take a look under the hood to see how a company operates. Learn more about the financials that VCs look for in a pitch deck below: Essential startup financials to include in pitch decks As we previously mentioned, different investors will look for different metrics and data when it comes to a pitch deck. In order to best help you prepare the metrics and data you need, we laid out the following common metrics that VCs might look for in a pitch deck below (as always, we recommend sharing what you believe is best for your business): Related Resource: Tips for Creating an Investor Pitch Deck Gross revenue Gross revenue is the sum of all money generated by a company. This is important for a pitch deck because investors will want to understand how much revenue a business is generating. For companies that are pre-revenue, make sure you are targeting investors that invest in pre-revenue companies. Cost of goods sold As put by the team at Investopedia, “Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the goods. It excludes indirect expenses, such as distribution costs and sales force costs.” Gross profit As put by the team at Investopedia, “Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.” This is important because investors want to understand how your business efficiently turns revenue into profit. Operating expenses Operating expenses are exactly what they sound like — the expenses a business incurs from normally operating. Operating expenses help investors understand how and where your business is spending money. Net income As put by the team at Investopedia, “Net income (NI), also called net earnings, is calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses.” Net income truly reflects the profitability of a company as it takes into account all of the expenses a business will face. Related Resource: 18 Pitch Deck Examples for Any Startup Understanding forecasting vs accounting Over the course of building a startup, founders will inevitably have to understand different basic accounting, forecasting, and budgeting principles. Learn more about forecasting vs. accounting for your startup below: Related Resource: 7 Essential Business Startup Resources Financial forecasting A financial forecast and financial model is a tool that founders can use to tell their startup’s story. As we wrote in our post, Building A Startup Financial Model That Works, “The goal of a financial model is not to be exactly right with every projection. The more important focus is to show that you, as a founding or executive team, have a handle on the things that will directly impact the success or failure of your business and a cogent plan for executing successfully.” Accounting Basic accounting is a skill that every founder should be familiar with. Accounting is a realistic look at the financial performance of your business. It’s critical to have a grasp on all elements of your company’s books to ensure your company can grow and scale in an effective way and avoid costly financial errors down the line. Related Resource: A User-Friendly Guide to Startup Accounting Financial statements: your startup’s report cards Having a grasp on your financials is a surefire way to clearly articulate your needs for capital and how you plan to spend any additional funding. Learn more about common financial statements for startups below: Related Resource: 4 Types of Financial Statements Founders Need to Understand Income statement As put by the team at Harvard Business School, “An income statement is one of the most common, and critical, of the financial statements you’re likely to encounter. Also known as profit and loss (P&L) statements, income statements summarize all income and expenses over a given period, including the cumulative impact of revenue, gain, expense, and loss transactions. Income statements are often shared as quarterly and annual reports, showing financial trends and comparisons over time.” Balance sheet As put by the team at ProjectionHub, “A startup balance sheet or projected balance sheet is a financial statement highlighting a business startup’s assets, liabilities, and owner’s equity. In other words, a balance sheet shows what a business owns, the amount that it owes, and the amount that the business owner may claim.” Statement of cash flows As put by the team at Accountancy Cloud, “A cash flow statement, or CFS, is a financial statement that accurately summarizes the total amount of cash that goes into and eventually leaves a startup business. Cash flow statements are designed to accurately measure if a startup is managing its cash wisely.” Impress potential investors with Visible With our suite of fundraising tools, you can easily find investors, share your pitch deck, and track your fundraising funnel. Learn more about our pitch deck sharing tool and give it a free try here. Related resource: What is Internal Rate of Return (IRR) in Venture Capital

Since the start of 2022, there have been major macroeconomic changes taking the startup world by storm. Rising inflation, paired with the tumultuous public markets (especially in the technology sector), has made its way downstream to startup fundraising. As the team at OpenView Ventures put it, “For operators, this has led to whiplash from grow at all costs to cut at all costs.” We partnered with OpenView Ventures for the 2022 SaaS Benchmarks Survey. The main takeaway? Nearly every company is cutting spend, regardless of how much cash they have in the bank. Valuations are also changing. In 2021, valuations were largely based on growth rates for the next 12 months. However, there has been a transition to public valuations being based on the “Rule of 40.” Put simply, the rule of 40 means a company’s YoY revenue growth % + profit margin % should exceed 40. As the team at OpenView points out, “For companies with ARR below $10M, Rule of 40 can vary widely from quarter to quarter. Achieving 40 each quarter is not required. But, it is required to have a grasp on what caused a drop or spike, and what can be done to get to 40 long term.” Learn how you can calculate, and automate, the rule of 40 using Visible below: 1. Track Revenue First things first, to calculate the rule of 40 you need to know your revenue for multiple years (or periods). You can enter this into Visible manually or using 1 of our integrations (likely Google Sheets, Xero, or QuickBooks). Once you have your revenue # in Visible, we’ll automatically calculate your growth % (more on this in step 3). 2. Track or Calculate Profit Margin % Next, you’ll want to make sure you have the necessary metrics in Visible to track your profit margin %. If you are using one of our accounting integrations (like Xero or QBO), or tracking this in a Google Sheet, you’ll be able to automatically bring this in. If you’re starting from scratch, you’ll simply need your revenue and COGs (or Gross Profit). Once you have your Revenue + COGs metrics in Visible, you’ll be able to calculate it using our formula builder. The formula for Profit Margin % is = Profit Margin % = ((Revenue – COGs)/Revenue) x 100 Which will look like the following in Visible: 3. Calculate Rule of 40 Now that we have Revenue and our Profit Margin %, we just need to add the two together. We’ll create a new formula shown below (Note: we’ll want to make sure we are using the annual change % insight for Revenue — this is automatically calculated): 4. Chart & Share Once your formula is set up, it will automatically be calculated as new data enters Visible. From here, you can chart and share your Rule of 40 using Updates and Dashboards — check out an example below: Track your key metrics, update investors, and raise capital all from one platform. Give Visible a free try for 14 days here. Related resource: The Only Financial Ratios Cheat Sheet You’ll Ever Need

