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VC financing markets have, recently, felt like a monopoly game where your best friend is the banker and you let them pick their token first. It has never been easier to raise capital and at the entrepreneurs terms. What many founders and entrepreneurs forget is the responsibility they hold after they have a term sheet signed and fresh cash in the bank. Venture Capital and Investment Firms have a duty to provide returns to their Limited Partners (aka their investors); they are not just a bunch of rich people and organizations who give their ‘fun money’ to chance. I had a chat with close friend and Analyst at Real Ventures, Alex Shee about ‘why do VCs need data on their portfolio companies?’ and what they do with that information. My hope to is to help founders understand the importance of accurate and consistent reporting so that we can stop all these fucking stupid blog posts on the nipping frostbite of ‘some tech winter.’ Why do VCs Need Your Data [and Updates] Their Own Analysis AS: We look over a company’s metrics and add in our own analysis: doing advanced modeling to ensure projections and growth looks good now and for the future. We also establish benchmarks; it’s not just about comparing, its about establishing what success looks like. The idea of benchmarking is to be predictive using data; its also a manner of analyzing macro trends in the market and helping companies fully capitalize on opportunities. NM: VCs also take a look at each company to provide comparison and see if there are any patterns (good and bad) that others have already gone through. Using their experience, and market knowledge, to find and identify opportunities or triggers that the company may not foresee. To Make Sure You’re Doing OK NM: Yes, your VCs do care about you. They probably reviewed 100+ other company proposals, went through the due diligence and opened up their time, office hours, resources, and bank account, to YOU. Your success is their success, and their success helps build toward yours. AS: Our success is directly linked to our portfolio. The more data we have the better informed we are. The better informed we are the more chances we can help. The more we can help, highly correlates to companies succeeding. Investors look for 3 things: Vision, Traction and Good Management. The only way to demonstrate traction is through metrics. The only way to show good management is through transparent reporting. VCs Have Their Own Investors to Report to NM: Investors have to report to their LPs (Limited Partners); for those of you who don’t know how the Venture Capital food chain works. People forget that a Venture Fund is meant to provide a return back to its investors at a multiple much higher than public markets. Limited Partners of a Venture Fund come from all different places, from wealthy individuals, to financial institutions, to school endowments and pension funds; even governments make investments into venture funds. Also, for those curious minds, VCs almost always contribute their own capital to the funds they raise. AS: When you raise your maiden fund, you talk about your experience, knowledge, network, and any success as an Angel to raise capital. After your first fund, all those details barely mean anything. Investors (Limited Partners) want to know the success of the fund; from the financial details, pedigree of portfolio companies, to impact metrics that are important to them. Limited Partners require transparency to succeed against the public markets. “LPs need to have accurate, timely information to continue to invest in the private market, otherwise they’ll look towards other markets that provide better communication of their investment.” Internal and External Auditing NM: VCs need to know how a company is progressing so they know how to properly report their value and returns to their LPs and firm. VCs want to get as much of the money from successful (and unsuccessful) investments so the sooner they know what to expect for a return, the easier they can maximize their profits, and continue to invest in more startups. AS: VCs also get audited for more reasons than just tax. The financials have to show a true and fair view of the state of the investment funds, so that the LPs can have comfort they own what they think they own. We also have our corporate taxes to manage, which normally requires an audit. To See How They Can Help AS: The reason why we do it [Venture Capital] is to help. Everyone in the VC world wants the companies in their portfolio to succeed. The more information we have the better we can determine how we can help. Being in the dark is no different for an investor with a company than a significant other in a relationship; we just sit there, wondering why they’re not answering and what could possibly be wrong with no direction. NM: A person goes into Venture Capital to several reasons, but the best (and true) VCs do it to help companies grow and be part of something great; this success then translates to maximizing investment returns which then makes everyone happy. VCs know that there are 3 big needs of young companies: Capital, Talent, and Resources. With early-stage capital becoming a very competitive space, investors are offering more than just capital to entice a company to sign their term sheet. To Learn From Your Success [and Failures] NM: When VCs provide their time, experience, and knowledge, you’re receiving the value of all the compounded learnings and experiences they have from all companies they have worked with. By providing updates, feedback, data, and context of your own progress, they can not only help you, but other companies as well. AS: Our experience goes a long way to help grow a company in the best way possible, but this also helps when a company is looking to raise future financing. Knowing all the metrics and details helps us advise on what type of pitch deck to build, what metrics to show off, and what other investors they can introduce us to for follow-on financing. Last Words The more informed your investors are, the more time, talent, and resources they can provide to you. There needs to be more fiduciary responsibility maturity in the Startup<>VC world. While many of us look at VCs as sugar daddies because of the rampant access to capital and valuations in the recent years; we should view this like getting a loan from a business partner. I want to thank Alex for taking the time to chat and write this with me. I know that ‘humanizing Venture Capitalists’ isn’t the most popular thing to do, but if we don’t, they’ll eventually disappear. Enjoy Your Day, Go Create Something, and Make Someone Smile

Investor Letters leverages the Visible platform to surface insightful stakeholder updates sent from leaders of public and private companies as well as top asset managers, venture capitalists, and product and business thinkers. Subscribe and receive a new investor letter, supplemented with Visible charts and actionable insight every Wednesday. Amazon Before it Was Amazon It might be the most well-known (and prescient) investor letter in the history of the technology industry so we will keep this week’s intro short. Jeff Bezos’ 1997 letter to Amazon shareholders is truly a master class in building a business – in 1997, 2016 or undoubtedly any date before or after. We have added a bunch of notes below (anything you see in bold, in quotes, or presented as visualizations was added by us) to help showcase how Amazon has delivered on the promises made in this letter. The Investor Letter To our shareholders: Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers, yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive competitive entry. But this is Day 1 for the Internet and, if we execute well, for Amazon.com. Today, online commerce saves customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the very process of discovery. Amazon.com uses the Internet to create real value for its customers and, by doing so, hopes to create an enduring franchise, even in established and large markets. “Day 1” – Amazon has grown of age alongside the global Internet, as a vast majority of new Internet users have come online during Amazon’s lifetime. We have a window of opportunity as larger players marshal the resources to pursue the online opportunity and as customers, new to purchasing online, are receptive to forming new relationships. The competitive landscape has continued to evolve at a fast pace. Many large players have moved online with credible offerings and have devoted substantial energy and resources to building awareness, traffic, and sales. Our goal is to move quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities in other areas. We see substantial opportunity in the large markets we are targeting. This strategy is not without risk: it requires serious investment and crisp execution against established franchise leaders. One of the most amazing things Amazon has done in the almost 20 years since this letter is turn investments they were making to improve their core business – heavy spending on infrastructure – into a multi-billion dollar business of its own, AWS. There were (and still are) major players in the cloud infrastructure space that Amazon was going straight up against but that hasn’t stopped the rapid growth of AWS. According to Deutsche Bank, AWS as a standalone entity would be one of the fastest growing enterprise tech companies ever. It’s All About the Long Term We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital. This idea – the Amazon flywheel – brilliantly illustrates the way that Jeff Bezos and his team see all of these factors building on and feeding into one another. Note, as Benedict Evans did here, that there is no outward arrow titled “take profits”. Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise. That customer base expansion focus? It is going pretty well. Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy: We will continue to focus relentlessly on our customers. We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions. We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures. While they are not as well known as Google for launching and then quickly shuttering projects, Amazon has certainly lived by the philosophy they espouse above. The Amazon Fire Phone is just the latest in along line of projects like this. We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case. Amazon’s dominance goes a step beyond simply market leadership. In 2015, Amazon accounted for $0.51 of every incremental $1.00 spent online and are now responsible for almost a quarter of all retail growth in the United States. We will continue to focus on hiring and retaining versatile and talented employees, and continue to weight their compensation to stock options rather than cash. We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner. We aren’t so bold as to claim that the above is the “right” investment philosophy, but it’s ours, and we would be remiss if we weren’t clear in the approach we have taken and will continue to take. With this foundation, we would like to turn to a review of our business focus, our progress in 1997, and our outlook for the future. Obsess Over Customers From the beginning, our focus has been on offering our customers compelling value. We realized that the Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply could not get any other way, and began serving them with books. We brought them much more selection than was possible in a physical store (our store would now occupy 6 football fields), and presented it in a useful, easy-to search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer customers gift certificates, 1-Click(SM) shopping, and vastly more reviews, content, browsing options, and recommendation features. We dramatically lowered prices, further increasing customer value. Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader in online bookselling. By many measures, Amazon.com came a long way in 1997: Sales grew from $15.7 million in 1996 to $147.8 million — an 838% increase When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows. We will share our strategic thought processes with you when we make bold choices (to the extent competitive pressures allow), so that you may evaluate for yourselves whether we are making rational long-term leadership investments. We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture, particularly in a business incurring net losses. We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model. The focus on growth remains, as evidenced by the chart just below. And the second image, highlighting the growth of Apple and Amazon relative to other massive multinational businesses drives home the point of just how successful that focus remains today. Cumulative customer accounts grew from 180,000 to 1,510,000 — a 738% increase. The percentage of orders from repeat customers grew from over 46% in the fourth quarter of 1996 to over 58% in the same period in 1997. In terms of audience reach, per Media Metrix, our Web site went from a rank of 90th to within the top 20. We established long-term relationships with many important strategic partners, including America Online, Yahoo!, Excite, Netscape, GeoCities, AltaVista, @Home, and Prodigy (Ed note: Look at those names!) Infrastructure During 1997, we worked hard to expand our business infrastructure to support these greatly increased traffic, sales, and service levels: Amazon.com’s employee base grew from 158 to 614, and we significantly strengthened our management team. (Ed Note: Now over 230,000 employees) Distribution center capacity grew from 50,000 to 285,000 square feet, including a 70% expansion of our Seattle facilities and the launch of our second distribution center in Delaware in November. Inventories rose to over 200,000 titles at year-end, enabling us to improve availability for our customers. Our cash and investment balances at year-end were $125 million, thanks to our initial public offering in May 1997 and our $75 million loan, affording us substantial strategic flexibility. Our Employees The past year’s success is the product of a talented, smart, hard-working group, and I take great pride in being a part of this team. Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com’s success. It’s not easy to work here (when I interview people I tell them, “You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three”), but we are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about. Such things aren’t meant to be easy. We are incredibly fortunate to have this group of dedicated employees whose sacrifices and passion build Amazon.com. Unless you’ve been living under a rock for the last couple of years, you are probably well aware of the PR issues the company faces in the wake of a major New York times investigation into its corporate culture. Here a a few select quotes. Goals for 1998 We are still in the early stages of learning how to bring new value to our customers through Internet commerce and merchandising. Our goal remains to continue to solidify and extend our brand and customer base. This requires sustained investment in systems and infrastructure to support outstanding customer convenience, selection, and service while we grow. We are planning to add music to our product offering, and over time we believe that other products may be prudent investments. We also believe there are significant opportunities to better serve our customers overseas, such as reducing delivery times and better tailoring the customer experience. To be certain, a big part of the challenge for us will lie not in finding new ways to expand our business, but in prioritizing our investments. We now know vastly more about online commerce than when Amazon.com was founded, but we still have so much to learn. Though we are optimistic, we must remain vigilant and maintain a sense of urgency. The challenges and hurdles we will face to make our long-term vision for Amazon.com a reality are several: aggressive, capable, well-funded competition; considerable growth challenges and execution risk; the risks of product and geographic expansion; and the need for large continuing investments to meet an expanding market opportunity. However, as we’ve long said, online bookselling, and online commerce in general, should prove to be a very large market, and it’s likely that a number of companies will see significant benefit. We feel good about what we’ve done, and even more excited about what we want to do. 1997 was indeed an incredible year. We at Amazon.com are grateful to our customers for their business and trust, to each other for our hard work, and to our shareholders for their support and encouragement. /s/ JEFFREY P. BEZOS Jeffrey P. Bezos Founder and Chief Executive Officer Amazon.com, Inc. Further Reading on the Rise of Amazon This video from NYU professor Scott Galloway gives an awesome look at the dominance of Amazon and its fellow behemoths Google, Apple, and Facebook. We used a couple of graphics from his presentation above. The AWS IPO by Ben Thompson. In fact, go read anything Ben writes — about Amazon or anyone. Why Amazon Has No Profits (and Why it Works) by A16Z’s Benedict Evans

Subscribe to Investor Letters Investor Letters leverages the Visible platform to surface insighful stakeholder updates sent from leaders of public and private companies as well as top asset managers, venture capitalists, and product and business thinkers. Subscribe and receive a new investor letter, supplemented with Visible charts and actionable insight every Wednesday. When Nike CEO Mark Parker sat down to pen his 2008 letter to shareholders, the company was in relatively good shape considering the world economy was in the midst of an economic meltdown. He had been in the job for about 2 and a half years and had just added $2.3 billion of incremental revenue – up 14 percent year over year – during fiscal 2008. In January 2009, a dollar that had been invested in Nike just before Parker took over was worth significantly more than a dollar invested at the same time in top competitor Adidas or in the S&P 500. Unlike most companies during that same period, Nike’s stock had actually appreciated in value during those 2 and a half years. $1 Invested in Nike, Adidas, & the S&P 500 All wasn’t perfect in the land of the Swoosh, however. In January 2009 the stock price dipped below the psychologically important $10 level and competition was increasing significantly. Nike Stock Price: 2001 – Present In the U.S. footwear market, for example, #2 Adidas had been gaining market share for years, growing significantly faster than Nike. Add to that the under the radar growth of Under Armour and the entry of new players into the footwear and apparel markets and it was clear the company would be in for a long drawn out fight on multiple fronts. The Investor Letter Note: Emphasis, quotes, and charts in the letter below are mine. With historical letters like this, we try to point out how predictions and strategies played out in the market and what you can learn from what transpired. To Our Shareholders, When I stepped into the CEO role 2½ years ago, the leadership team reaffirmed a simple concept that I knew was true from my nearly 30 years of experience here – NIKE is a growth company. That fact shaped the long-term financial goals we outlined more than seven years ago. It also inspired our goal of reaching $23 billion in revenue by the end of fiscal 2011. Fiscal 2008 illustrated the power of that financial model, the strength of our team, and the ability of NIKE to bring innovative products and excitement to the marketplace. While long term, Parker was right about the growth oriented nature of the business, the short-term patience his board was certainly tested. Following the letter, Nike struggled to expand, shedding revenue for the next two years before jumping on its current trajectory. The idea of Nike as a growth company is one that Parker and his team have rallied around to this day, as the headline on their investor relations website still features the tagline. Nike Annual Revenue Growth (%) Our unique role as the innovator and leader in our industry enables us to drive consistent, long-term profitable growth. In 2008 we added $2.3 billion of incremental revenue to reach $18.6 billion – up 14 percent year over year with growth in every region and every business unit. Gross margins improved more than a percentage point to a new record high of 45%, and earnings per share grew 28 percent. We increased our return on invested capital by 250 basis points1, increased dividends by 23%, and bought back $1.2 billion in stock. 2008 was a very good year. For a company to be able to say that while the world economy, and consumer confidence were melting down is impressive. As we enter fiscal 2009 we are well-positioned for the future. The NIKE brand continues to grow in relevance and influence. We’re focused on six key categories – running, basketball, football, men’s training, women’s training and sportswear. Each category team is immersed in its sport’s culture, connecting with consumers and building deep relationships. These connections are the source of insights we use to create the innovative products that fill our pipeline. NIKE is a premium brand, and we earn that reputation by delivering experiences that surpass the expectations of our consumers. Our portfolio of brands also continues to grow. Converse is mid-way through its 100th anniversary celebration. This brand delivered its best year ever in fiscal 2008 and continues to grow in the U.S. and in the key emerging markets of China, Russia and Brazil. Hurley and Cole Haan also had record years for revenue and pre-tax income. And NIKE Golf increased revenue and pre-tax income as we continue to deliver innovation and widen our lead as the largest apparel brand in the golf industry. The popularity of golf, and of its biggest icon, Tiger Woods have fallen significantly in the years since Parker’s letter but Nike has managed to stave off some of the decline with revenue for the segment dropping only slightly over the last three years. Growth in our portfolio of brands is only half the story. The other half is change. Our portfolio is based on three things – pursuing the greatest growth opportunities; leveraging NIKE resources and capabilities; and serving consumers with premium products and experiences. In applying these three principles we saw opportunities to take action in 2008. We sold the Starter and Bauer businesses, and we acquired Umbro, one of the world’s great football brands and a source of tremendous growth potential for NIKE, Inc. as we continue to expand our position as the biggest football presence on the planet. Like its China strategy, the investment in football (soccer to us Americans) has paid off. Nike is quickly catching up with #1 Adidas and is poised to capitalize on the growth of the game in its biggest market, the United States. After all the work we have done this year, I’m very pleased with how we have enhanced the position, performance, and potential of all the brands and categories in the NIKE, Inc. family. They illustrate the commitment we have to athletes and the unique role we play in sports and the cultures that surround our consumers. As I write this we’re heading into the Beijing Olympics – a moment that NIKE has been working toward for 30 years. NIKE is the number-one sports brand in China, which is also our largest sourcing country and our biggest market outside the U.S. This insight is one of the keys to Nike’s recent and future growth. While still only accounting for 10% of overall revenue, sales in Greater China – which grew 30% to about $886MM in the quarter ended August 31, 2015 – is by far the company’s fastest growing market. During the past four years we have worked with thousands of athletes from more than 100 countries. We’ve gained valuable insights nobody else has and used them to design and deliver some of the best performance innovations NIKE has ever developed. From the Hyperdunk basketball shoe, Zoom Victory Spike, and LunaRacer to Swift apparel and the Pre Cool Vest – NIKE product innovation is setting new standards in all 28 Olympic sports. And we’ll continue to connect with Chinese consumers long after the Olympic torch goes out, bringing innovative products, retail experiences, and communications to this exciting marketplace. We’ll give the world a chance to catch its breath from Beijing, but only for a minute. On August 31 we launch The Human Race, the world’s biggest single running event in history – runners around the world competing and connecting simultaneously through the power of NIKE+ technology – raising funds for global causes with every mile. This is what NIKE is all about – innovating on multiple fronts and creating a bigger more vibrant marketplace. That’s what we do best and we’re doing it all over the world. And our world is changing. The digital age is fueling change at its fastest rate in history.Power is in the hands of consumers. They have near infinite choices and unlimited access to those choices. The cost of entry into their world has risen dramatically. To be relevant, to be accepted, a company must bring its authentic self to market. For NIKE this means vast new opportunities to reach and reward consumers – with product innovation and compelling experiences at retail and online. We’re leveraging those opportunities by sharing our passion for sports and design and communications – our own never-ending story. Again, this insight has proved prescient, as the company remains well positioned to capitalize on the growth of digital and targets $7B in e-commerce revenue by 2020. More than ever our story involves the commitment to innovate for a better world. We’re very focused on creating products that reduce their environmental impact and showcase sustainable innovation. We’re committed to helping improve working conditions across the industry’s supply chain. And we continue to invest in our communities through programs like Let Me Play and our partnership with the Lance Armstrong Foundation. Every day we see how social and environmental change can promote innovation and growth in our business and in the world. This year we were named one of the world’s most ethical companies (Ethisphere Magazine), one of the world’s top sustainable stocks (Sustainable Business and KLD), #3 in 100 Best Corporate Citizens (CRO Magazine), one of the 100 Best Places to Work (Fortune magazine), and the World Wildlife Fund and others have recognized NIKE for our work on climate change. I’m grateful that we’re being noticed for our contributions, but our work in this area is a journey. There is always more to do. I’ll point to a $100 million partnership between the NIKE Foundation and Peter and Jennifer Buffett’s NoVo Foundation. Together we are creating an exciting new initiative called the Girl Effect. The premise of the Girl Effect is as simple as it is profound – when we invest in the health, safety and education of an adolescent girl, we create a ripple effect that improves her quality of life and that of everyone around her – her family, her village, her nation and, ultimately, all of us. Global research and experience show that investing in girls and creating the Girl Effect may be the most powerful missing piece to the puzzle of alleviating poverty. For all we have accomplished this year, we remain humbled by the amazing things we witnessed in the world of sports – Tiger Woods playing through pain to win the U.S. Open, Paul Pierce leading the Boston Celtics to their first NBA title in more than 20 years, the passion of a historic European Championships, and Rafael Nadal outlasting Roger Federer in the longest and most dramatic final in Wimbledon history. It is epic moments like these – and the millions of everyday moments created by athletes around the world – that inspire us. Their dreams motivate us to create the most innovative product in sport, and to serve more fully every consumer who shares our passion for performance and excellence. That is our responsibility and our privilege. As we move through fiscal 2009, now is not the time to be timid. We know that doing business as usual – doing what we’ve done in the past just a little bit better – is not enough. As we’ve mentioned, Nike hit a rough patch shortly after this letter but has rebounded strongly and, despite its size, remains a growth company with a masterful handle on branding and digital marketing. We are committed to the principals that got us here – innovation, consistency, and competitive fire. We’re focused on managing for growth. Where others retract, we reach out. Where some react, we create. We are on the offense, always. I wouldn’t trade what we have with anybody in any industry. Mark Parker President and Chief Executive Officer NIKE, Inc. Further Reading There is, of course, no shortage of information to read about Nike and the massive success they have seen recently. Here are a couple quick places where you can go to get a better idea of what helped them get from where they were when Parker put together his report to shareholders to where they are today. Can Nike become “the Fifth Horseman“? from L2 Inc. Fortune’s 2015 Businessperson of the Year – Nike’s Master Craftsman What were Nike’s digital growth enablers in 2015? Want to share Visible Investor Updates with colleagues? Send them here!

