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Many new ventures and new startups are formed by multiple individuals, collectively known as the founders. Sometimes long-time friends, sometimes former colleagues, other times like-minded individuals who came together specifically for the problem the startup solves. All of these different combinations of individuals, regardless of background, are startup founders and with that new title comes a new set of rules and responsibilities. New startup founders that are forming a business, often enter into a Founders Agreement. We’ve gone in-depth into the typical nature of a Founders Agreement, what it is, and what it can mean for your startup. Related resource: The Startup’s Guide to Investor Agreements: Building Blocks of VC Funding What is a Founders Agreement? A Founder’s Agreement is a contract. But not just any contract, a Founder’s Agreement is a specific contract that lays out the business relationships that the founders enter into and agree upon. The Founder’s Agreement contract specifically lays out the responsibilities, rights, obligations, and any liabilities of each founder. The Founder’s Agreement is in place to regulate matters that aren’t governed by any type of operating agreement or financial agreement with investors, but rather specifically ensures that each founder is clear on their specific role with and for the company. Related Resource: How To Find Private Investors For Startups What Are the Must-Have Items to Include in the Founders Agreement? Now that it’s been established that a founder’s agreement is essentially a contract dictating the founding team’s rights, responsibilities, and role within the company, let’s get a little bit more specific. Thinking through all the possible items that could be in your founder’s agreement, we recommend starting with at least the following 10 to ensure the key details of the business are specifically covered. Related resource: Investor Agreement Template for Startup Founders 1. Add Notable Names Including the Founders of the Company While it may seem straightforward, be as detailed as possible and list out every single founder of the company by name, title, and even a breakdown of ownership if applicable. Capture as much detail as possible about the founding team that the Founder’s Agreement pertains to. It is also helpful to outline any other notable names that are involved at the early formation of your company. For example, if you have any early friends and family investors, advisors in the space, founding customers, founding partners, or subject-matter experts involved in any type of POC or validation study, list them out by name and role associated with your company. If they have a financial stake, outline the percentage ownership stake they have in the business as well and note if they would technically be considered a founder under this agreement. 2. Document Your Business Structure Now that all key persons have been outlined by name and role, be sure to document the structure of your business. How your business is structured can affect the future of the company. Determine how your company will be structured – consider if it makes more sense for it to work as a partnership, LLC, C Corp, S Corp and consider all of the financial and structural implications that come with each option. Determining and documenting this from the beginning is key to building your business from a unified perspective and understanding. 3. Include a Broad Overview of Your Startup Outline the mission statement and an elevator pitch of your startup. A broad overview is helpful to ensure all founder decisions moving forward are aligned to the same vision and mission, with a clear direction of the goal your startup has to accomplish. As the company evolves and grows, pointing back to the agreed-upon overview in the founder’s agreement can help dictate that change and direction as well but will ensure decisions are made with the same foundation in mind. Related Resource: How to Write a Business Plan For Your Startup 4. Have an Expenses and Budget Report Having your finances in order is key to the success or failure of any business. In the Founder’s Agreement, outline where your finances stand. Outline in detail any funding your team has received as a seed investment. Next, outline your company’s operating expenses to ensure all output of money is explicitly documented at the founding of the company and all founders are hyper-aware of the existing spend and burn rate of the company. Finally, outline a foundational budget that each founder has explicit input into. This will ensure that no matter each founder’s unique role or responsibility, there is an agreed-upon budget, especially in relation to the expenses and burn rate of the organization. 5. Include a “Who is Responsible for What?” Section Depending on the makeup of your founding team, there may be a lot of different skill sets and ranges of expertise at the table. Having founders with many different backgrounds and skillsets can be a major advantage for your organization, however, with a versatile set of skills and a unified passion for the startup’s mission, it can be hard for founders to stick to the part of the business they own. Outlining a clear section that documents who is responsible for what in the Founder’s Agreement can ensure that every founder can contribute and master a key area of the business without trying to take on too much or double-dipping in another founder’s role or assigned lane. This will ensure the business scales effectively and every founder appropriately commits to what they will bring to the business. This section can also help define and structure the titles and growth path for each founder and the functional direction of the organization based on which roles are defined and taken on by the founding team first. 