Founders are tasked with hundreds of responsibilities when starting a business. On top of hiring, financing, and building their product, early-stage founders are generally responsible for developing initial strategies — this includes the earliest sales and market strategies. In this article, we will look to help you craft a successful SaaS sales strategy. We’ll highlight the elements you will want to think of when you start to build your sales motion. This will help your team to understand how to measure the number of potential customers in your pipeline and the growth potential you might see in your revenue numbers. How are SaaS sales different from other types of sales? Like any sales strategy, it is important to start with the basics when looking at a SaaS sales strategy. At the top of your funnel, you have marketing leads that likely find your brand via content, word of mouth, paid ads, your own product, etc. From here, leads are moved through the funnel. In the middle, SaaS companies can leverage email campaigns, events, product demos, etc. to move leads to the bottom of their funnel. However, as the SaaS buying experience takes place fully online — sales and marketing organizations can be creative with their approach. The online experience allows companies to track more robust data than ever before. Additionally, SaaS products have turned into their own growth levers as well — the ability to manipulate pricing and plans has led to the ability for companies to leverage their own product for growth. Related Resource: How SaaS Companies Can Best Leverage a Product-led Growth Strategy The online presence and emergence of product-led growth have led to new sales strategies unique to SaaS companies. Learn more below: 3 Popular SaaS sales models There are countless ways to structure your Saas sales strategy. For the sake of this post, we’ll focus on 3 of the most popular strategies. Learn more about the self-service model, transactional model, and enterprise sales model below: Related Resource: The SaaS Business Model: How and Why it Works Self-service model The self-service model allows prospects to become customers without communicating with your team. As put by the team at ProductLed, “A SaaS self-serve model is exactly what it sounds like. Rather than rely on a dedicated Sales team to prospect, educate, and close sales, you design a system that allows customers to serve themselves. The quality of the product itself does all the selling.” This strategy is typically best for a strong and simple product that typically has a lower contract size. Transactional sales model The transactional model allows you to create income-generating actions where prospects have to become a customer at that point in time. This requires transactional sales models to have high-volume sales that can be supported by a strong sales and customer support team. Enterprise sales model The enterprise model is a strategy to sell more robust software packages to corporations – you will need baked-in features in a prepackaged manner to sell to a fellow business. Enterprise sales is the model that shares the most similarities with a traditional B2B sales funnel. Inbound vs outbound sales In a Saas sales funnel, you are constantly looking to consistently fill your sales funnel with fresh prospects. Once you have prospects you will look to find which prospects are worthy of being qualified and have a high likelihood of converting so you can spend your time communicating with those high-quality prospects. There are two popular strategies for creating fresh prospects that would be defined as inbound and outbound sales strategies. Inbound sales is when you invest in marketing to create prospects reaching out to you – fresh prospects reaching out to your business to ask about your software product. As put by the team at HubSpot: “Inbound sales organizations use a sales process that is personalized, helpful, and directly focused on prospects’ pain points throughout their buyer’s journey. During inbound sales, buyers move through three key phases: awareness, consideration, and decision (which we’ll discuss further below). While buyers go through these three phases, sales teams go through four different actions that will help them support qualified leads into becoming opportunities and eventually customers: identify, connect, explore, and advise.” An inbound strategy typically works best for SaaS companies that need a greater volume of customers and can nurture them and move them through their funnel at scale (e.g. self-service model) Outbound sales on the other hand are having members of your organization reach out to potential prospects to see if they would be interested in using your service. Outbound sales require highly targeted and proactive pushing of your messaging to customers. Generally, outbound sales require dedicated team members to manually prospect and reach out to potential customers. This means that outbound sales organizations do not naturally scale as well as an inbound sales organizations and will likely require a higher contract value. An enterprise model would rely heavily on Outbound sales, while a self-service business model will rely heavily on Inbound sales. The SaaS Sales Process The best Saas sales strategy will be a hybrid of inbound and outbound sales, but all of them should include a sales funnel. This funnel should have stages that help to qualify your prospects. These stages should be: Step 1: Lead generation This activity is often times a marketing activity that gives you contact or business information to explore the fit further Step 2: Prospecting This is where you develop the bio of who is the contact you are reaching out to within the organization. It is always helpful to prospect for someone who can make a buying decision Step 3: Qualifying In this step, you need to understand whether the prospect has the resources to pay for your product and the problem that your product can solve. This step is often the time for you to ask questions of your prospects Step 4: Demos and presenting This is when you will share the features and capabilities of your product with the qualified prospect. You want to show them the different features and where they can get the most value. Step 5: Closing the deal After your demo or a presenting call, the prospect should be pushed to a point where they need to make a decision on whether to buy your product. Step 6: Nurturing Once someone becomes a customer, you need to make sure to nurture them and grow your product offering with their business. This is the most difficult stage. Make sure to share your new product releases, stay in tune with how they are using your product, and build relationships with your customers. Cultivating a robust sales team To create a sustaining sales team, it is important to hire talented and tenacious people to own your sales funnel. They will need to track conversion numbers, stay organized with their outreach to prospects, and grow your funnel over time. There are three key roles within a Saas sales funnel. Those positions within your organization are: Sales development representatives (also known as business development representatives) These members of your team own lead generation, prospecting, and qualifying potential customers on your sales team. They get paid 40-60k/year depending on geographical location and experience. They should be tasked with outreach and drumming up new business. Account executives Account executives should focus on giving product demos, closing deals, and nurturing existing customers. They should be a bit more buttoned up in their approach and have a commission incentive associated with the # of accounts they manage. Sales managers/VPs Sales managers and Vice presidents of sales should take ownership of the data within your sales pipelines. Numbers like # of new leads, # of new qualified leads, # of new customers, # of churned customers, amount of new revenue, and lead to customer conversion %. Growing these sales numbers each quarter. Measuring these numbers weekly, monthly, and quarterly. Making them visible to the rest of the company regularly. 8 Key Elements of a successful SaaS sales strategy One of the most important elements of building a successful business is having a like-minded team around you to support and work with you. Make sure to align with all your team members and hire people with good work ethics and similar values of your company. A good sales team should be competitive, goal-oriented, and metric-driven. The sales managers and VPs will be really crucial in shaping the team dynamics and culture of your business. Hire great people and the numbers will take care of themselves! We’ve identified 8 elements of a successful sales strategy that every Saas sales strategy should include 1. Solidify your value proposition It is so important to understand thoroughly and communicate your product’s core value proposition. If someone decides to buy your product, they should know how to use the product and how to get the most out of it. 2. Superb communication with prospects Communication is of the utmost importance. Make sure your prospects understand your product and how it will help their business. Inform them of new product updates 3. Strategic trial periods An effective strategy is to give potential customers a free trial of your product to understand your value proposition. You want to make sure not to make this trial period too short or too long. Make it strategic so the prospect will understand the value prop but also be encouraged to make a buying decision. 