The way that a company manages relationships with its investors says a lot about the professionalism of its management team and its likelihood of sustainable success. A recent (unscientific) survey we conducted among dozens of early stage VCs showed that investors are 2 times more likely to make follow on investments in companies who have provided regular investor updates. While some of that is explained by our desire as humans to only share information that paints us in a positive light – meaning that only companies doing well would want to tell their investors – it is clear that the highest performing companies care about building mutually beneficial relationships with their key stakeholders. Regular investor updates are key in keeping your backers involved in your business so that they can provide input and assistance in their respective areas of expertise. They are also a sign of an active and engaged entrepreneur who values what her stakeholders bring to the table. Perhaps most importantly, consistent investor updates help stop inbound and asynchronous requests and give you time back (135 hours per year according to another survey we conducted) to focus on building your company. So when is it most important to be sending investor updates? 1. You are having trouble hiring the best people for your company You are not alone, hiring is hard! In a recent First Round survey – called The State of Startups – the #1 concern among founders was the ability to hire good people. For early stage companies, where trust is a crucial component in the hiring process, leveraging personal networks is often one of the best ways to bring on the best people. Because of their involvement with so many companies, investors often play the role of super connecters in the early stage tech market and can have a major impact on your ability to find the right fit for your open roles. This connectedness helps partially explain the rise of the “Venture Community” or “Venture as a Platform” model made popular by firms like a16z and First Round. When successfully applied, this model tends to create a virtuous cycle and turns out to be very good for business…both yours and your investors’. Investors help people in their network find good jobs which bolsters their reputation. Their companies (that’s you!) fill the roles they need and can accelerate their product and business progress. Those companies have more success and generate better returns for the investor. Investors are willing and often able to help your company find the right people to support your growth. All you need to do is ask! 2. Your circle of feedback is getting smaller and smaller One of the most important things that you can do as a founder, product person, or business leader is stress-test your ideas with the smartest people you can find. To pull an example from outside the tech world, Bridgewater’s Ray Dalio – the most successful hedge fund manager of all time – seeks to find the right answers by seeing whether his ideas stand up to scrutiny from the brightest people in his network. “I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong. I never cared much about others’ conclusions—only for the reasoning that led to these conclusions. That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people.” – Ray Dalio, Principles It can be easy to fall into a pattern of running things by the same people every time you need to make a decision and in some ways, it is important to have people you can consistently call on for input. But exposing your ideas to a wider range of people – something your investors can help provide, either through their own feedback or intros to people in their network – can help unlock insights that wouldn’t have been possible with the same small circle you always rely on. 3. Things have been quiet on the press and promotion front When investors don’t hear anything about your business for extended periods of time, they tend to check out. With startups, no news = bad news: Why investor updates are really, really important http://t.co/bywRt6mf85 @jason via @nuzzel — Andy Smith (@kabbenbock) February 10, 2015 For the most part, early stage investors have their priorities pulled in a number of different directions. Maybe they are angels who also have their own company to run or they are at a VC firm with a dozen other investments and another fund that they themselves need to go out and raise. Don’t make it any harder than it already is to stay on their radar. When you and your team are heads down building your product and don’t have the resources to trumpet your progress to the press, you may go months without any major announcements or releases. Filling these information gaps with quality investor updates are the only way you can make sure your backers stay engaged. 4. You need to raise more money As the proverb goes, the best time to send an investor update (or plant a tree) was when they first wired the cash. The next best time is today. However, when you are down to a month of runway and haven’t checked in with your investors in a while, it might be too late… If u haven’t sent an investor update in > 3 months … no need to reach out now. I’ve already checked out. — Jason M. Lemkin (@jasonlk) December 16, 2015 So make sure you get started before you hit the point of desperation. Good companies have insight into when and how they will need to finance the business in the future. If you have a good handle on how much runway you have left, you can be proactive in setting yourself up – by asking your investors for intros to later stage VCs, for example – to raise your next round successfully. 5. You just raised a round Your relationship with investors is very similar to the type of courtship you go thorough with potential customers. You target the right people, nurture your relationship over time with timely updates your progress, and eventually bring them onto your cap table and into your business. It doesn’t stop there, however. Once you’ve brought investors on board, your goal should be to convert them from “customer” to “evangelist”. A customer pays your business money. An evangelist pays your business money and helps you make even more money by speaking and acting positively on your behalf. Similarly, investors take an ownership stake in your company while evangelist investors have a sense of ownership that stretches beyond what shows up on the cap table. Building evangelism helps take care of the four previous points in this article. When you are able to convert someone from investor to evangelist, that person will be willing to anything they can – from hiring and finding customers, to providing feedback and facilitating introductions to future investors – to support the long-term success of your business.