6. Management and Legal Decision-Making, Operating, and Approval Rights Piggybacking off of the responsibilities section of your founder agreement, be sure to outline the structure of management at your organization and the hierarchy of various decision-making. If you have a board or plan to have a board, make sure to outline their existing role within the organization. Having an agreed-upon set of rules determining the hierarchy of legal decisions, operation decisions, and final approval rights within the business is key as the company grows and may face big challenges ahead that require a clear, unified plan. 6. Add an Equity and Vesting Section In early startups, founders may not be taking much or any salary at all. This makes it critical to document and clarifies ownership of the business. The goal of every startup is certainly to grow a successful, thriving business. This could mean aspirations as big as an IPO or major acquisition. Establishing early on what percentage of the company each founder owns as well as the schedule that they will vest their shares, or receive full rights to the shares in the company. Having a unified equity agreement and vesting schedule baked into the Founder’s Agreement is key to outlining the years that each founder is needing to stay with the business to reach their full earning potential. This can help solidify the commitment of each founder to the business as well. Related Resource: Employee Stock Options Guide for Startups 7. Include a Salary Compensation Report Even if the salary of each founder is minimal or they forgo a salary as the business starts to save cash, It is helpful to outline a compensation report and even a compensation plan for the founders of the business. A compensation report can outline the initial compensation each founder takes. It can also outline the planned compensation increase for each founder as the profits of the business grow or more funding is granted to the business. Having agreed upon salary compensation documented at the foundation of the company can ensure all founders are aligned on what they are owed and what they are set to earn as the company scales. This will help with tracking financial growth and prevent any major mishaps or founder disagreements about salary and compensation. 8. Dissolution and Termination Clauses Even though most founders plan to stick with a company they found, that is not always the way things shake out long term. It’s important to think through and document what happens with each founder and their ownership and role with the copy under two unfortunate circumstances. Dissolution, or the dissolvement of effective closing down of the company, is something that many startups end up having to do if their company does not take off or has a positive growth trajectory. It’s critical to have documentation in the Founder’s Agreement that determines what will happen to any existing profit or patented ideas or technology in a case of dissolution so that all founders are aware and agreed upon that unfortunate outcome – this can save major legal disagreement down the line. Additionally, an agreed-upon termination clause is also a smart piece of information to include in a founder agreement. This can outline the scenarios of a possible founder exit and what will happen to their shares, intellectual intelligence, or technical knowledge in case of a voluntary or involuntary exit. While the reality for founders going into a new business may be with that company indefinitely, things do happen, and planning for possible dissolution and termination can save the team many headaches and heartache at the end of a business or time with a business. 9. Intellectual Property As part of the termination and dissolution clause, it’s a good idea to highlight all known and defined intellectual property and its ownership within the founder’s agreement. In a situation where a founder exits the business while it is still growing or at dissolution, it needs to be understood where the intellectual property, the ideas, and knowledge that is the foundation of the business, lies while the business is still operating and after. This can help prevent any founder from leaving to start a competitor while the business is operable and ensure that all ideas are documented to the correct owner in perpetuity. What is the Importance of a Founders Agreement? A Founders Agreement is extremely important for a number of reasons but foundationally, it provides a unified, agreed-upon set of rules and guidelines for the founding team to align on and build from. A few of the key reasons a Founder Agreement is so important are: Identifies each owner’s role – having clarity and unified direction on how each owner of the business (both founders and investors) will play a role in the evolution of the business from the very beginning is critical to the success of the business long term. A founders agreement makes ownership and ownership roles crystal clear. Provides structure for resolving issues among founders – Every founding team will have conflicts. Conflict is inevitable when building a business and making tough and risky decisions. Having a Founder Agreement can provide an easy rule book for conflict resolution and managing any issues within the founding team. Because every founder has agreed upon the Founder Agreement, it is a straightforward source of truth when inevitable conflict arises. Protects minority owners – Depending on the origins of the founding team and the company idea, ownership of the organization may not be completely even among founders. This makes the Founder Agreement extremely important to minority owners. It provides a clear outline of what they own, what they are entitled to, and the minimum and maximum responsibility they have to the business. This prevents majority owners from gaming the system by taking advantage of the minority owners’ agreed-upon contributions and responsibilities to the business. Signals to investors that you have a serious business – A Founder Agreement is a critical contract potential investors will look for when considering your business. Having taken the time to solidify the Founder Agreement is good luck for your business and founding team, showing you have a serious business and have thought through all possible points of conflict, future structure, and ownership balance across the founding team. This helps establish your business as a competent, and well-organized one for potential investors to consider. Related Resource: Valuing Startups: 10 Popular Methods How to Create a Founders Agreement Now that we’ve established the purpose for and critical elements of a Founder’s Agreement, let’s follow a simple process to create one. 1. Select a Template No need to start from scratch! Plenty of VCs, business schools, and other private companies provide templates for many different documents and contracts typically used when starting a business, including a Founder Agreement. Check out Visible’s template for this here. 2. Knock Out the Easy Sections First Start with the easy stuff. Your founding team should know your company’s purpose, mission, founder names, and roles and responsibilities. From there, work through the harder organizational and financial details. 