4. Track the right SaaS metrics Tracking your core metrics is vital to success. See a few of those below: Customer Acquisition Cost – the amount of money it takes to acquire a new customer Customer Lifetime Value – the amount of value a customer provides your company over the course of their relationship with you as a customer. Lead velocity rate – the growth percentage of qualified leads month over month. This will help you understand how quickly you are qualifying your leads Related Resources: Our Ultimate Guide to SaaS Metrics & How To Calculate and Interpret Your SaaS Magic Number 5. Develop a sales playbook Every successful sales management team should develop a playbook on how to deploy their resources and where each team member should spend their time. Playbooks are often thought of in sports terms, but they also work wonders in the business world. They will help you do things efficiently and effectively. 6. Set effective sales goals How many new customers does your business hope to bring in next month? This is an important question and one your whole sales team should understand and work towards! 7. Utilize the right tools to enhance the process Your team should have all the resources at their disposal to communicate effectively and track their metrics. As you build out your strategy and team, be sure to give them all possible resources at their disposal. There are tons of great tools out there for teams to make the most out of their time and have direct methods of communication with customers and one another. 8. Establish an effective customer support program A huge part of an effective sales strategy is welcoming potential customers and making sure your existing customers are not forgotten about. When customers reach out, it is important to talk and listen to their issues. Understand what they are needing so your product can continue to evolve. Make sure anyone getting introduced to your product will also have the information they need to use your product successfully. It might be helpful to include this member of your team in your sales meetings and keep them informed as to messaging and efforts for growth! Generate support for your startup with Visible Developing a successful SaaS sales strategy is not an easy task. It will take a hybrid approach of many of the elements listed in this article and will need attentive members of your team to nurture it and test new things. We created Visible to help founders have a better chance for success. Stay in the loop with the best resources to build and scale your startup with our newsletter, the Visible Weekly — subscribe here. Related resource: Lead Velocity Rate: A Key Metric in the Startup Landscape

As we invest in rapidly changing technologies that impact people and the planet, it’s of the utmost importance to consider the unintended consequences—even at the early stage. As the world felt the effects of several major crises in recent times, Environmental, Social, and Governance (ESG) principles have rightfully risen to the spotlight in the venture capital industry and now play a critical role in investment decision-making. Investors hold a responsibility to guide their portfolio companies in ESG practices, not just because the world is watching—but because companies that are as concerned with their impact as they are with building their products are proven to perform better in the long run. Visible recently hosted an ESG for Venture Capital webinar with Tracy Barba, Head of ESG at 500 Startups and Director at ESG4VC, where she answered the common questions about establishing ESG reporting practices at VC firms. We’ve shared answers to some of those questions below as well as guidance on using Visible for ESG portfolio monitoring. What is ESG for Venture Capital? ESG policies and practices help investors and companies manage their environmental, social, and governance risk and identify opportunities for value creation. VCs—including 500 Startups—are widely embracing the shift. In the 2020 ESG Annual Report spearheaded by Tracy Barba, 500 Startups said their policies include: Environmental criteria to examine how a company performs as a steward of nature. Social criteria to consider a company’s relationship with its employees, suppliers, customers, and communities where it operates. Governance criteria to review a company’s leadership, shareholder rights, executive pay, audits, and internal controls. VC firms can and should provide an ESG framework as startup companies grow. It’s never too early to care—as we’ve seen in the news, large tech companies have found themselves in legal and ethical trouble over issues that could have been resolved in the earlier stages. In How Venture Capital Can Join the ESG Revolution, Stanford’s Social Innovation Review pointed out that eventually, ESG should not be understood as an “add-on” but a core value in a VC leading to better investments and companies. Ethical and legal considerations should not be ignored in the service of achieving rapid growth and swift time to market. As a VC firm, there is a risk in your ownership percentage if a portfolio company were to face legal battles, public scrutiny, and other risks that could have been prevented if they were identified earlier. ESG as a term is often used interchangeably with impact investing. As Tracy Barba points out, impact investing is thinking about the end goal and the impact of the companies you’re investing in. Having a strategy around water or climate is an example of an impact strategy, so you’re filtering deals based on that. ESG is a screening for every company, regardless of the type, measuring their environmental, social, and governance criteria. It’s hard for an early-stage company to know their impact, such as environmental waste, if they don’t have a product yet. That’s why it’s important to map ESG to relevant stages of a company’s development. At an early stage, the goal is to start to have a conversation. It’s much easier to think about how a company affects the environment from the beginning and address any issues upfront rather than fix or replace already-established processes in the future. At later stages, more detailed discussions will be appropriate. Founders overwhelmingly do care and want to consider ESG, but many don’t know when or how to get started. As an investor, you can help them start to think through ESG by adding it as an agenda item on your monthly or quarterly check-ins. An example question is: “Are you tracking your carbon footprint?” Their answer might simply be “Yes”, or it might be, “No we aren’t, but we’d like to. How can we get started?” Why is ESG Becoming More Common in Venture Capital? There is a growing understanding that ESG policies help with customer loyalty, retaining talent, and attracting more investors. It’s beneficial if a company directs time and energy towards making sure they’re operating responsibly. In venture capital, some topics are gaining momentum: Diversity – there are demonstrated benefits to having culturally diverse teams and boards. Gender equality – supporting more women and as founders and funders. Data protection & privacy of users – startups are not exempt from laws such as the GDPR and CCPA which protect the personal data privacy of consumers. Environmental impact trends – caring about carbon emissions, ethical sourcing of materials, waste management, etc. It’s important to be mindful of regulations and how they can change over time. The Sustainable Finance Disclosure Regulation (SFDR) in Europe aims to prevent greenwashing and to increase transparency around sustainability claims (source: Eurosif). While the SEC currently only recommends ESG disclosure, it may also create firm rules in the future. Companies may start measuring and reporting their ESG progress in preparation for new regulations. More than ever, founders care about being backed by VCs they align with. VCs can drive a positive shift by integrating ESG into their own operations. Showing that you care as an investor is integral in instilling ESG policies into your portfolio. How To Monitor ESG Metrics Across your VC Portfolio You can start tracking ESG metrics across your portfolio by sending them an annual questionnaire. 