From working with hundreds of customers and users, we get a lot of questions around ‘what kind of information should I be including updates to my investors?’ We break this down to 4 different sections. Financial Key Growth Metric Industry/Market Standards Investor/Advisor/Board suggested 1. Financial – Money money money. Finances are the lifeblood of a company, you can tell how well a company is growing, how smart they are spending, how healthy they are, or how many more months they have left before they disappear. -Look at any standard Cash Balance Sheet and Income Statement, you should have the major line items of this for your investors. -Depending on what kind of product you sell, there could be some important ones to highlight like gross margin or wages or marketing expenses. Always highlight the items that affect the company the most. 2. Key Growth Metric – There are lots of things that accrue a company’s growth, but there is normally just one or two numbers that you look at for showing your growth and success. We talk about how to find your ‘Most-Valuable-Metric’ and the best way to tell your company’s story in The Ultimate Guide to Startup Data Distribution -This can be a numeric or monetary amount, and it changes for each company/business plan/industry. For SaaS, this could be MRR, for a messaging app, it could be number of users, average messages per user. Main Point: This metric(s) is(are) they key segment(s) that needs to grow to continue your success to Unicorn Ranch. 3. Industry/Market Standards – Don’t reinvent the wheel. When you’re growing a company in a specific industry or market, there are always benchmark numbers and stats people talk about. Use these for your own reporting so you can have your stakeholders look at the market, their experiences or expertise, and your company (aka – make them work for that equity they bought/earned). For SaaS (I’m in SaaS so I talk SaaS), this would be items like Churn Rate, Average MRR Value, Total ARR, Cost per Acquisition, Lifetime Value, etc. 4. Investor/Advisor/Board Suggested – Your key stakeholders (investors, advisors, board members), if you picked them right, will have experience, knowledge, connections, and more to help you become even more successful. From speaking with them, they’ll probably find a few metrics not already covered that they want you to focus on or track. This only helps leverage them in the future and allow them to be proactive towards that ten-figure exit. Checkout Visible’s list of Most-Valuable-Metric and see if there is something you have been missing. Enjoy Your Day, Go Create Something, and Make Someone Smile Nate Morris

What is Total Addressable Market (TAM)? According to the Corporate Finance Institute, “The Total Addressable Market (TAM), also referred to as total available market, is the overall revenue opportunity that is available to a product or service if 100% market share was achieved. It helps determine the level of effort and funding that a person or company should put into a new business line.” Related resource: What Is TAM and How Can You Expand It To Grow Your Business? “TAM” is one of those buzzy acronyms that VCs love to throw around. For those following along at home, TAM = Total Addressable Market. It helps paint the picture of how big the opportunity is and if the business deserves to be venture-backed. TAM is a funny thing. Early on, many investors passed on Uber, wrongly seeing it as little more than a black car service for affluent San Franciscans. The type of analysis that led many to overlook Uber (when it was still called UberCab) mirrors the approach that Benchmark’s Bill Gurley criticized NYU professor Aswath Damodaran for a couple of years later in a piece called “How to Miss By A Mile: An Alternative Look at Uber’s Potential Market Size” “Let’s first dive into the TAM assumption. In choosing to use the historical size of the taxi and limousine market, Damodaran is making an implicit assumption that the future will look quite like the past.” – Bill Gurley The most forward-thinking investors were able to see past the limited size of the initial niche targeted by the company and see something closer to what the company has become — a $50 Billion valuation with operations in 67 countries and offerings ranging from food delivery to carpooling. TAM vs. SAM vs. SOM: What’s the Difference? Total addressable market (TAM) is often associated with SAM and SOM. First, let’s understand SAM and SOM: TAM: Total Addressable Market SAM: Serviceable Available Market SOM: Serviceable Obtainable Market TAM looks at the overall market but you can dial this number in with a more realistic approaching using both SAM and SOM. SAM (Serviceable Available Market) As defined by Steve Blank, “The serviceable available market or served addressable market is more clearly defined as that market opportunity that exists within a firm’s existing core competencies and/or past performance. The biggest consideration when calculating SAM is that a firm most likely can only service markets that are core or directly adjacent to its current customer base.” This means that SAM is how many customers (in revenue) actually fits your company and product line your are building. This differs from TAM as your TAM is a look at your entire market, not factoring in what percentage is actually achievable to close. Related Resource: Total Addressable Market vs Serviceable Addressable Market SOM (Serviceable Obtainable Market) SOM or serviceable obtainable market dials in your target market one step further. SOM is the percentage of the market that you can actually reach with your product, sales, and marketing channels. This should be a realistic view at the customer base your company can pursue. How to Calculate TAM When it comes to financial modeling and building a TAM for your business, there are a few different approaches. The most common being top-down and bottom-up approaches. Top-Down While a top-down approach to modeling is oftentimes the easiest, it is generally less accurate than a bottom-up approach (more on this below). According to inc.com, “A top-down analysis is calculated by determining the total market, then estimating your share of that market. A typical top-down analysis might go something like this: ‘Hmm… I will sell a widget everyone can use, and since there are 300,000 people in my area, even if I only manage to land 5 percent of that market I’ll make 15,000 sales.’” For example, if you were to find a market to be $10 billion and you believe that you can capture 1% of the market that is $100 million in revenue. This number might get circulated when fundraising, only to find out that there are many more factors that go into penetrating a new market. Bottom-up On the flip side is a bottom-up approach. Oftentimes more accurate but also requires more work and more data. As the team at inc.com describes a bottom-up approach, “A bottom-up analysis is calculated by estimating potential sales in order to determine a total sales figure. A bottom-up analysis evaluates where products can be sold, the sales of comparable products, and the slice of current sales you can carve out. While it takes a lot more effort, the result is usually much more accurate.” For example, let’s say we have software that sells for $10/mo. This means that the average consumer would spend $120/year. From here, we need to figure out how many consumers or customers we could add. Using past marketing website data, we believe that we can add 100 customers a month or $12,000 in recurring revenue (learn more about metrics here). Next, we can begin to model the growth of marketing site users and conversions to forecast what revenue might look like in 12 months. Related resource: Bottom-Up Market Sizing: What It Is and How to Do It Value Theory Approach As put by the team at HubSpot, “The value-theory approach is based on how much value consumers receive from your product/service and how much they’re willing to pay in the future for that product/service.” This requires certain data and assumptions that might take some added research. For example, let’s say that we sell snowboards and the ones we are creating are lighter, faster, and better for the environment than the normal snowboard. We could calculate our value theory by taking the price shops are selling a traditional board for, let’s say $300, and figure out how much more they’d be willing to sell your state-of-the-art product for — maybe $350 or $400. External Research One of the quickest ways to calculate your total addressable market is by using professional data from outside sources. There are countless companies (like Gartner and Forrester) that produce rich data reports on specific markets and verticals that can be a great launching point. Note: these often come at a hefty price. This is generally not the best approach as it is difficult to understand where the data came from and how it is being calculated. Questions to Ask Before You Calculate TAM There are many different approaches when it comes to calculating your TAM. At the end of the day, you’ll want to make sure you are setting realistic expectations and are painting a picture of reality. A couple of questions to consider asking before calculating your TAM: What are the characteristics of our current and potential customer profiles? What industries should we target to maximize sales? Where are the companies in those industries located? Who buys our solutions? How big are these companies? What are the market conditions like? Is the market growing? Are there new entrants? How does our budget compare to our competitors’ budgets? Where is growth expected? The Free Visible Total Addressable Market Template and Evaluation Model In order to help founders model their TAM and sensitivity analysis, we created a free Google Sheet template. You can find the Google Doc here: Visible.vc – Market Sizing, TAM & Sensitivity Analysis. Simply open it up and click the arrow on the bottom left sheet and copy it to your own Google Sheet workbook. Below, I’ll explain the process and instructions. You’ll see step-by-step directions for using the template below. Where Does Your Total Addressable Market Start (and End)? Before calculating the actual size of the market you are looking to capture, you first need to try to build an understanding of where that market begins and ends. Many companies, like Uber, start out in a specific niche with plans to scale into adjacent markets that allow them to apply their product and operational expertise to a different set of customers or a different geographic location. However, taking a company that is excelling in one niche and extrapolating their growth across multiple markets is a difficult task for both companies and the investors evaluating them. “Sequencing markets correctly is underrated, and it takes discipline to expand gradually. The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.” – Peter Thiel, Zero to One One year ago, Uber’s Gross Revenue in San Francisco was $500 Million. Assuming a 20% cut, we get to just $100 Million a year. 5 years ago, connecting the dots forward to see how they could move from that to what they have since become took a combination of masterful storytelling from Travis Kalanick and his team as well as a large leap of faith by the investors evaluating them. This is a potential pitfall of using a TAM based on historical market sizes for truly game-changing businesses (as Gurley’s quote from above illustrates). Another oft-committed mistake surfaces with many Ecommerce companies, who claim to be chasing the $1.6 Trillion Global Ecommerce Market. Sure, it is a huge number. But it is one that investors will see right through, much like highly inflated financial projections or overly ambitious product roadmaps. In reality, most ecommerce businesses are addressing the X $ spent each year on Y problem(s). Why Should Startups and Growing Companies FOcus on TAM? Going through a marketing sizing and pricing exercise can help shape your business and the decisions you make when it comes to your go-to-market strategy. How many customers are there in our market? What is their propensity to pay? How many customers can we realistically support? What % of the market can we get in 10 years? Can we be the market leader? Forecasts Using TAM is a good base for creating future forecasts and projections. Using a bottom-up approach is a great way to help forecast where you believe your business can be in the future. This is particularly important when thinking about fundraising, hiring, and budgeting for the next X months. Related Reading: Building A Startup Financial Model That Works Fundraising Different investors might have different preferences when it comes to presenting TAM during a pitch. If an investor does want to see your TAM estimates, it is generally suggested to use a bottom-up approach. As the team at DreamIt Ventures puts it, “The biggest mistake we see with regard to TAM is when founders present a “top-down” estimate of market size. A top-down estimate is when a founder uses outside data to find the market size and then, usually somewhat arbitrarily, predicts that the startup will achieve a piece of that invariably massive pie.” Related Reading: How to Write a Problem Statement [Startup Edition] Related Reading: 6 Types of Investors Startup Founders Need to Know About Building Your Total Addressable Market Model You can find the Google Doc here: Visible.vc – Market Sizing, TAM & Sensitivity Analysis. Simply open it up and click the arrow on the bottom left sheet and copy it to your own Google Sheet workbook. Below, I’ll explain the process and instructions. First, you’ll want to start either with a top-down or bottom-up approach (more on the differences here). For this model and exercise, we recommend bottom-up. If you are a SaaS company you may want to break down between SMB, Middle Market, and Enterprise and the yearly contract sizes for each type. Ecommerce companies may want to break down by yearly revenue per customer type. The model should work for any type of business. For marketplaces, we would recommend your transaction cut and not “Gross Merchandise Value.” Feel free to replace the “Customer Type” headers with your own descriptions. The green cells are the inputs for a number of customers and pricing for each respective type. The 100% market penetration is a quick gut check to say “If we captured 100% of the stated market how big would our business be?” After the inputs have been entered you’ll see a Sensitivity Analysis that provides Yearly Revenue based on your % of Market Penetration and Pricing. We use the Total Number of Customers from your inputs and various Yearly Revenue numbers to provide the results. In the first column, I just added a simple calculation for the Number of Customers. This simply takes % of Market & Total Customers. It also provides a quick gut check…e.g. “Is it reasonable to acquire and service X customers?”. The analysis is color-coordinated. Red means your business is below $10 Million a year, yellow is $10 Million to $100 Million and green is >$100 Million a year in revenue. Most investors will want to see a clear path to $10 Million per year and the vision to get you to $100M. Anything short and they will likely tell you that “your business is not venture backable and you won’t be able to return our fund.” We hope you enjoy this template. If you have any feedback, suggestions, or questions send them our way! If you found this to be valuable we’d love for you to share it. Just click this link and it will craft a pre-populated Tweet (that you are welcome to edit). Streamline and Deliver Investor Updates with Visible Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