3. Thoroughly Work Through the More Challenging Sections Don’t speed through the complicated aspects of the Founder Agreement. Take as much time as needed to work through financial, organizational, and termination details. Consult attorneys, fellow founders, existing investors, and industry peers as needed to ensure you are following the best possible practices and considering all the necessary elements to complete the more challenging, complex sections. You’ll be thankful you took the time to do these parts in a detailed manner when and if it is ever necessary to consult the founder agreement in a difficult scenario. 4. Consider Hiring a Lawyer if Necessary Legal battles are never fun. As mentioned above, while you’re taking your time and going over every detail of the complicated parts of the founder’s agreement, consider hiring a lawyer to consult on and help construct the elements with the most liabilities including salary and ownership pieces as well as termination clauses. Get as much legal advice as you might need, and unless you have in-house expertise on your founding team, a lawyer can be especially helpful in outlining the tax section (you certainly don’t want to mess that up at any stage of your business). 5. Seek a Second Opinion from Fellow Entrepreneurs Founder’s Agreements exist for a reason – they were born out of the mistakes and learnings of previous founders. Consult fellow entrepreneurs who have written and established founders’ agreements in the past. See what worked best for them or what they wish they had included in their founding agreements but did not. No need to reinvent the wheel here, learn from the best in your space. 6. Finalize by Signing Your Founders Agreement With a lawyer present if needed, set a specific date and time to finalize the signing of your FOunder’s Agreement with all founders present. Ensure all founders have enough time to read, review, and contribute to the said agreement so that on signing day you can celebrate finalizing this foundational piece of legal paperwork and the growth of your company. Learn More About Founders Agreements and Startup Funding If you’re looking for more information on Founders Agreements and Startup Funding, check out our other resources for founders on our blog and subscribe to our newsletter, the Visible Weekly. Related resource: The Startup's Handbook to SAFE: Simplifying Future Equity Agreements

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

As companies scale and grow, they may take on different commitments, challenges, and goals and explore a variety of different paths when it comes to the financial decisions made for growth at the company. There are a number of different ways a company can be set up, a variety of ways it can get off the ground with finances, and many different possible outcomes for a company’s future. How you choose to finance your company, especially early on, can determine a lot about the course your company will take. One option to explore early in a startup’s journey, primarily pre-Series A fundraising round, is convertible debt. Here at Visible, we’ve put together a user-friendly guide on Convertible Debt. What is Convertible Debt? So, what exactly is Convertible Debt? Simply put, Convertible Debt is a loan or a debt option from an investor that is paid with equity or stock in a company. The big difference between a convertible debt investment and a traditional investment is that a traditional investment is typically for an exchange of equity or stock immediately at a known valuation. A Convertible Debt is a loan or debt option that is paid with equity or stock in a company at a future date. This future date maybe when a firmer valuation is determined by the raise of a larger round or big growth in revenue. Typically convertible debts are paid with converted equity in a year or two max. Related Resource: What Are Convertible Notes and Why Are They Used? Convertible Debt vs. Convertible Bond Similar to convertible debt, a convertible bond is a fixed-income loan or debt option that can be converted into a predetermined amount of common stock or equity. There are two main differences between convertible debt and a convertible bond. First, a convertible bond’s conversion timeline is usually at the discretion of the bondholder, while convertible debt’s timeline to conversion is typically monitored and determined by the lender. Next, a convertible bond yields interest payments that can also be converted into equity or stock as well. Convertible debt is pure capital and does not have interest payments associated with it. How Does Convertible Debt Work? Many startups are not able to pull the detailed financial information a big creditor, bank, or lender would typically want to see to offer money to a business. Convertible debts are a great option for startups due to this reason. Convertible debt allows businesses to get the early capital needed based on the future success of the company. Investors who agree to convertible debt agreements want their investments to make money, so they’re more likely to do what it takes to help the company succeed. Because the more a company succeeds, the more money those investors will make. Like any traditional investment, convertible debt happens in rounds or cycles of money being loaned or cashed out and returning in the form of equity or cashing in. At the start of a round, the terms of the convertible debt are set. For example, sometimes a warrant or discount are terms of a convertible loan, or sometimes there’s a limit on the value of the debt when it is converted. In some cases, convertible debt can be structured with discount terms, typically no more than 25%. This means that when the loan ends at the end of the round the investor can purchase stock at an agreed-upon