500 Startups, for example, collects their founder diversity info on a quarterly basis, measuring their progress over time and benchmarking to the VC industry. Founders already get asked for a lot of information, so to encourage their participation in your ESG questionnaires, ask fewer questions and use simple yes/no answers whenever possible. With Visible, you can fully customize your ESG reporting questions using Requests. Preview of an ESG Request in Visible below — View best practices for collecting metrics with Visible below: You can track answers and hold founders accountable for how they are going to implement best practices, how they are going to hire, etc. ESG questionnaires are not meant to penalize startups, but to get a sense of where they currently are—they may only just be starting to think about tracking and monitoring their water usage or diversity, for example. Once they gain customers, the questions you ask them will grow more detailed. If an early-stage company feels they do not have the resources or bandwidth to manage ESG concerns, you can help them get started by simply putting an employee manual or non-discrimination policy on the agenda for your next check-in. Remember, it’s going to be more expensive if they wait longer to implement those practices. Tips for ESG Fund Reporting External consultants can help VC firms evaluate their policies and processes across recruitment, HR, and deal flow, and recommend ways to improve. Since external consultants collect data across venture capital firms, they can educate them about best practices and compare how they are doing relative to the entire industry. Tracy Barba, Head of ESG at 500 Startups, reported that working with external consultants like Diversity VC was helpful in providing them with an external validation point. This type of industry benchmarking is now growing as a field and becoming more common practice. Resource: How to increase Diversity at your VC Fund How to Incorporate ESG Into Your Portfolio Support Now that you’ve gathered ESG data from your portfolio companies and identified opportunities for improvement, what’s next? VC firms can take the initiative to provide education, tools, training, and resources for their companies—whether in-house or through outside service providers and consultants. 500 Startups provides a vast array of ESG resources for their founders and the public, including webinars, which are available on their website: ESG for Early-Stage. Resource: Portfolio Support Best Practices for Venture Capital Investors Tracy Barba’s nonprofit ESG4VC aims to provide education, office hours, and research for venture capital firms to help establish standards and encourage movement in a positive direction across the industry. It’s been said that we can’t fix what we can’t measure. When it comes to improving the impact business has on the environment, workers, and communities, investors can be proactive in incorporating ESG policies at the very early stages so that everyone can benefit. View Examples of How to Request Metrics in Visible below:

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Whether a venture-backed startup looking to attack a massive market or a bootstrapped business, startups are generally in pursuit of growth. One of the main competitive advantages of a startup is the ability to test new growth strategies and move quickly compared to its predecessors. Related Resource: The Understandable Guide to Startup Funding Stages Finding a growth strategy or channel can make or break a company. In order to best help you find and develop the growth channels that work best for your business, we’ve laid out a few key strategies below: 1. Develop a strong value proposition First things first, you need to develop a strong value proposition. As put by the team at Investopedia, “A value proposition refers to the value a company promises to deliver to customers should they choose to buy their product. A value proposition is part of a company’s overall marketing strategy. The value proposition provides a declaration of intent or a statement that introduces a company’s brand to consumers by telling them what the company stands for, how it operates, and why it deserves their business.” This should be used at the backbone of your growth strategies and can be used to define your channels, messaging, and overall growth strategy. It is important to be thoughtful when laying out your value proposition — talk to customers, potential customers, and other stakeholders to help construct your value proposition. Related Resource: How to Easily Achieve Product-Market Fit 2. Understand and embrace your target audience After you’ve laid out your value proposition, you need to define the market and audience you would like to target. This is similar to creating your ideal customer profile. As put by the team at Gartner, “The ideal customer profile (ICP) defines the firmographic, environmental and behavioral attributes of accounts that are expected to become a company’s most valuable customers. It is developed through both qualitative and quantitative analyses, and may optionally be informed by predictive analytics software.” Related Resource: How to Write a Business Plan For Your Startup Identify why a customer wants your product or service If you’ve properly laid out your value proposition, this should be fairly easy. If you understand the value you are offering your customer, it should be straightforward why they would want to purchase your product or service. Segment your overall market For modeling purposes, you will likely start with your market as a whole. From here, it is important to narrow down your target and hone in on your specific segment in a market. For example, if you are selling snowboards your total addressable market might be every outdoors person but you’d likely want to hone in your market to just anyone that has snowboarded in the last X years. Related Resource: Total Addressable Market vs Serviceable Addressable Market Research the market Once you’ve honed in on your market, you need to make sure you are an expert in all things related to the market. When reaching out to potential customers, chances are they will turn to you for best practices on the market and space. To go above and beyond, come equipped with the right knowledge. Choose the segmented market After researching and analyzing the different markets, make the choice. Pick your segmented market and make sure you have the messaging and product in place to win the market. 3. Research and analyze your top competitors Inevitably, when speaking and targeting potential customers you will be compared to your competitors. In order to best combat any pushback, you need to come prepared. In order to best grow you need to understand how your product or service compares to competitors. If you can understand your strong points (and weak points) in comparison to competitors you’ll be able to better tailor your messaging and campaigns. 