You’ve heard the stories about companies getting funded based on a sketch on the back of a napkin. If your name is Ev Williams or if that napkin sketch is as compelling as Amazon’s, you may have a shot. If you aren’t a founder of Twitter, Blogger, and Medium or spend your free time saving journalism and launching rockets, people evaluating your business are far less likely to take your proclamations about the future at face value. In this blog, we write a lot about the importance of storytelling for a company. No matter who you are talking to – team members, investors, potential investors – company storytelling doesn’t stop, it simply changes contexts and mediums. A financial model is one of those mediums through which your company can tell its story, even without the operational history one might assume would be necessary to persuade investors or make smart decisions about the direction of the business. Related Resource: How to Create a Startup Funding Proposal: 8 Samples and Templates to Guide You At Visible, we work with VC backed companies on a daily basis. To get a better understanding of what it takes to build a compelling and useful financial model, we turned to our experience and conversations with customers and laid out our findings below. Why Startup Financial Models are so Important When Warren Buffett invests in a company, he makes holistic decisions about the quality of the business as if he is buying the whole thing and not simply a decision about the direction the stock might move. When building a financial model, a similar philosophy applies. Before breaking the business into discrete pieces and asking yourself which direction each will go, first look at the business as a whole and understand both what you as an organization are trying to accomplish as well as what the intended use of the model and startup financial projections you are building will be. What do we need to accomplish over the next x months… …in order to put ourselves into a position to successfully raise a Series A round? …for this partnership with Big Co. to make an impact on our bottom line? …so that we can hit profitability and maintain optionality over how we finance our future growth (customers vs. investment)? …for this product or distribution decision (which puts a significant amount of capital at risk) to pay off? 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. There are a few key reasons why it is an important exercise for startup founders to model and project their future growth: Fundraising Different investors will have different opinions on financial projections. Some like to see them to see how a founder is thinking about their business. Others won’t ask for them as most startups likely will miss one way or another. Mark Suster of Upfront Ventures puts it similarly: “See I don’t care if your projections prove wrong over time. I care about your assumptions going in. I care about the thought that you’ve given to the customer problem. I care about how much you’ve thought about market share, competitors, adoption rates, etc.” However, projections and financials will become more important later in your lifecycle stage. Where a seed round investor might not necessarily care about forecasts in the early days a Series C investor might want to see more concrete data to model growth. Related Reading: 6 Types of Investors Startup Founders Need to Know About Related Reading: A Quick Overview on VC Fund Structure Related Reading: How to Secure Financing With a Bulletproof Startup Fundraising Strategy Hiring Plans Building a financial model is a great way to understand how your overall business performance can impact hiring plans (and vice versa). By modeling different scenarios you can see how adding headcount can impact your bottom line. Go to Market Strategy In the earliest days of your business, a financial model and marketing sizing exercise will help you wrap your head around go-to-market strategy. This could be finding a more efficient way to acquire customers or maybe a new playbook for handling churn. With that being said, financial models and projections can take many shapes and sizes… Types of Startup Financial Model Structures that Work Financial projections are essential for any business, even if it’s not yet generating revenue. A variety of specific methods exist for performing this task, but they can generally be classified into top-down and bottom-up approaches. Financial analysts often use both methods as checks upon each other. Among technology companies – especially ones located in a certain geographic region – the very mention of a financial model evokes thoughts of calculator toting, tie-wearing, number crunchers sitting somewhere in a suburban cubicle. With the direction sentiment is shifting in the early-stage market, this mindset couldn’t be further from reality. A well-constructed financial model displays a professional approach to running your business and shows that you “take seriously the fact that you are deploying other people’s capital.” A good financial model consists to two things: Well thought out projections about the future of the business A properly structured, understandable, and dynamic spreadsheet Bottoms Up Startup Financial Projections A bottoms-up financial model – where you start with 5 – 15 core assumptions about the business – is most useful for a company contemplating a specific product direction, distribution strategy (i.e. invest in paid advertising), or a certain partnership that could potentially have a major impact on the business. Top Down Startup Financial Projections A top-down financial model may be most useful for a company that, for example, knows that it will need to go out and raise $X million in a Series A round 15 months from now and has spent time gathering data on what types of revenue, margins, and growth numbers they need to hit to have a successful fundraise. (Note: If you are a SaaS company, the Pacific Crest SaaS Survey is a great starting point to benchmark yourself) Maybe in this case, those numbers are $1.5MM in MRR with at least 100% YoY growth. With those in mind, you can work backward to understand how much you need to grow and which distribution channels may provide the best bridge from where you are now to where you need to be. 3 Deliverables Included in Every Financial Model There is not a one size fits all template for financial modeling. The structure of a model for seed-stage SaaS and a Series C eCommerce company will greatly differ. However, there are a few things that should be included in any solid financial statement, regardless of type: Financials Statements Every financial model should weigh your different financial statements. While projected financial statements may not be as vital/accurate in the seed stage/early days of a business, they will become more important and accurate in later stages. Related Resource: Important Startup Financials to Win Investors Cash Flow Overview Cash flow overviews are a vital part of a financial model because it will help you understand the true financial health and cash flow of your business. In the seed stage/early days, cash flow is incredibly important to monitor as you are in search of your first customers. KPI Overview Using actual metrics and data from your sales & marketing process is important to any financial model. You want to be able to understand how different go-to-market strategies impact your business and give you an idea of where and how you can grow your funnel (and revenue). 5 Metrics Needed for Every Financial Model As we mentioned above, not every financial model is the same. However, there are a few key metrics that can be translated across most financial models. Revenue At the end of the day, revenue is the lifeline of any business. Bringing new revenue in the door is the basis of every model. In a good financial model, you can use other inputs to help you model how your revenue is impacted in different scenarios. Cost of Goods Sold (COGs) No matter if it is the cost of goods sold or your expenses at a software company, COGs are a necessary part of any model. You need to understand what it costs to acquire new customers or build a new product. Operating Expenses The expenses that go into operating your business are also a necessary part of a financial model. You need to understand how and where your company is spending. Ideally, you’ll be able to model different scenarios with headcount and hiring plans to model how OpEx can impact your overall revenue. Burn Rate and Cash on Hand Going hand-in-hand with OpEx are your burn rate and cash metrics. You can use different hiring and OpEx inputs to help model your cash flow. This will be important when weighing different financing options. Acquisition Metrics While the name of acquisition metrics will change names from market to market, the idea behind them is consistent. You should include acquisition metrics so you can model how different GTM strategies and plans will impact your overall financial health. How to Build Your Startup Financial Model Bottoms Up Startup Financial Projections The bottom-up approach uses specific parameters to develop a general forecast of a business’s performance. This method might start the number of people you expect to pass by your business each day, also known as footfall. You would then estimate the percentage of footfall that will enter your store and make a purchase. The next step is to estimate the average value of each purchase to project your annual sales. Bottom up projections are based on a set of individual assumptions, allowing you to determine the impact of changing a particular parameter with relative ease. You may use a bottom-up approach to select a location for a new business. You can obtain an accurate estimate of the footfall by direct observation. You can also observe similar stores in that area to estimate the percentage of footfall that are likely to enter your store. The prices that your competitors charge will give you a good idea of the price you can expect to charge. Projections Some investors tend to prefer a bottoms up projection. As we previously wrote, “The reason being that a top-down approach relies on self-reported data from private companies, which can often be misleading, inaccurate or interpreted incorrectly. A bottom-up approach, however, uses firsthand data and knowledge of your own company and reduces the risk of the data being wrong or taken out of context.” Spreadsheet For example, assume for this example that an average of 10,000 people pass by a particular location each day. About one percent of this traffic in this area enters a store and makes a purchase, and the average total of each sale is about $5. The expected annual sales revenue in this example is therefore 10,000 x 0.01 x 5 x 365 = $182,500. You can then refine this estimate by considering additional factors such as price changes, closing on weekends and seasonal fluctuations. Template(s) At the end of the day, investors view TAM as a picture of how big your business can be. Correctly modeling the market is vital to proving that your business should be venture-backed. If you need a little help painting a picture of the market your solution could address, try using our TAM template! It has everything you need to start modeling the market your business can capture. Top Down Startup Financial Projections A top-down method of estimating future financial performance uses general parameters to develop specific projection numbers. You’ll often use a top-down approach to determine the market share that your new business can expect to receive. You might start with the market value of your product, narrowing it down to a particular location as much as possible. You would then assume that your business will receive a specific portion of that market and use that estimate to generate a sales forecast. A top-down approach is comparatively easy since the only parameters it really requires is the total market value for your area and the market share you expect to receive. This method is most useful for checking the reasonableness of the projections resulting from a bottom-up approach. However, top down projections aren’t recommended for preparing detailed forecasts. Projections Some investors will be weary when pitched using top down projections. However, this does not mean that there is no value in a top down approach. A top down approach is best used for a new endeavor where you may not have proper data yet. For example, if you are a pre-seed company with little to no revenue, it may be best to share your top down projections using outside and general market data. Spreadsheet For example, assume for this example you plan to open a business in an area where the total annual sale value of your product is $2 billion. You believe that your business might get 0.01 percent of that market, resulting in annual sales of $200,000. Note that your financial projection is entirely dependent upon the accuracy of your estimate on the product’s market value and your market share. Furthermore, the top-down approach doesn’t ask you “what if” type questions. Template(s) At the end of the day, investors view TAM as a picture of how big your business can be. Correctly modeling the market is vital to proving that your business should be venture-backed. If you need a little help painting a picture of the market your solution could address, try using our TAM template! It has everything you need to start modeling the market your business can capture. Common Financial Modeling Mistakes Failing to hit both of the requirements we mentioned in the last section – well-thought-out projections and a well-constructed spreadsheet – will quickly render your model unusable and will reflect poorly on you as a founder and on your company. Projections Assuming that revenue will come with scale. While this has long been a criticism of social networks and consumer apps hoping to monetize a critical mass of eyeballs through advertising, many companies who have revenue models built into their businesses from the start (think SaaS or Marketplaces models) still falsely assume that revenue, to the extent they need to be sustainable, will happen once they reach x number of users or “decide to turn on the spigot”. Focusing too much on point estimates and not range estimates – As Taylor Davidson puts it in a post on his own blog, “instead of agonizing over whether your conversion rate will be 2% or 5%, focus on the possible range or conversion rates and evaluate the results based upon the range of estimates, not the point estimate of 2% or 5%.” Underestimating Customer