discount. Benefits of Convertible Debt There are a number of different benefits of choosing to take on convertible debt in your startup. Convertible Debt can be a powerful funding mechanism. Here are the top benefits to consider with convertible debt: 1. Convertible Debt is a Simple Financing Option With the terms set in place as part of the convertible debt agreement, it’s a very straight-forward option. X investor loans Y company $100,000 in exchange for $200,000 worth of shares within two years. The founder or startup team, they have 100k in the bank and the support of a connected investor with a vested stake to ensure that 100k converts to the best possible valuation for their future shares as possible. It’s a pretty straightforward transaction, and even if there is a discount or rate increase baked into the debt, it’s set ahead of time and there are no changes over the life of that debt. Related Resource: 409a Valuation: Everything a Founder Needs to Know 2. Convertible Debt is a Low Risk and Efficient Method Convertible Debt is low risk and there is no interest associated with said debt. It also does not require traditional background elements like credit history or existing money in the bank to work. Therefore it also won’t affect any existing credentials like credit score if the debt investment doesn’t quite pan out. By taking on convertible debt upfront, startups can save existing capital and build out a longer runway for themselves making the method of taking on outside investment via convertible debt extremely efficient. 3. Investors with Convertible Recieve Voting Power Typically, investors taking the route of putting up money in a convertible debt deal receive voting power. This is because they can set the equity amount they want and since convertible debt is more common for new, pre-Series A companies, these investors choosing to invest this way can invest an amount that will get them a large enough return percentage for a board seat. This is something that is harder to do at later funding rounds when it’s traditional capital for equity exchange. Investors see the opportunity to get voting power and influence a company as a great benefit to their investment as they can have a bigger say in where their investment goes. This can also be helpful to a founder raising capital – with the incentive of early voting power on the board up for grabs, larger seed rounds may be able to be raised on convertible debt. Related Resource: How to Write a Business Plan For Your Startup 4. Convertible Debt Provides Fixed Income for Noteholders For Noteholders, Convertible Debt is a great option because it provides direct, fixed income over a shorter amount of time for said investment – the guarantee that the investment will convert to equity within a period of time is more predictable and that equity will then grow once it converts and the company continues to grow. Drawbacks of Convertible Debt While Convertible Debt has many benefits, it does come with some drawbacks as well. Be sure to consider all the drawbacks of convertible debt such as: 1. Failure of Repayment If for some reason the convertible debt can’t be repaid with the equity or stock promised, often the lender has the right to demand repayment via other means which could lead to the loss of other items or controls in the business, causing a business to even liquidate its assets for repayment in some cases. 2. The Risk of Bankruptcy Plain and simple, failure of repayment can lead to the liquidation of a company’s assets which can lead to bankruptcy. This is a major risk if convertible debt goes wrong. 3. Stringent Indenture Provisions A strict set of rules, agreements, and details – or stringent indenture provisions – are to be expected when taking on convertible debt. This can be a major drawback depending on how long-term said provisions are. Depending on the growth of your company you may be bound to your lender in a way that has negative consequences for the founder/owners or the business as a whole but has great benefit to the investor. Consider all provisions and contingencies and review them thoroughly when taking on convertible debt. 4. Losing Control in the Company While a benefit of a lender with convertible debt is a voting board seat or voting power within the organization for certain decisions, this can lead to a major risk for the company. If the controlling stake is removed from the founders, or the vested interests of the voting members changed, the original founding team may no longer have a say in their company and the vision and early mission may evolve without their knowledge. In some cases, this could also lead to the removal of original leadership from the company that raised the convertible debt round in the first place. Why do Startups use Convertible Debt? At the end of the day, despite the drawbacks, the pros of quick, efficient, and straightforward financing in the form of convertible debt are why startups choose to use it. Any opportunity to secure large investments quickly without a detailed credit history and the benefits of bringing on seasoned investors to help a business at its earliest stages are great bets to take into the risk and reward consideration, with the reward justifying the risks of taking on this debt. Related Resource: Valuing Startups: 10 Popular Methods Convertible Debt Example One great real-life example of a company using Convertible Debt is Ledgy. The equity management software company from Zurich talks through their own company’s experience of using convertible debt to grow their business. Read more about it here. Looking for More Information on Startup Funding? Subscribe to our newsletter to stay up to date on all the latest startup funding processes, tips, tricks, and updates. Sign up here. Related Resource: How To Find Private Investors For Startups