4. Establish smart key performance indicators As the old adage goes, “you can’t improve what you don’t measure.” When testing and finding growth strategies, it is important to have the right KPIs in place to track your performance. Related Resource: Startup Metrics You Need to Monitor Depending on the growth strategy or campaign will dictate what metric you should track. Check out a few examples below: Return on investment (ROI) One of the most common KPIs to track in relation to a growth strategy is return on investment. In order to continue investing in a growth strategy, you need to make sure it is generating returns. As put by the team at Investopedia, “Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.” Churn rate On the flip side, growth can be fueled by improving your churn rate. If you’d like to grow your current customer base, focusing on churn rate is a surefire way. Learn more about tracking and improving your churn rate below: Related Resource: Our Ultimate Guide to SaaS Metrics Customer acquisition cost As we wrote in our post, “Customer Acquisition Cost: A Critical Metrics for Founders,” customer acquisition cost is “The sum of the amount that it takes your business to acquire a customer, including time from your sales representatives and marketing and advertising expenses.” By monitoring your customer acquisition costs, you’ll be able to determine what channels make the most sense for your business. A surefire way to fuel growth is by improving your CAC. For example, if you are running ads at a high cost that do not convert to customers, chances are you’d be better suited to reallocate those costs to a better converting channel with lower acquisition costs. Customer lifetime value As put by the team at NetSuite, “Customer lifetime value (CLV) is a measure of the total income a business can expect to bring in from a typical customer for as long as that person or account remains a client.” By monitoring your customer lifetime value, you’ll be able to boost margins and warrant spending more on acquisition costs. Learn more about customer lifetime value below: Related Resource: Defining Customer Lifetime Value for Startups: A Critical Metric 5. Scale wisely and effectively In the early days of building a business, the old adage goes, “do things that don’t scale.” However, as you find your rhythm and have a valuable product with growth strategies that work, it is time to scale. During uncertain times, it is especially important to scale efficiently to work towards profitability. Scaling involves taking your existing channels and growing them at scale (and ideally improving margins). This means making smart hires that will take certain areas of your business to the next level. Related Resource: Scaling != Growth 6. Continuously review your business model As you find the growth strategies and channels that work best, it is important to be consistently evaluating your business model. Markets and customer needs change quickly so it is important to make sure you are staying ahead of them. This means that you are likely evaluating your different acquisition channels, your product, and your hiring plans. If you find your business is most capable of executing in a certain area (for example, product-led growth), you might want to consider hiring and building your product around product-led growth. Related Resource: How to Write a Business Plan For Your Startup 7. Engage your investors to build relationships Once you have found the growth strategies that work best for your business, you’ll need to make sure you have the resources in place to grow and scale. This is capital and talent. One of the most common ways to source capital for a startup growth strategy is by raising venture capital. You’ll want to make sure that you are engaging with current and potential investors along the way to improve your odds of raising venture capital. Related Resource: How To Write the Perfect Investor Update (Tips and Templates) Related Resource: Top VCs Investing in the $100 Billion Creator Economy Grow your startup with Visible Finding the right growth strategies for your business is only half the battle. Having the resources in place to track your key growth metrics will help you make informed decisions along the way. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

Building a venture-backed startup is difficult. On top of building a useful product, hiring a great team, and attracting qualified customers, founders need to be a 1 person finance team (in the early days). When just starting and scaling a business, founders likely have no dedicated finance team in-house to lean on for insights. Founders need to rely on their own financial savviness (hopefully with the help of an accounting firm) to keep finances in check. In order to efficiently grow your business, you need to have an understanding of your cash position. Learn more about calculating and tracking your startup runway below. Related resource: How to Reduce Burn Rate: 8 Cost-Saving Strategies for Startups What is Startup Runway? A startup runway is exactly what it sounds like — it is the amount of time (generally in months) a startup can operate before it runs out of money. For a profitable business, this metric likely means little. However, an early-stage startup that has yet to monetize its product or service will need to pay close attention to its runway. Related Resource: The Understandable Guide to Startup Funding Stages Your startup runway will inform how you hire, develop products, and finance your business in the coming months and years. What is Startup Burn Rate? The first component of your startup runway is your burn rate. According to Investopedia, “The burn rate is typically used to describe the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow.” Related Resource: Startup Metrics You Need to Monitor Simply put, the burn rate is the amount of money your business is “burning” every month. For example, if your business is spending $5,000 a month on salary, $1,000 on software, and $500 on office space but has yet to bring in any revenue your burn rate would be $6,500. Your burn rate is generally the input that you can dictate the most when it comes to extending your cash runway. Related resource: Burn Rate: What It Is and How to Calculate It Formula for Startup Runway Calculating your runway is simple and something that every startup founder should hone, especially in the early days. To calculate your runway, simply take your beginning cash balance and divide it by your monthly net burn rate as shown below: Related Resource: 6 Metrics Every Startup Founder Should Track Real-Life Example of Startup Runway For a real-life example of calculating a startup’s runway — let’s take an early-stage venture-backed company that raised a few million dollars in VC money and has been at it developing its product. At the beginning of the most recent period, their cash balance is $320,000 and their monthly burn rate is $20,000. You’d simply divide $320,000 by $20,000 to get a runway of 16 months. How Much Startup Runway Should You Have? There is no right or wrong answer when it comes to determining how long your cash runway should be. Your company’s stage, current market, and business model might impact how long your runway should be. As a general rule of thumb, it is suggested that seed and series A companies have a runway of 12-18 months Formula for Burn Rate Like startup runway, burn rate is a straightforward formula — especially for founders who have their cash statements and metrics in place. To calculate your burn rate, simply take your beginning cash balance, subtract your ending cash balance and divide that by the # of months over the given period. Typically it is better to calculate your burn rate over a longer period of time as a single month could be lumpy as expenses vary from month to month. Related Resource: What is a Startup’s Annual Run Rate? (Definition + Formula) Real-Life Example of Startup Burn Rate For a real-life example of calculating a startup, let’s take a startup that raised $3M and already had $200k in the bank bringing its cash balance to $3.2M. Fast forward 6 months and their cash balance is now $2.6M. Using the burn rate formula that would mean their monthly burn rate is $100K ($3.2M – $2.6M = $600K / 6 months = $100K) as shown below: Ways to Extend Startup Runway and Reduce Burn Rate As we mentioned earlier, the easiest way to manipulate your runway and extend your runway is by controlling your monthly burn rate. Learn more about how to extend your runway below: Drive More Sales First and foremost, the best way to extend your runway is by driving more sales. Of course, this is likely already a goal of your business (unless your business is not ready to monetize your product or service). By driving more sales you’ll be able to increase your cash balance and in turn, extend your startup’s runway. Cut Non-Essential Expenses The most straightforward way to extend your startup’s runway is by cutting non-essential expenses. This can feel difficult as it can impact your team’s day-to-day operations — however, this can be done in a thoughtful manner that extends your runway. For example, consolidating software or removing marketing channels that might not be performing well is a good way to extend the runway. Related resource: The Only Financial Ratios Cheat Sheet You’ll Ever Need Utilize Corporate Credit Cards and other Funding Sources You can also get creative with the financing options that your business leverages. While venture financing might take months to get cash into your bank account, new funding options could be of interest. Learn more about alternative ways to fund your business below: Related Resource: Checking Out Venture Capital Funding Alternatives Track Runway With Visible Runway is a vital metric for early-stage startups. Every startup founder should be in tune with their runway and use it to inform spending decisions and strategy for the coming months and years. Tools and software are a great way to keep tabs on your finances. Track key metrics, send investor Updates, and track the status of your next fundraise with Visible. Give it a free try for 14 days here. Related resource: What is Internal Rate of Return (IRR) in Venture Capital