Acquisition Costs (CAC) – Just go read this post. Not doing your homework – There is a tremendous amount of information available, for free, that can help you gauge your performance and benchmark your growth. We mentioned the Pacific Crest Survey above. Other great resources include AngelList, Mattermark, and the blogs of companies embracing the Radical Transparency movement. Spreadsheet Spending too much time on non-material data points – The Pareto Principle applies here, just as it does to many other undertakings in a startup. While it might seem like spending time optimizing everything in your model will yield the best results, the reality is that going deep on your 5 – 15 core assumptions will yield a much more effective result. Failure to design your model for usability – To make your model most effective, you need to pay close attention to how usable the output is for viewers. That means clear explanations, a simple structure, and making sure to follow convention so there are no surprises. We linked to it above but David Teten of ff Venture Capital has a great post on the topic of standardizing the way you build your startup spreadsheets. Neglecting to include a sensitivity analysis – This goes back to the idea of understanding what your model outputs look like for a range of estimates. You should also keep in mind that your model should be treated as a flexible, living document. That means that your assumptions shouldn’t be hard-coded. Instead, as Taylor recommends, “create your assumptions so that you can easily change an assumption in one place and all formulas and outputs will recalculate automatically.” Displaying only financial statements and neglecting key metrics – Financial statements go a long way in showcasing the overall health of a business. Unfortunately, many models stop at the financial statements. What investors want to see is a synthesized look at those financials that make it easier to evaluate your business. As an example, a good model won’t just showcase projected revenue growth, it will look at how things like customer growth (and churn) and contract size work together to contribute to that top line number. Best startup financial model resources Unless you spent the first couple years of your career cutting your teeth inside an investment bank, your best bet is to lean on existing resources for the structural composition (i.e. the spreadsheet) of your financial model. The Standard Startup Financial Model that Taylor Davidson has put together on Foresight.is has been used by over 15,000 people across the world – from one-person operations just getting started to companies raising large VC rounds or considering acquisitions. And while we don’t recommend building your model from scratch, it is useful to understand how one can construct a professional financial model. Here are a couple quick resources, recommended by Davidson and us here at Visible: Best Practices in Spreadsheet Design by David Teten of ff Venture Capital 3 Traits of a Great Financial Model from Mark MacLeod Finally, if you are looking for a less sophisticated model or something to fit a specific modeling use case (user acquisition, revenue growth, or operations) here is a quick list of resources recommended by Davidson: Revelry Labs resourcing spreadsheet for operations modeling OpEx Budgeting from IA Ventures Viral Marketing modeling from Andrew Chen Modeling SaaS Customer Churn, MRR, and Cohorts from Christoph Janz Related Resource: A User-Friendly Guide to Startup Accounting Putting Your Financial Model to Work Mark Suster offers great advice for taking the financial model you have built and using it to help grow your business: “Financial models are the Lingua Franca of investors. But they should also be the map and the Lingua Franca of your management discussions.” Financial models play a key role in all of the major discussions you have about your business with all of your key stakeholders. A comprehensive financial model will have within it a number of different pieces that are relevant to different conversations within your company. The interplay between your revenue growth, your current burn rate, and the amount of money you have in the bank are all useful when putting together a hiring plan. Your assumptions for revenue can be isolated and used as a jumping off point when discussing a change to your distribution strategy. And as mentioned above, the projections you build around your key performance metrics are a crucial part of a successful fundraising process. In some cases – whether internally with management or externally with investors – the conversation will be high level and in other instances you will need to be more granular. If you have taken the time to thoughtfully prepare your assumptions around the future of your business, your most critical conversations will be more productive and you give yourself a strong advantage in the daily battle for capital and talent.

Andreessen Horowitz Startup Metrics Template Andreessen Horowitz (a16z) is one of the most prolific VC investors in the market today. With investments across a number of different stages, sectors, and business models, they have seen first hand the lack of (and the need for) standardization in the way private technology companies track metrics and present those metrics to current and potential stakeholders. While their well known post, called “16 Startup Metrics“, dives deep into a number of great metrics for different business models – Marketplaces and Ecommerce in particular – we focused this video on SaaS metrics and how companies can use Visible templates along with other sources to benchmark themselves against others in the market and set themselves up for fundraising success. For benchmarking purposes, we leaned on this year’s Pacific Crest SaaS Survey. With over 300 respondents representing different geographies and sizes, the survey provides very actionable insight into how your company is performing relative to others in the market. Pacific Crest Respondents SaaS Revenue and Profitability Metrics In our example, we are looking at a SaaS company with Total Annual Revenue of just under $2 million (we’ll call them ExCo.). At this size, it it likely they would be going out to raise a Series A round of funding. MRR vs. Service Revenue There are generally two types of revenue for a SaaS company – the first is Subscription Revenue (called MRR or ARR). This is product focused revenue that is recurring and predictable — especially if you are able to sign customers to longer term agreements. Investors prefer this type of revenue because it signals a high quality product with a path to long-term profitability. The second type of revenue is Services Revenue which often comes in the form on one-off (read: not predictable) consulting engagements or implementation fees. Because of the human-capital intensive nature of providing these services, they are far less profitable and scalable than Subscription Revenue. According to the Pacific Crest SaaS Survey, the median gross margin on subscription revenue is almost 80% while the margin on professional services in under 20% Average Contract Value (ACV) As defined in the a16z post, ACV is “the value of the contract over a 12-month period.” If you are seeing an uptrend in ACV over time (which is generally the goal), then your company is likely doing one or many of the following things: Shifting to customers with a larger budget – more seats, usage, etc. Employing a more effective sales strategy to convince customers to invest more heavily in your product Building a product that continues to improve and provide increasing value Effectively upselling existing customers SaaS Gross Profit Margin Growing the top line is necessary to build a scalable business but in order to build a sustainable company – or raise capital that helps get you to that point – your profitability (in this case, we are looking at Gross Margin) must be trending in the right direction. Here, we see Gross Margin increase initially and then fall off in recent periods. This could result from a number of factors: Churn from high margin customers Pricing pressure from new entrants or large players Lower percentage of revenue coming from MRR (subscription revenue) An increase in the infrastructure required to deliver the product (server costs, support costs, etc.) In the case of ExCo. we know that ACV is moving up and that the revenue stream is becoming more and more weighted towards subscription revenue so we can rule out a couple of potential causes. What is likely occurring is an increase in the infrastructure required to deliver the product (server costs, support costs, etc.). When the numbers change, it is crucial to know why and to be able to present context and a path forward when discussing those changes with investors. In spite of the dip, ExCo.’s gross margin still remains in the same ballpark relative to others in the market and is higher than it was the previous year. As your company moves further and further through the Venture fundraising lifecycle – from Seed to A to Growth rounds – the numbers gain importance in the overall story for the fundraise. The metrics above provide a quick glimpse of high level figures that can be very useful in getting in a foot in the door with some investors — strong MRR growth, a robust Sales Pipeline, growth in the commitment of future revenue (known as Bookings), and low Churn Rate (among many other factors) can also play a significant role in the success of your fundraise and in the long term viability of the business.

In 2015, 78 New York Times articles have included the word “Unicorn”. That ties this year with 2014 for the word’s highest number of mentions and with investors and pundits surely clamoring to puff up or tear down a couple more companies before the holiday break, odds are good that we’ll see a few more mentions in the (web)pages of the “Gray Lady”. 1901, as evidenced in the chart above, was a far less enlightened time than we live in today. For starters, “Unicorn” made it to print a mere 5 times during the course of the year. And while transatlantic experimental radio communications were made for the first time, we were years away from Radio on the Internet. Although Satori Kato filed a patent for the first soluble instant coffee, Blue Bottle wouldn’t open its doors until more than a century later. Additionally, Micro VCs and accelerators were few and far between…meaning businesses were forced to actually make money to stay in operation. (Add to that Stanford’s crushing 49-0 loss to Michigan in the first ever Rose Bowl right at the beginning of 1902 and it made for a tough time for Silicon Valley’s tech elite). 1901 was also the year that saw the birth of the world’s first Unicorn – long before Aileen Lee coined the term in 2013. Through a merger of 10 different steel and manufacturing companies, U.S. Steel Corporation became the world’s first billion dollar company with an authorized capitalization of $1.4B (just under $40B in today’s money). The names surrounding its origin remain recognizable to this day and adorn skyscrapers, foundations, and institutions across the globe. There was John Pierpont Morgan, who entered the steel industry a few years prior to the founding of U.S. Steel and is better known for the massive financial firm now bearing his name as well as his rescue of the U.S. economy during the Panic of 1907. There was also Andrew Carnegie who founded Carnegie Steel in 1873 and agreed to be bought out by Morgan for just south of $500MM in bonds and stock of the newly created U.S. Steel in order to retire to a life of philanthropy. Additionally, two Rockefellers, Marshall Field, and Charles M. Schwab (not to be confused with Charles R. Schwab) had key seats at the table during the formative years of the business. The Not So Lean Startup 1902 was the first full year of operation for the fledgling business, a year in which they employed over 168,000 people and had a payroll figure of $120,528,343 (in 1902 dollars). For perspective, U.S. Steel had a larger employee headcount than contemporary behemoths like Apple (115,000 employees), Amazon (154,000 employees) or Microsoft (128,000 employees). Like many of today’s billion dollar companies, U.S. Steel paid its rapidly growing base of employees more on average than a typical American worker. We can only assume these wage discrepancies caused a massive influx of free trade, organic coffee shops and dog yoga studios into the early 20th century Youngstown, Ohios and Gary, Indianas of the world. It’s not being a hipster if computers haven’t been invented yet! Predictable Revenue is easy when your Board of Directors runs the economy Today, investors and pundits worry about companies with negative unit economics, high burn rates, and unsustainably high valuations. For U.S. Steel, the only concern may have been where to find a safe big enough to store all the cash it was throwing off each month. In addition to its impressive top line numbers, the company was highly profitable and grew that profitability each month on a Same Month YoY basis. And while regulators may have had issues with the business, investors likely had trouble speaking a questioning word through the wide smiles they had on their faces as they walked to deposit $56,52,867 in dividends in the bank. At the end of 1902, the company was left with a cash balance of over $50,000,000. Imagine all the passive-aggressive bus stop advertising they could buy today with that kind of money! Life Before AWS Today’s companies are fortunate to live in the age of AWS and WeWork, where two or three people can build a product, find some users or revenue, and display enough traction to raise capital from investors. Launching a startup today is significantly less capital intensive than it was 20 or even 10 years ago. 115 years ago? In its first full year of operation, U.S. Steel spent over $29MM on the maintenance and renewal of capital equipment alone… …and was mining millions upon millions of tons of iron ore all across the world. The inventory of hard assets in most early stage companies today consists of nothing more than a few MacBooks and a ping pong table. Guilty… U.S. Steel Today With a current market cap of just under $1.3 billion, the company is worth less (on a non-inflation adjusted basis) than it was over 100 years ago. It remains one of the largest integrated steel companies in the world (and the largest in the U.S.) but, of course, that that title means significantly less than it did in the days of Morgan and Carnegie. And while it may be long in the tooth, the stock chart below shows that the company still appears to have a taste for the boom and bust lifestyle of the early 20th century — which, frankly, seems to be the lifestyle many of today’s emerging unicorns favor as well. And because there is never a bad time for a Godfather clip, we are compelled to mention that the company played a crucial role in the 20th century rise of America’s industrial might (for better and worse) and became a name that every outsider – from the Corleone family to a number of smaller, more nimble competitors – strived to outdo.