Overview Fundraising is difficult. Founders are responsible for hiring, building, and fundraising all at the same time. There are very few people that truly know what it takes to build a company or raise capital while being a strong leader. The best way to learn is from someone who has been there before. Being a founder can oftentimes be an “asymmetric experience.” As Seth Godin, the business author puts it: “In these asymmetric situations, it’s unlikely that you’re going to outsmart the experienced folks who have seen it all before. It’s unlikely that you’ll outlast them either. When you have to walk into one of these events, it pays to hire a local guide. Someone who knows as much as the other folks do, but who works for you instead.” In order to help you find your “local guide,” we went along for a fundraising ride with a founder in our community. Jonathan Gandolf is the CEO and Founder of The Juice, The Juice collects and consolidates resources from across the internet onto a single platform where you can save, share, and enjoy content on demand. Be sure to check out The Juice and sign up to discover the best sales and marketing content for you. Spoiler: The Juice Achieves Major Milestones in Revenue and User Growth Over the course of ~4 months, we sat down with Jonathan on a regular basis and picked his brain on the state of his fundraise and what he was learning along the way. We cover everything from his first meetings to due diligence. For founders who are gearing up for a pre-seed or seed round and are feeling lost, Jonathan offers great insight as he shares his fundraising journey from day 1. Give it a listen below: Week 1 — The Basics of the Round To kick things off we give more background about the Founders Forward Fundraising series and the goals behind it. We dig into the business behind The Juice and the fundamentals of their pre-seed funding round. Jonathan is ready to go with a list of 60 potential investors and a pitch deck in hand. Hop around and learn more about what we covered in week 1 below: The Juice business model How Jonathan is building his investor outreach list What Jonathan’s plans are for reaching out to investors The pitch deck feedback loop Where to listen: Spotify Apple Podcasts Google Podcasts Where you generally listen to podcasts Related Resources: The Juice — the best sales & marketing content at your fingertips Visible Connect — our investor database The Fundraising Wisdom That Helped Our Founders Raise $18B in Follow-On Capital How Starting Line Helps Founders Address Their Mental Health with Ezra Galston Week 2 — Finding Investor Intros Jonathan joins us after his first few weeks of heads-down fundraising. We discuss how he is going about adjusting and tweaking his pitch deck as more feedback comes in and how he is leveraging his network (and customers) to find intros to potential investors. A few other key topics we hit on: Managing pitch deck recommendations and changes Designing a pitch deck with a small team Finding introductions to potential investors Leveraging customers for investor introductions Related Resources: Our Teaser Pitch Deck Template Creating Momentum in Your Fundraise with Brett Brohl Week 3 — Revenue vs. Product vs. Team In week 3 of Jonathan’s fundraise, we break down what investors are looking for at the pre-seed stage. As The Juice has a strong product, Jonathan has been featuring and demoing his product during pitches. We also dive into how The Juice ideal investor has transformed since they’ve started their raise and how they are adding new investors to the top of their fundraising funnel. A few other key topics we hit on: How to talk about revenue with investors How Jonathan leveraged their product while pitching Adding investors to the top of an investor funnel Identifying your ideal investor Related Resources: Building Your Ideal Investor Persona Week 4 — Finding a Lead Investor Jonathan has been busy with investor meetings and pitches since the last time we chatted. Jonathan breaks down the “VC speed dating” event he attended and updates on other investor conversations. Finally, we hit on financial projections at the pre-seed/seed stage and what investors are looking for in the early stages of financial projections. A few other key topics we hit on: VC speed dating Feedback on the size of round How to nurture potential investors Sharing financial projections Related Resources: How to Raise Your Series A with Michael Rangel of Novo How to Build an Investor List with Gale Wilkinson of Vitalize Week 5 — Pitching Investors We are back in the heart of The Juice fundraise. They are a few weeks in and starting to get to the middle of the “3 months of pitching.” We discuss how Jonathan is leveraging verbal commits to build urgency with new investors and discuss what is being shared in The Juice’s data room. A few other key topics we hit on: The timeline of fundraising Using verbal commits to create urgency What Jonathan is sharing in his data room Related Resources: Creating Momentum in Your Fundraise with Brett Brohl What Should be in an Investor Data Room? Week 6 — Launching on ProductHunt Coming off of their first ProductHunt launch, Jonathan joins us to share the current status of the round. We discuss what they’ve been focusing on internally as a business. Finally, we discuss the term sheets that are on their way. A few other key topics we hit on: Lessons from launching on ProductHunt How to build a campaign for ProductHunt Hunting for a lead investor Related Resources: The Juice’s ProductHunt Launch How We Topped Product Hunt (Overnight) Week 7 — The First Term Sheets The first term sheets are in hand and the end of the raise is in sight. Jonathan joins us to discuss the term sheets he has in hand and what due diligence has been like so far. Finally, we talk through what hiring plans and projections look like once the cash is in the bank. A few other key topics we hit on: Leveraging the first term sheets for urgency Modeling different fundraising outcomes Lessons from first rounds of due diligence Standing on the shoulders of giants Related Resources: 6 Components of a VC Startup Term Sheet (Template Included) Navigating SaaS Partnerships as a Startup Week 8 — Closing the Round They did it! Jonathan and the team have wrapped up their raise and they are in the process of finishing up the round. Jonathan shares what he has learned during the raise and what is next for The Juice. Related Resources: The Juice Achieves Major Milestones in Revenue and User Growth Learn more about The Juice The Juice collects and consolidates resources from across the internet onto a single platform where you can save, share, and enjoy content on demand. Join for free to explore the best sales and marketing content here.