About Trey Trey Closson is the CEO and Founder of Amplio — a platform for proactively identifying the risks of tomorrow’s supply chain. Prior to starting Amplio, Trey spent time at Flexport and Georgia Pacific. Trey joins us to break down his first year as a founder and what he has learned from transitioning from operator to founder. Episode Takeaways A couple of key topics we hit on: The current state of the global supply chain issues How Amplio found their first customers How Amplio is using pilot programs to scale their customer base The importance of relentless focus Why founders should invest in community Why building a startup is a marathon, not a sprint Watch the Episode Give episode 6 a listen below (or give it a listen on Spotify, Apple Podcasts, or wherever you normally consume podcasts)

One thing that is important, as a startup founder, is to track your financial metrics each month to measure the health of your business. At Visible, we help you curate and send investor updates. We recommend you send these monthly. With our mission being to improve a founder’s chance of success, monthly updates are a huge part of staying on that path to success. Monthly investor updates help you keep your investors in the loop. They help to keep investors engaged and provide you a time to reflect on what work was done over the course of the month. Monthly updates are a great tool for accountability and gaining perspective on whether your startup is growing or not We strongly recommend you send monthly updates. Especially once you have raised venture capital Part of these updates should be an inclusion of charts/metrics that help you measure the health of your business. Your investors will enjoy getting updates and seeing your core metrics grow over time. You should also allow metrics to help you to understand what to prioritize within your startup. Your investors will care about seeing these because it shows how fast you are spending their money, but will also give you insights into a few different things. It will give you insight as to when you might need to raise money again. It will give you insight as to how much time you have to run the business while keeping your current expenses constant. It might signal you to hire more to get over key humps in the business, like developing your product or spending more resources on sales. It might show you need to be more efficient when allocating your marketing dollars. It might be the case that you should ignore these metrics altogether and just focus on what’s in front of you each day. Every startup is unique and we understand it’s not a one size fits all approach. Related Resource: What Should be in an Investor Data Room? The financial metrics we recommend tracking are: Cash on hand Burn Rate Run rate Revenue Revenue Growth Engagement metrics (churn, user growth, retention, this one varies) Cash on Hand Cash on hand is the amount of cash you had at the end of the month last month. This can be found on your Balance Sheet. How to track in Visible: Connect accounting integration (Quickbooks, Xero, etc.) Create chart with Total Bank Accounts as Metric Chart Period → Custom period: Custom period: Last 6 months & Previous Period Monthly Cash Burn Monthly burn rate is defined as the cash on hand at the end of this month minus the cash on hand at the end of the previous month. This will give you the difference of cash between the two amounts. Allowing you to know how much cash exited your account! How to track in Visible: Add an insight to chart Previous period change Chart on Separate Y-Axis Months of Runway Run Rate is a bit more complicated. Run rate calculates the amount of months you have left to run the company given your current cash on hand and monthly burn. This number depends on your burn rate staying constant. More than likely your burn rate will not remain constant (it will increase. Run rate is calculated by taking Cash on hand/(Monthly Burn Rate). This will yield you the number of months you have left to operate your business with expenses staying constant. How to track in Visible: Export Monthly Balance Sheets from accounting software into google sheets Manually calculate Monthly Burn (ex. Feb Cash – Jan Cash) Calculate Months of Runway Cash on hand/ Monthly Burn Rate Integrate sheet into Visible Add Months of runway to Total Bank Accounts Chart Save Chart Related resource: Strategic Pivots in Startups: Deciding When, Understanding Why, and Executing How Revenue Revenue is the amount of cash that you received in payments from your customers (over the course of the past month). How to track in Visible: Pull Revenue from your accounting integration Revenue is the top line of your income statement Create a chart Measure previous 6 months Related Resource: EBITDA vs Revenue: Understanding the Difference Revenue Growth Revenue growth is a true barometer for success for your startup. It shows how much your revenue has increased over the prior period. If you have revenue growth, it should signal to you that you are on the right track and continue to execute at a high level. How to track in Visible: Add an insight to chart Previous period change % Chart on Separate Y-Axis Engagement Metrics An engagement metric is something that is unique to your individual business. The manner of it would relate to the type of business your run (marketplace app, Saas product, or physical product). It should directly relate to your revenue growth. Things like churn/retention could be your engagement metric. For Airbnb, it could be the number of nights booked. For Uber, it could be # of rides completed per week. Having healthy engagement metrics should drive your revenue and allow you to feel good that you are building something people love. Tracking is Visible will vary based on your metric. Early on, just track it manually! Cash on hand, burn rate, and runway are very much metrics for your own sanity. These relate to the lifeblood of the business and how long you can be certain your company will be in existence. We recommend maintaining a conservative level of spend for the first few months after raising a seed round. It is much easier to increase spend than it is to decrease. By starting conservatively, you will have good context as to how much you can increase your burn rate to find the sweet spot for growth and trimming your runway. Revenue, revenue growth, and engagement metrics are really ways for you to measure how well you have done in the latest period. It is really important to decide as a team what your North star metric is and work towards that goal together. These sort of standard metrics will help align your team and work to accomplish your goals together. The goal with Visible as a product is to help you as a founder measure these metrics and update your investors. That way you can measure these core financial metrics (Cash on hand, Burn Rate, Runway) right off the bat when starting your trial with Visible. Setting you up for success after raising a Seed round. you will be set up for success to measure the proper metrics and keep your investors filled in. This way you can spend the majority of your time building a great product that people love. Related Resource: A Guide to Building Successful OKRs for Startups In conclusion, measuring the core financials of your startup (or business) is really good practice. It will help you maintain accountability and measure growth. We recommend you track the core 6 metrics each month of Cash on hand, Burn Rate, Run rate, Revenue, Revenue Growth, and market-specific Engagement metrics. These will help you to get the most out of your fundraising dollars and to maximize growth!