Rockstart Digital Health Accelerator – Startup Metrics Template In early 2015 Rockstart, already a well-known name in the European startup community, launched a new digital health accelerator focused on making a sustainable impact on global health systems. We have partnered with Rockstart to put together a template that you can start using today to get a high-level understanding of how your business looks today and where your growth is leading you in the future. We went a little longer than 3 minutes with this one but we promise it is worth it! What startup metrics matter to an early stage digital health company? As with any early-stage company, focus is key. This is why Rockstart puts each company’s Most Valuable Metric front and center on the business dashboard. The primary reason to have a single, understandable metric for your business is to cut out the noise that comes with trying to track (and take action on) every single thing so that you can hone in on the one thing that drives your success. Read any startup post-mortem and you’ll quickly realize the negative impact that lack of focus can have on a company. In the digital health sector, companies don’t all fit within the same bucket from a business model perspective. The first Rockstart Digital Heal Accelerator class has hardware companies (like Med Angel), marketplaces (like Dinst), and SaaS businesses (like Mount) who all likely have different true north metrics. Revenue and Net Burn – Are you becoming more cash efficient over time? The reality in many early stage technology companies still searching for a sustainable business model is unprofitability. In many cases, companies focus solely on top line (revenue) growth and neglect the need to control costs around things like user acquisition. Taking this approach results in a very cash inefficient business model. In cash efficient businesses, like the example in the video, a company grows revenue at an exceedingly faster rate than it grows its net burn. This leads to (eventually) a self-sustaining business and, in the interim, the ability to raise capital at more company-friendly terms. If you want to learn more about startup cash efficiency, we highly recommend this post from Hyde Park Ventures’ Guy Turner.

Version One Ventures Marketplace Metrics Template Version One Ventures, which closed a $35 million fund in late 2014, is one of North America’s top early stage VC investors. With investments in marketplace companies like Angellist, Indiegogo, and HandUp they are experts in taking companies from growth to scaling. Recently, the firm released a Guide to Marketplaces compiling those insights and and learnings to help you build your business. What Marketplace Metrics should I be tracking? This metric template, which you can access within Visible is inspired by a post from Version One’s Angela Tran Kingyens who was herself inspired by Christoph Janz and his SaaS Metrics template. Here is a deeper look at some of the marketplace metrics we talk about in the video and how you can apply them to your own business. Gross Merchandise Volume (GMV), Revenue, and Take Rate Simply put, Gross Merchandise Volume (GMV) is the total dollar value being transacted through your platform during a given time period. So if in one month there are 100 transactions done through your marketplace with an average size of $50, your GMV will be $5000. Pretty basic. As Andreessen Horowitz put it in the Startup Metrics blog post, it is the “real top line” for a marketplace business. As a single number, GMV is useful in helping understand the high level growth of the business and looks good in press releases and investor conversations. From an operational perspective, GMV gives you a starting point to better understand all of the underlying aspects of your business to more effectively allocate growth-focused resources. GMV by time of year (think Airbnb and seasonal differences), time of day (Uber and rush hour vs. late night volume), and by location or market (any on-demand marketplace opening new markets) GMV by acquisition channel. Marketplace companies, especially in the on-demand space, are often reliant on customer referrals and other types of paid advertisement to get to initial liquidity. If you understand how that channel compares with others (social, organic, etc.) – assuming you also know how much it costs to acquire a customer through each channel – your GMV trends by channel play an important part in helping you allocate your sales and marketing dollars. A word to the wise…GMV is NOT the same thing as Revenue for a marketplace business. This is something to be aware of when discussing the growth of your company with investors, potential employees, or partners. To calculate revenue for a marketplace company, multiply your GMV by your Take Rate. Take Rate is the % that your business “takes” from each transaction on your platform. In recent periods, companies either ignorant of the proper terminology or looking to play sleight of hand in order to spur investor interest have come under fire for misrepresenting the size of their business by using GMV to mean Revenue. Don’t make this mistake. Marketplace Activity Growth As we noted above, marketplaces are all about efficiently matching buyers and sellers. When a marketplace is making these matches successfully at scale, it is said to have reached liquidity. Maintaining liquidity over time is not an easy proposition, as human (customer support for both sides), technical (matching or suggestion algorithms), and hybrid (how to price your offering) considerations bring about a daily balancing act. To add even more complexity, some marketplaces have more moving parts than just a single buyer and seller. For example, DoorDash customers are buying a product from the end restaurant but also the service of having a DoorDash driver pick up the food and deliver it in a timely manner. Net Promoter Score Net Promoter Score was also featured in our recent Shopify Ecommerce Template and for good reason. Any time two parties are transacting, trust is a key element. Am I getting a fair price? Is the product or service going to meet my expectations? Do I have protection in the event something goes wrong? As the conduit for these transactions, maintaining a high degree of trust from buyers and sellers is crucial for a marketplace. Net Promoter Score, which asks customers (and sellers in the case of a marketplace business) how likely they are to refer your product or service to a friend or colleague, serves as a proxy for trust. If people and businesses on both sides are having good experiences on your platform, it can be assumed that they are being treated fairly and finding the value they are searching for. Visible Templates make it quick and easy to get started on the path to successful Data Distribution. Whether you are looking to raise money, send investor updates to your current shareholders, or just keep your team operating smoothly, Visible Templates give you a framework to tell a story around your most important key performance data. We have partnered with top VC investors, high-growth companies, and successful entrepreneurs to create templates that take just a few minutes to set up. See All Visible Template Posts Start Using Templates in Visible

Charting Your Xero Data Using Dashboards This release is packed with a lot of great functionality so “Hold on to your butts”, as close confident Samuel L Jackson would say. First up. We just launched our Xero Integration. Easily connect to your Xero account and we will automatically pull TEN metrics from your Profit & Loss report and Balance Sheet. Start building beautiful Xero Dashboards in seconds! That brings us to — Exporting: We constantly hear, “How can I print my screen?”…or “Is there an easy way to put my charts in a board deck?”. Fear no more, exporting your charts is now here! Simply hover over any chart, click the gear and select “Export”. We’ll let you customize how you export the chart and support SVG, PNG, and JPEG image files. We also give you some clever defaults to nicely format charts for PowerPoint and Keynote! Read more about this in our Knowledge Base. The chart below directly came from Visible! Feel free to use in any of your pitch decks. Now we are grooving. Unicorn status isn’t in vogue like it used to be; however, hitting your forecasts will always be cool ;). Feel free to add as many data points into the future as you’d like! Click the “+” icon in any metric and you’ll start to see what 2020 looks like. And if you need help getting started with financial modeling, we’ve got you covered right here! You can now export all of the data of your company. We are rolling this out in “beta” so shoot us an email and we will tell you how to access this easter egg. We hope you enjoyed this update and as always please feel free to send us any feedback or questions our way! #tellyourstory -Mike and The Visible Team

In building Visible and working hands-on with companies and investors from around the world, we have learned the importance of customization when it comes to what metrics your company tracks and how you track those metrics. For example, a late stage venture-backed Ecommerce company has different needs and goals than a 10 person online store. Both, however, have stakeholders who need to know how the business is performing and what they can do to help the business grow. Thankfully, for every type of business, there are a ton of resources to help you understand what to track and how to track it. With Visible Templates, we have partnered with the creators of these resources – top VC investors, high growth companies, and successful entrepreneurs – to make it easy for you to build a metrics framework and a business dashboard that suits your company. The Visible Shopify Ecommerce Dashboard Shopify is one of the world’s largest Ecommerce platforms and a huge supporter of small businesses and Ecommerce startups anywhere. With thousands of companies of all shapes and sizes using the platform to build online stores and sell their products, Shopify truly has domain expertise when understanding what Ecommerce metrics are most important and how they can be applied to help you grow your business. What Ecommerce metrics should I be tracking? This template was initially inspired by a post from Mark Hayes, Shopify’s Director of Communications where he outlines 32 of the best Ecommerce metrics for a company to track. In the videto above, we have talked through a few of our favorites. Below, we jump in even further to three of the most important Ecommerce metrics your company can start using today: Net Promoter Score, Average Order Value, and Conversion Rate. By the way…did you know you can now export all of your Visible charts in PNG, SVG, and JPG formats? That means better visuals for your pitch decks and other company storyelling materials. Net Promoter Score (NPS) In the past, we’ve written about Net Promoter Score as a way to gauge how likely your current investors are to refer you to other investors, partners, and key employees. The same concept holds true for measuring Ecommerce Net Promoter Score, which asks current customers a simple question on a scale of 1-10: How likely is it that you would recommend our company to a friend or colleague? Because competition is high in the Ecommerce space and switching costs are low for many consumers, successful companies must take a customer-centric approach to growth. This mean embracing NPS as a holistic measure of business performance. Like all important business KPIs NPS doesn’t live in a bubble, it directly impacts other important Ecommerce metrics: Lifetime Value of a Customer (LTV) – customers who fall in the 7-10 range on the NPS scale are likely happy with your product offering, have an affinity for the brand you have built, and can be expected to continue returning to purchase from your site (if you keep delivering on your company promise, of course). Viral Coefficient aka K Factor – Your K factor or viral coefficient measures how many new, secondary users, an individual new user helps you acquire over their lifetime. Happier users refer more new business. Total Orders and Average Order Value (AOV) Running an Ecommerce business, you have two levers you can pull with regards to bringing money in the door (Revenue). The first is doing more volume, or in other words, increasing the total number of orders placed through your site. The second is Average Order Value (AOV), which is a measure of the size of each order placed on your site. Increasing your Average Order Value can be accomplished in a number of ways, including offering future discounts, bundling similar products, or offering specials on shipping. Conversion Rate How effectively are you moving people from the top of the funnel (Visitors) to the bottom (Customers)? This is a core question you must ask yourself as you are designing your product as well as your marketing plan for your Ecommerce company. At a high level, your Ecommerce conversion rate is simply the Number of Total Orders / Number of Visitors. As you get more sophisticated, you can begin tracking more steps in the Ecommerce funnel and honing in on how your conversion rates differ depending on lead source, purchase type, or even time of day.