Raising venture capital for your startup is difficult. Raising venture capital for your startup with little to no revenue can feel impossible. However, venture capital funds have started to invest earlier and earlier into startups. The emergence of pre-seed rounds has led to more interest in pre-revenue startups. Related Resources: All Encompassing Startup Fundraising Guide & Seed Funding for Startups 101: A Complete Guide Luckily, there are countless startups that have done it before. In order to better help founders navigate a fundraise with little to no revenue, we break down lessons from startups and investors that have taken part in a pre-revenue funding round below: What is Pre-Revenue Funding? Pre-revenue funding is equity or debt financing for companies that have yet to generate revenue. Pre-revenue funding can apply to companies across different sectors, markets, verticals, etc. Startups might have a product or a product in development but have yet to take it to market. Pre-revenue funding generally helps a company at this stage build its product or put a go-to-market motion to practice. Related Resource: The Understandable Guide to Startup Funding Stages What Does It Mean To Be Pre-Revenue? Pre-revenue startups can be at varying stages in their startup lifecycle. For example, if a company is working on an incredibly large scale project revenue might come much later in its lifecycle. On the other hand, there might be companies that have developed a product and are ready to take it to market but need capital to hire talent and put their product and distribution to work. For the sake of this post, we will generally be speaking of companies Related resource: 8 Startup Valuation Techniques and Factors to ConsiderWhat Does the DCF Formula Tell You? How Do Startup Founders Get Pre-Revenue Funding? The most common form of funding to receive before revenue is venture capital. Startups and venture capital funds generally follow a power law curve. This means that investors need to find a few companies that can generate massive returns for their LPs. Because of this, they are willing to invest in more companies at early stages in return for a larger equity percentage with the hope that a few of the companies will pan out to generate huge returns. Related Resource: Understanding Power Law Curves to Better Your Chances of Raising Venture Capital In order to improve your odds of raising capital at the pre-revenue stage, you need to understand the VC thought process and demonstrate why you can grow into a company that will generate returns for its investors/LPs. How Investors Evaluate Pre-Revenue Startups Every startup investor will use a different method or style to evaluate potential investments, especially pre-revenue startups. Understanding how venture capitalists think about making investments will greatly increase your odds of raising a round. Check out a few of the common methods and valuation styles below: Related Resource: A Quick Overview on VC Fund Structure 1) The Berkus Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “The Berkus Method is an attempted way to assess value without the traditional revenue metrics that many methods take into account for more mature organizations. The Berkus Method quantifies value by assessing qualitative qualities instead of quantitative ones. Value is assessed in the Berkus Method with five main elements. The elements considered within the Berkus Method include value business model (base value), available prototype to assess the technology risk and viability, founding team members and their abilities or industry knowledge, strategic relationships within the space or team, existing customers or first sales that prove viability. A quantitative value can be tied to each relevant quantitative factor with the Berkus Method.” 2) Risk Factor Summation Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “The Risk Factor Summation Method is used with risk as the primary method for evaluation. This approach values a startup by taking into quantitative consideration all risks associated with the business that can affect the return on investment. An initial value is calculated (possibly even using one of the other methods discussed in this post) and then the risks are assessed, deducting or adding to the initial value calculation based on said risks to the return. Some of the different kinds of risks that are taken into account are managing risk, political risk, manufacturing risk, market competition risk, investment and capital accumulation risk, technological risk, and legal environment risk.” 3) Venture Capital Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “This method is one of the most common, if not the most common method used for evaluating startups that are pre-cash flow and seeking VC investment. The VC Method looks at 6 steps to determine valuation: Estimate the Investment Needed Forecast Startup Financials Determine the Timing of Exit (IPO, M&A, etc.) Calculate Multiple at Exit (based on comps) Discount to PV at the Desired Rate of Return Determine Valuation and Desired Ownership Stake It’s ultimately a quick, rough estimate informed by as much information as is available based on the market, comps, any existing quantitative and qualitative info from the company at hand, and an assumed amount of risk from the VC Firm.” 5) Scorecard Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “This valuation method looks at these similar companies and sees what types of valuation they received from other investors. From there, the median will be calculated from the value of all the similar companies’ valuations and this median will determine the average value of the target company. In addition to the median value placed on the competitive landscape, scorecards are looking at the strengths and weaknesses of the market as assessed by other investors and score their investment in question weighted with the following criteria compared to the other companies in the space: Board, entrepreneur, the management team – 25% Size of opportunity – 20% Technology/Product – 18% Marketing/Sales – 15% Need for additional financing – 10% Others – 10% A company may be valued higher than the median with the scorecard method if the size of opportunity or board/management team is exceptional quality or vice versa, may be docked if the tech is strong but the leadership is assessed as in-experienced.” Looking for Fundraising? Visible Can Help! Running a process to raise capital, especially before generating revenue, is a surefire way to improve your odds of success. Find ideal investors with Visible Connect, add them to your Fundraising Pipeline, and share your pitch deck all from Visible. Give Visible a free try for 14 days here.

