"With the markets returning to focus on profitability, valuations are no longer linked to growth at all costs."

"If the past recipe for a premium valuation was three parts growth, one part profitability, the recipe seems to have shifted to at least two parts growth, two parts profitability."

"Startups usually need a financial product of some amount to get going. Ten years ago, it used to be, say, a $3M Series A for 25% of the company."

"valuations have grown, as VCs formerly focused on later stages have shifted left, driving up round sizes."

"Nonetheless, the point of raising money is to use it as a backstop to delay the pursuit of free cash flows and concentrate on a fleeting market opportunity."

"Cash burn is simply the amount of money a company is using from their bank account to subsidize the shortfall from current operations."

"Burn = What you bill your customers - What you spend"

"Cash Runway is the number of months you have until cash runs out"

"If you’re on the venture path, post-fundraise you typically want a cash runway of at least 18 months"

"This gives you 12 months to go out and make magic before coming back to the table with your coffers, plus another 6 month buffer in case the markets aren’t in great shape."

"of Months @ Current Burn = Ending Cash Balance for period / Most recent monthly burn"

"of Months at Forecasted Burn = A count of the number of months until you go negative if you spend to forecast"

"For businesses losing money, my top five leading indicators when attempting to triangulate future business success are:"

"CAC Payback Period: How many months does it take to get back the cash you spent to get a customer?"

"Generally anything under 12 months is great for startups and under 18 months is great for larger, more mature (or publicly traded) companies"

"LTV to CAC: What’s the multiple of value you get from a customer compared to what you spent to get them?"

"Anything over 5x is awesome"

"Net Retention: How much does a customer grow after you acquire them?"

"Gross Margin: After servicing your existing customer base, how much money do you have left to invest in the business?"

"Burn Multiple: How much cash are you burning for each incremental unit of growth? Unlike the metrics above, this focuses on the efficiency of the whole business, not just the go to market engine"

"Growth is a byproduct of a company’s monetization model, not a driver of it."

"Actually, one of the biggest beneficiaries of this change will be employees."

"Raising cash usually signals a company is on to something. Startups use their fundraising events as recruiting tactics all the time."

"But if mediocre businesses are receiving premium valuations, there’s a disconnect. When cash is better gated, fewer potential employees will receive false signals and get wrapped up in ultimately bad bets."

"For employees, joining a startup is the most important “investing” decision they make. So they should ask some of the same questions a traditional investor would ask when assessing long term business viability."

"Vanity metrics are dangerous."

"Vanity metrics are numbers that make you look good, but have no material impact on your ability to make good decisions and improve your business."

"They are superficial and fail to drive durable revenue growth."

"Understandable: A good metric is one that’s easy for everyone to understand and track."

"Comparative: A good metric allows us to compare things over periods of time to see trends."

"Ratio / Rate: If you take a comparative number and then turn it into a ratio or rate, it becomes even more valuable."

"Behavior changing: We already covered this above, but as a reminder: a good metric is one that you use to make decisions."

"1/ Daily and Monthly Active Users"

"They must be performing actions linked to the core product’s value to count."

"2/ Net Churn"

"If you can't tell exactly how many gross customers are dropping out, you may be masking a larger problem through your client acquisition pace."

"3/ Cumulative Metrics"

"4/ Funding Raised"

"It might give you a chance to run more experiments and learn from them, but usually it leads to spending on stuff you don’t really need."

"In other words, money can buy you time. But it can't buy you execution."

"5/ ESG Scores"

"Environmental and Social Good (ESG) scores are potentially even more misleading than Net Promoter Scores (which we'll hit on later)"

"6/ GitHub Stars"

"For Open Source companies, GitHub stars are a widely cited vanity metric."

"7/ Net Dollar Retention above a certain threshold"

"A lot of companies will game NDR by grouping it by customer size."

"they SHOULD have high NDR if they are enterprise customers. That stat most certainly benefits from survivorship bias."

"8/ Any metric void of segmentation"

"Metrics are only as useful as you actually being able to apply them to run the business, and if you don't segment, you never actually use them."

"You need to know how long it takes to recoup your Customer Acquisition Cost across the various go to market segments of your business, which have different inputs (costs) and outputs (deal sizes)."

"9 / Customer Lifetime Value (LTV)"

"Customers need an opportunity to actually churn before you count them."

"And typically a track record of under three years is rubbish, which means you have to rely on assumptions."

"10/ Headcount"

"HC on its own is just a reflection of cost without any context to productivity."

"11/ Net Promoter Score (NPS)"

"For example: You'll see companies taking G2 Reviews, which have a structural upward bias, to impute an NPS."

"12/ Adjusted EBITDA"

"13/ Like for Like Revenue"

"Whenever a company cites EBITDA, dig into the assumptions to ensure it's clean."

"LFL revenue is BS if you don't neutralize it for Inflation and FX impacts."

"Revenue is a function of price and volume."

"You have to keep an eye on both levers, and figure out what impacts each and may skew things in your favor, masking bigger, scarier problems"