With the number of places available to gather information on how VCs invest – Mattermark and CB Insights on the paid side, Crunchbase and Angelllist for the burn conscious – it is no longer difficult to understand who you should be trying to raise money from. Want to know who most prolific early stage FinTech investors are, for example? LMGTFY…the first result from CB Insights gives you a good starting point. Great! So it looks like 500Startups is very active in the space but they are a big firm, who should I be reaching out to there? Well…a second Google search might lead to something like this. That was easy. It took me longer to write that last paragraph than it did to find a firm that may be interested in what I am working on and a partner at that firm that may be into what I am building. So why can raising capital be such a difficult and time consuming process, even for companies on a strong growth trajectory? Put simply, it is because most founders haven’t given enough thought to what is behind each individual investor’s thesis. Go to any VC website and it is not hard to find out what their (publicly-facing) framework for making investment decisions looks like. Some of these theses are actually very interesting reads (Union Square Ventures, NeuVC, and OS Fund come to mind). But if you have had the opportunity to speak at length with any successful investor, you will quickly come to find that what they are really looking for — beyond the eloquent “What We Invest In” essays used to make journalists fawn and LPs open checkbooks – is a combination of a good product, a highly functioning team, and a large, growing market. Mark Suster has written about this before, and so have many others. Start with knowing where they start As a founder, you are competing daily for two things – capital and talent. Raising money means selling your company in a way that puts you at a competitive advantage against other startups a VC could back. One of the quickest ways to build this advantage is by understanding which of the three aforementioned decision factors play the largest role in your target investor’s process. You need to know this before the first call or meeting. Instead of “here is what we do, are you interested?” switch the context to “here is why we are a perfect fit for your thesis.” Make it easy for them to fit you into their existing mental framework of how they want to invest instead of forcing them to do all the work to organize their own thinking around your company. Remember, VCs need to sell too. They need to convince their partners that adding your company to the portfolio will have a positive impact. They also need to defend their investment decisions to LPs, often on a quarterly basis. Build an investor interest profile As capital has poured into the system, making money a commodity (side note, that post is from 2000…what’s the phrase, “history doesn’t repeat itself, but it rhymes”?) many VCs have gone on the offensive in order to gather attention and court the best companies. This means a larger social media presence, frequent blog posts, and more interviews. Use this to your advantage by studying what they say and trying to determine which factors loom largest in their decision making. Marc Andreessen, for example, sees market as the determining factor in a company’s success or failure. In a different post than the one noted above, Upfront’s Mark Suster trumpets team as the most important factor in a VC’s decision of whether to investor or to pass. If you are fortunate enough to get an audience with one of the Marc/ks, lead with market and team respectively. Search further (I’m done Googling for you!) and you’ll find plenty of investors who base decisions first and foremost on whether a company’s product stands out amongst its competition. Additionally, leverage the information your peers are putting out into the market. Funding announcements come fast and frequent these days (StrictlyVC and Term Sheet are good ways to keep up. So is Mattermark’s free iPhone app) and are often accompanied with quotes from CEOs and founders around the future of their businesses. The narrative put forth in these funding posts (ahem, press releases) are likely the same ones they used to court and close their investors. Go through enough announcements for companies your target investors have backed and you can build a very detailed profile of what they care about. Want to go a step further? Reach out the CEOs who just closed the round. They’ll probably be happy that your inquiry isn’t another terrible sales pitch and will be open to help since they know first hand the challenges you are up against. Raising capital isn’t a spray and pray endeavor. It also doesn’t operate on the self service model. Even at the seed stage closing a round of funding is a high-touch, big ticket sale where relationships need to be built and nurtured. Any company that closes a round from top investors must have some degree of competence in all three of the main decision-making factors (product, market, team). The ones who do it most efficiently know which areas they excel and which of those factors matter to each and every investor they take the time to meet with.

What is the K Factor/ Viral Coefficient? The K factor or viral coefficient measures how many new, secondary users, an individual new user helps you acquire over their lifetime. For SaaS companies, if the software is good, the individual users will then refer the software to their friends, teams, and companies. In simple terms, a viral coefficient is a number which indicates how many new users a current user is referring to your business. This metric is used to measure the organic growth of a company. Understanding and improving the viral coefficient of your SaaS solution is a crucial part of achieving exponential growth. How to Calculate SaaS K Factor/ Viral Coefficient Here’s how to calculate your K Factor or Viral coefficient, according to Culttt: Take your current number of users (let’s call it 100) Multiply by the average number of invitations or referrals that your user base sends out (100 x 10) Find the percentage of referrals that took the desired action, for example, signed up to be a new user. (12%) If 12% of 1000 invitations signed up for your product you would have 120 new users. You started with 100 users and you gained 120 users. So you divide the number of new users by the number of existing users to find your Viral Coefficient (120 / 100 = 1.2). Kissmetrics notes that a positive viral coefficient rate means four things: You are giving your customers a positive user experience You’ve found product/market fit You have a low cost of acquisition You will probably have high profitability A viral coefficient of 1 or above means that for every user you acquire, you’ll gain at least one additional user through the referral process. Each round of referrals creates a viral loop of growth. Note: This is a very basic model that assumes no user growth from other sources (Paid Advertising, Content Marketing, etc.) If you want to start building charts like this to showcase the growth of your business, start your free 14-day trial on Visible Why it’s important but Not the Only Metric for User Growth Customer acquisition can be challenging for SaaS companies, but having a positive viral coefficient means you are acquiring new customers essentially for free. But what if your viral coefficient is lower than 1? Many people argue that anything less than a K Factor of 1 is worthless, because this implies that your SaaS Company is failing. However this isn’t necessarily true. In reality, as long as you have a great product with repeat customers a K-Factor as low as 0.2 will still equate to a free extra user every time a user signs up. Furthermore, recommendations and referrals should not be your only measure of user adoption and growth. Many SaaS companies, such as ShoeBoxed which has a low viral coefficient score of around 0.16, build customer acquisition by using other channels such as SEO or PPC or content marketing to bring in new users. Instead of bringing in one person, they bring in 1.2 – 1.4. For them, the referral program is just a way to enhance the efforts of all other customer acquisition tools. It’s also important to note that viral coefficient isn’t always predictable, and relying on referral programs doesn’t always equate to short term boosts in users. Some referral processes take longer to make conversions because potential users needed more exposure to multiple referrals before signing up. When digital signature company EchoSign tracked their viral conversions, they found that their average viral cycle (the time from initial user sign-up to successful referral sign-up) was 8 months. Therefore you should always look at your viral loop as a side growth accelerator that will boost all of your other user acquisition efforts. Great Resources for Viral Marketing and SaaS Now that you know how to calculate your K-Factor and understand why it’s a great metric for growth, here are some great articles on viral marketing and some examples of the SaaS companies who are winning the viral marketing game: How Referrals Built The $10 Billion Dropbox Empire, by Visakan Veerasamy for Referral Candy The Best Referral Program Examples, by Brandon Gains at Referral SaaSquatch Customer Acquisition & Monetization, by David Skok for For Entreprenuers ‘Startup Growth Engines: Case Studies of How Today’s Most Successful Startups Unlock Extraordinary Growth’, by Sean Ellis & Morgan Brown This post is part of our Most Valuable Metrics series, helping your company understand how to develop a holistic framework for tracking your performance and telling your story to everyone who matters to your business. You can find previous posts in the series here: Your Company’s Most Valuable Metric How to Calculate Lead Velocity Rate (LVR) Stealing the Right Growth Metrics for Your Startup How to Calculate Bookings What is your Investor Net Promoter Score? How to Calculate SaaS Churn How to Steal the Right Growth Metrics for Your Startup How to Calculate Net MRR