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

At Visible, we believe that a venture capital fundraise often mirrors a traditional B2B sales and marketing funnel. At the top of your funnel, you are adding new investors, nurturing them throughout the middle of the funnel with email and meetings, and hopefully cashing a check from them at the bottom of the funnel. Related Resource: All-Encompassing Startup Fundraising Guide Luckily, there are tips, resources, and tricks that will help you build momentum in your fundraising efforts so you can focus on building your business. Learn more about how you can create a fundraising strategy and build a more efficient fundraise with our guide below: Startup Fundraising: How It Works Just how a sales and marketing process might differ from business to business, so will a fundraising process. The ideas and systems behind the process might stay the same but there will be subtle changes when it comes to approach, communication, and more as a business grows. A couple of different stages that we will hit on in this post: Pre-seed Seed Series A, B, and C How should startup founders prepare for these funding rounds? Check out our breakdowns for each stage below: Pre-Seed Funding As we put in our post, The Understandable Guide to Startup Funding Stages, “A pre-seed round is a round of venture capital that is generally the first round of institutional capital that a startup raises. A pre-seed round generally allows a founding team to find product-market fit, hire early employees, and test go-to-market models.” Pre-seed funding rounds have become more common over the past few years and have turned into a powerful resource to help founders get their idea and business off the ground. The purpose is to give founders the capital they need to see their product through. Investors are largely betting on the team and idea as revenue is little to none. Pre-seed rounds greatly vary in size but generally fall in the $300K to $1M size. However, we’ve seen pre-seed rounds get close to $5M. Typically, valuations might be in the $2M to $5M range. Seed Funding As we wrote in our post, Seed Funding for Startups 101: A Complete Guide, “Seed funding is a startup’s earliest funding stage. Often, seed funding comes from angel investors, friends and family members, and the original company founders. An early-stage startup may also look for funding through bank loans, but angel investments are usually preferred. Seed funding is used to start the company itself, and consequently, it is a fairly high risk: the company has not yet proven itself within the market. There are many angel investors that specifically focus on seed funding opportunities because it allows them to purchase a part of the company’s equity when the company is at its lowest valuation.” At this point, a startup likely has some sign of product-market fit and is ready to scale its go-to-market efforts. At the seed stage, rounders are typically in the $2M to $5M range (but like pre-seed funding can often be much larger than this). Valuations typically sit around the $8M – $12M range. Series A, B, and C Funding Beyond a seed round comes Series A and beyond (Series B, C, D, etc.). At the point of a Series A round, a startup generally has demonstrated product-market fit, is making senior hires, has a strong product, and is executing new releases at a high level. Once you get beyond a Series A, the same ideas hold true but an investor is likely more focused on the numbers behind a business. They’ll want to make sure that the business can efficiently grow into a huge company. Typically a Series A round is anywhere between $5M and $20M. This is a large range but we still occasionally see companies raise much larger amounts. Revenue is like in the $1M to $5M range and all signs point to that number continuing to grow quickly. How to Create a Startup Fundraising Strategy As we said earlier in the post, approaching a fundraise with a strategy and system in place is a great way to build momentum in your fundraise. Founders are being pulled in a hundred different directions and a fundraise is a part of that. By having a system in place, you will be able to focus on the other aspects of your business. There is no right or wrong way to approach a fundraise but as long as you have a strong system and cadence in place you are already ahead of the curve. We recommend treating a strategy like a sales and marketing funnel. Find investors to fill the top of the funnel, both warm and cold “leads,” communicate and nurture them with email Updates throughout the middle of the funnel, and hopefully close them as a new investor at the bottom of the funnel. Check out a few tips to help you get started with your fundraising strategy and system below: Getting Started: Ask the Right Questions Outline some of the basic questions that a fundraising strategy should address. When getting started with your fundraising strategy it is important to understand why you’re raising, who are you raising from, and the financials of your round. Check out a few example questions below: Why is your startup raising capital? Who is your startup reaching out to for financing? How much capital will your startup raise – now and in the future? When is your startup raising capital? What is your startup’s process for raising capital? Before even building out the rest of your fundraising strategy you need to be able to properly answer the questions above. You may learn that venture capital is not the right financing option for your startup, which is totally fine! (Related Read: Checking Out Venture Capital Funding Alternatives) Related Reading: How to Write a Problem Statement [Startup Edition] Undergo a Valuation of Your Startup Of course, a major aspect of raising capital is the valuation of your company. Setting a valuation is generally a mix of art and science, especially at the early stages. As the team at Silicon Valley Bank puts it, “​​The most basic valuation method borrows from the playbook used by realtors, who assess the value of a home by looking at “comps,” or comparable homes. Mendelson recommends establishing a startup’s valuation that is “on scale” with those of other early-stage companies. The more similar the startup — be it its sector, location or potential market size — the better.” As your company grows and raises later-stage financing, setting a valuation will be based more on the data and metrics from the companies history. This is a great starting point and can be enhanced by adding in other factors like a founding team’s management experience, proven track record, market size, risk, etc. Related Resource: Valuing Startups: 10 Popular Methods Set Milestones Setting clear, specific, achievable, measurable, and time-bound goals is invaluable to creating an effective fundraising strategy. Naturally, investors are incentivized to hold off on investing as long as possible. Why? They want to collect as many data points as possible and see how activity looks with other investors. It is your job as a founder to build momentum and incentivize investors to move quickly. Having set milestones is a great way to wrap your head around a timeline and give you an idea of when you want investors to be moving along by. Brett Brohl of Bread & Butter Ventures estimates that most early-stage companies should estimate 5 months to complete a raise. He breaks it down using the 1-3-1 rule: 1 month — Preparation. Creating a deck, materials, and investor lists to kick off your raise. 