In a startup, there are a million things going on at all times. The last thing on a founder’s mind is most likely not balancing the books and managing the daily ins and outs of company finance – other than ensuring there is a cash runway to work with. But as your business grows, it’s critical to have a grasp on all elements of your company’s books to ensure your company can grow and scale in an effective way and avoid costly financial errors down the line. Why Does Accounting Matter to Startups? In a startup, typically cash is always tight and you’re operating on a short runway. This makes accounting even more critical for your business. Measuring, processing, and communicating the source and destination of every dollar is crucial to ensure smart business decisions can be made. After your startup raises a round of funding and takes on outside investors, accurate accounting is, even more, a crucial element to have under control in your startup. With outside eyes monitoring every way, you’re spending their investment, ensuring you have a tight grip on and understanding of your company’s accounting will make or break your business. Related Resource: Building A Startup Financial Model That Works What is Your Business Structure? What is Your Business Structure? Depending on how your organization is formally classified, the accounting required will be slightly different. All formal, for-profit businesses are classified as 1 of 5 different business entity types. The 5 different business entities are: Business Entities Types Sole Proprietorship is an enterprise that is owned and run by a single person. Specifically, there is no legal distinction between the owner of the business and the business entity. A sole proprietorship does not always work alone as it is possible for the sole proprietorship to employ other people. Sole proprietorships are also known as sole tradership, individual entrepreneurship, or simply as a proprietorship. Partnership – When two or more individuals operate a business based on an oral or written agreement, that is legally considered a partnership. An agreement on the protocols and terms of the partnership is not required to consider a business entity to be considered a formal partnership, it’s best practice for one to be in place. Similar to a sole proprietorship, a partnership entity business has no legal distinction between the owners of said business. C Corporation – in the United States, under federal income tax law, a C Corporation is any business entity or enterprise corporation that is taxed separately from its owners. Unless the corporate elects otherwise, most for-profit corporate businesses in the United States are automatically considered a C Corporation. S Corporation – An S Corporation is a privately held company that makes the decision to be taxed under the Subchapter S of Chapter 1 of the Internal Revenue Code, or IRS, federal income tax law. By making a valid election, the S-corporation’s income and losses are divided among and passed through its shareholders. The individual shareholders must then report the income or loss on their own individual income tax returns. Limited Liability Company (LLC) – An LLC is a business that’s structure is allowed and dictated by individual state statutes. Each state can adjust and use different regulations to structure an LLC so it’s critical for business entities to check what different regulations are allowed for an LLC state to state. Owners of an LLC are referred to as members and typically, most states do not restrict ownership. So members could be individual owners, corporations, other LLCs, or in some cases even foreign entities. Most states also do not have a maximum number of members restriction in place on LLCs and most also permit “single-member” or sole owner LLCs. The main restriction on LLCs comes into play when considering the types of private businesses that do not qualify to be LLCs such as banks and insurance companies. Understanding the Two Methods of Accounting Now that the 5 primary business entities have been defined, the two methods of accounting need to be understood. Depending on the type of business entity, a different method may be used. Accrual Basis Accounting This specific accounting method allows a company to record its revenue before receiving the physical payment for the product or service that has been sold. Public companies are required to use accrual basis accounting. Most companies making above $5M a year in revenue use accrual basis accounting. This is typically the preferred method of accounting for private companies as it is generally more reflective of a company’s actual revenue. Cash Basis Accounting On the opposite end of the spectrum to accrual basis accounting, cash basis accounting only records the revenue in a company’s book of business when the cash transaction has physically occurred for the product or services sold. C Corporations and Partnerships are not allowed to use cash basis accounting unless they total under 5M a year in revenue for 3 tax years in a row. Related resource: What is a Schedule K-1: A Comprehensive Guide What Types of Financial Records Should Your Startup Keep? Once you’ve determined the type of accounting most appropriate for your startup, it’s critical to have a clear understanding of the broad types of financial materials you should be keeping track of and recording for said accounting practice. A good rule of thumb is to keep everything related to the financial arm of your business, and when possible, make multiple copies as backups for key financial items and hold onto these items for at least 3 to 7 years after their existing date. An overview of the items that your startup should be holding onto and keeping in their financial records includes: Receipts from business expenses Bank statements Bills Tax Forms for both your business and employees Contracts that outline the services or products you are selling Contracts with vendors you are purchasing services from Receipts from any tax-deductible donations or contributions made by your business entity Overall, it’s critical to establish a system early on for maintaining detailed records of every documented transaction or financial movement that occurs within or in relation to your business. Related Resource: How to Calculate Runway & Burn Rate The Relationship Between Recordkeeping and Accounting A big part of the practice of measuring, processing, and communicating about financial information, aka accounting, is the process of recordkeeping. Recordkeeping is the process of keeping track of the history of an organization’s activities, or in some cases a person’s activities, by creating and storing these as consistent formal records. What is Record-Keeping or Bookkeeping? Recordkeeping relates to accounting as a form of recordkeeping specifically for financial activities. A clear recordkeeping process is the backbone and foundation of a good accounting process. Without it, accurate processing and measurement simply cannot occur. Knowing recordkeeping, or bookkeeping as it’s sometimes known, is the backbone of the accounting process, it’s important to establish weekly and monthly recordkeeping tasks to ensure your process is rock solid from the early days of your business. We’ve