The best investors, particularly at Seed and Series A, focus on growth and growth potential when making investments decisions. They’re looking for early evidence of product-market fit and indications that the founders understand the needs of their customers.

Many first-time founders (and, sadly, more than a few investors) believe that reaching a certain level of revenue will instantly unlock the next round of funding. They expect to succeed at fundraising the same way they did at school: get the “correct” answers on the test and you pass.

In theory, having the entire company focus on revenue is a great idea, but in practice it’s easy to get caught up in growth practices that are unsustainable.

Paradoxically, the important part isn’t the revenue number itself — it’s the number of customers it represents. At each stage, investors are looking at how many people/businesses need your product badly enough that they’re willing to pay for it.

investors first and foremost want to see evidence of product-market fit.

Revenue = objective evidence that you’re solving a problem that matters to someone

The next thing investors want to understand is how fast your revenue is growing.

Revenue Growth Rate = objective evidence that you’re solving a problem that matters to many people

Churn rate is a proxy for the quality of a product and its ability to solve customers’ problems. A decreasing churn rate demonstrates that you understand why customers are churning and are able to address those issues.

Customer Churn Rate = the percentage of customers who realize that your product doesn’t actually solve their problem

Net Revenue Retention = how leaky is your revenue bucket?

I find it helpful to think about three distinct cohorts:

New customers who fail to onboard or quickly realize that the product isn’t for them

Customers who stay for more than one renewal period and then churn

Customers who haven’t yet churned

Average Revenue Per User/Customer = how much will customers pay you each month to solve their problem?

Is there enough water to continue filling the bucket (is the market big enough)?

Can you make the bucket better (by improving the product and achieving product-market fit)?

Can you repeatedly fill the bucket in a sustainable way (is the business model long-term profitable)?

An LTV/CAC ratio of 3 is considered good.