got some recommendations to get you started. Recommended Weekly Recordkeeping Tasks 1. Record all transactions into your books Decide on a single source of truth to maintain ongoing documentation of your financial records. This single source of truth is often referred to as a “book”. We recommend a digital source of truth as well as a written source of truth or physical copies of each record as a backup barring any issue with the digital book. Set time for yourself every week at the same time to record all financial transactions from that week in your book and ensure the records are saved, backed up, and filed in an organized manner. Doing this on a weekly basis will prevent missed recordings of financial records as they get backed up week over week. 2. Segment Your Transactions In addition to recording each transaction in your books on a weekly basis, take it a step further and segment your transactions into categories. This will provide an additional layer of organization and allow for extra audit and thoroughness on how your finances are flowing into and out of your business. Segments could include items like revenue, bills paid, taxes, etc. 3. Digitize Your Receipts It can’t be emphasized enough – keep a digital record of your receipts. Just as we recommend keeping a physical copy of your books and digital transactions as backup, the same is true for physical receipts – digitize everything and make it a consistent practice to back up each digital record. The more risk you can mitigate in losing financial records, the more accurate your accounting will be in the long run. Recommended Monthly Recordkeeping Tasks 1. Consolidate your bank accounts On a monthly basis, you should be taking a deeper look at your financial records. A big task to accomplish on a monthly basis is consolidation. Take a look at all accounts open and related to your business entity and consolidate said accounts into as few accounts as possible. This will ensure that no accounts get forgotten over time leading to missed transactions or balances in the accounting records. A monthly practice of consolidation is a foundational recordkeeping habit for your business. 2. Pay your bills (on time) It’s a slippery slope when your business gets behind on its bills. Set monthly reminders for all recurring bills and pay them on time. It’s critical to keep an accurate record of all financial transactions and missed or late bills can throw off the overall financial accuracy of your accounting. Additionally, late bills often are additional fees, which for a startup strapped for cash, can be detrimental to your business. 3. Keep Good Records Be as picky as possible. On a monthly basis, go through your records and clean up any sloppy entries. Reevaluate your system often to make sure the information your tracking is as accurate and efficient as possible. Good records are the foundation of your accounting process and ultimately the financial accuracy of your business. Related Resource: 4 Types of Financial Statements Founders Need to Understand The Benefits of a Good Accounting System After you’ve established strong weekly, and monthly record-keeping tasks as the foundation of your accounting system, your measurement, and communication of the financial state of your business via accounting is underway. The benefits of a good accounting system have many ripple effects throughout your business. Smoother Management of the Business Most business decisions are made based on the financial state of the business. A good accounting system will ensure that the decisions being made are based on a clear and accurate process leading to an overall much smoother management of the business as a whole. Reduced Time and Costs of Audits Time is money in business and lost time going back through financial records that are not maintained correctly. Huge errors in your accounting system can even lead to fines from the IRS or expensive consultancy fees needed to bring in external auditors to fix said errors. Establishing a strong accounting system early in your business can prevent this. Your Investors will Thank You Investors are trusting you with their capital. If you have a smooth system in place to record, measure, and communicate all financial details aka an accounting system, you will always be prepared to answer and address all oversight and detailed questions from your investors. If they have a constant, clear picture of the status of their investment, they will be satisfied and can spend their time helping the business grow. Should You Do Accounting In-House or Outsource? Finally, you may be wondering if your accounting process should be something managed within your business or outsourced to a professional accounting firm. While your total revenue is under 100k, or even 500k, you can most likely manage that as a founder or with a singular financial hire in-house. As you start to climb in revenue and take on external investments, consider the cost of an in-house financial team; Under 5M dollars, it may make more sense to outsource to an accounting firm and spare the headcount. However, if you have any special tax circumstances, it may make sense to invest in an in-house team if the cost of external services billed hourly ends up being more than the cost of headcount in-house. In-house accounting can also be beneficial because it ensures you have dedicated staff only working on your books, as opposed to an outside source managing multiple clients. Related Resource: How to Choose the Right Law Firm for Your Startup Related Resource: 7 Essential Business Startup Resources Sign up For Visible Today - Your Startup Hub Accounting is a critical practice all startups should establish early on in their business. When measuring and reporting out metrics to your stakeholders, consider Visible as a central reporting point of your startup hub. Create an account and get started now.

About Josh & Elle Josh Abulafia & Elle Curran are the Co-founders of ChefPrep. ChefPrep is a marketplace for ready-made meals that are prepared by award-winning restaurants, delivered to your door. Josh and Elle join us to break down their journey as startup founders. Episode Takeaways A few key topics we hit on with Elle and Josh: How ChefPrep validated their core thesis Why ChefPrep decided to focus on the supply side Key marketplace metrics they track Building barriers to entry in marketplaces Why tracking the right data is vital to startup success Building their company operating system Watch the Episode Give episode 5 a listen below (or give it a listen on Spotify, Apple Podcasts, or wherever you normally consume podcasts):

Christoph Janz, a Managing Partner of Point Nine Capital, started his career in 1997 as an entrepreneur and has since invested in many SaaS businesses (like Zendesk, Algolia, Typeform, Contentful, and more). Christoph has made a name for himself by not only investing in top-notch SaaS companies but by being a guide when it comes to all things SaaS metrics, data, and benchmarking. Christoph joined us on March 22nd to discuss all things SaaS metrics and benchmarking. A few topics we discussed: The 5 ways to build $100M business What it takes to raise financing in SaaS How Christoph thinks about portfolio company benchmarking