3 months — Pitching. Actually out pitching and taking meetings with investors. 1 month — Closing. Finishing up due diligence and legal work to close new investors. Research Your Investors Once a term sheet is signed there is no turning back. With the average founder + VC relationship being 8-10 years it is important to make sure founders are bringing on the right investors. There are different factors and things you should look for in a potential investor. As we put in our post, Building Your Ideal Investor Persona: Location – Where are you located? Do you need local investors? Or maybe you are looking for connections and networks in strategic geographies. Industry Focus – What type of company are you? Where should your future investors/partners be focused? e.g. If you’re a B2B SaaS company don’t waste your time with marketplace-focused investors. Mark Suster suggests that it is best to prioritize investors with companies in your space. Stage Focus – What size check/round are you raising? e.g. If you’re raising a $1M seed round avoid a firm with $2B AUM. If you’re raising a $30M round avoid a firm with $75M AUM. Current Portfolio – What type of companies should be a signal to you that they’re a good fit? Is there a high likelihood they’ve invested in one of your competitors? If so, best to avoid as they likely won’t double down their bet with a competitor to a portfolio co. Motivators – What do want to get out of your investors and what do they want to get out of you? Do they need to match your values and culture? Deal Velocity – Are you in need of capital as soon as possible? Or are you taking your time and looking for strategic investors? Varying investors have different philosophies for the velocity they’re making deals. Point Nine Capital and Kima ventures are both regarded as top firms in Europe. However, Point Nine makes ~10 investments a year whereas Kima makes 1-2 investments a week.” Finding the right investors for your business can be tricky. Using Visible Connect, filter investors by different categories (like stage, check size, geography, focus, and more) to find the right investors for your business. Give it a try here → Determine How Much Capital You Want to Raise Determining how much to raise can also be a daunting task. You need to base this on facts and realistic assumptions around your business. As a starting point, forecast where you’d like your business to be in 12-24 months. From here, you can backfill what resources and hires you’ll need to make to hit those goals. This can be a great starting point for determining how much to raise. From here you can tweak it with interest from investors, the current markets, and more. Related Resource: Building A Startup Financial Model That Works Build Out Your Fundraising Strategy Of course, you can take all of the individual aspects from above and still have a disjointed raise. You can tie them all together to create a fundraising strategy. The above points are a great starting point but need to make sure you have everything in place to reach out to investors. A couple of things to keep in mind: Where will you track your conversations with potential investors? Check out our Fundraising CRM to keep tabs on potential investors (Pro tip: You can add investors directly from Visible Connect, our investor database, to our Fundraising CRM). What data will you need? Do you have clean metrics and financials in place? Having a place to easily pull your key metrics and share them with potential investors will be a huge help. What assets do you need? Do you have a pitch deck ready to go and a plan to make tweaks if needed? Read more: Tips for Creating an Investor Pitch Deck How do you communicate with investors after a meeting? Nurturing potential investors with Visible Updates is a great way to keep them in the loop with the developments of your round. How do you share your pitch deck? Having a great way to share and understand how investors are engaging with your pitch deck and materials is important. Check out our pitch deck sharing tool to learn how it can help with your raise. Remember: Your Strategy Will Stay the Same, But Your Pitch Won’t The idea is that your strategy will stay the same throughout a round. The mechanics, financials, and pitch will vary but the strategy will stay the same. Being thoughtful with your strategy will pay dividends in the long run as your fundraise gets underway. Startup Fundraising Strategy Pitfalls Just like any strategy or process, there are pitfalls that can arise. Luckily, there are thousands of founders that have done it before so there are pitfalls and things you can look out for below: Not Understanding Your Fundraising Stage One of the more common (and avoidable) pitfalls of a fundraise are not being clear with your stage and aspirations. Pitching any investor that lands in your vision can be dangerous. You want to make sure that you are pitching investors that are the correct stage, not too early or late. Focusing Solely on Fundraising As we mentioned earlier, founders are being pulled in a hundred different directions. On top of hiring new employees, retaining current employees, building products, and communicating with stakeholders, founders are responsible for finding financing for the business. Being able to balance the day-to-day as a founder with the pressures of financing is a must. Related Reading: The 23 Best Books for Startup Founders at Any Stage Failing to Provide an Accurate Total Addressable Market (TAM) Analysis At the end of the day, investors want to invest in companies that can turn into massive companies. Modeling your total addressable market and demonstrating how you can turn into a large company is a great way to pique the interest of investors. Learn more to properly model your addressable market in our post, How to Model Total Addressable Market (Template Included). Related Resource: Down Round: Understanding Down Round Funding and How to Avoid It Related Resource: Navigating the Valley of Death: Essential Survival Strategies for Startups What Are Some Other Ways to Obtain Funding? After reading this post you may be thinking that venture capital is not the right financing option for your business. Over the past few years, there has been an explosion of alternative financing options. Check them out below: Related Resource: 6 Types of Investors Startup Founders Need to Know About Accelerators or Incubators Accelerators and incubators are a great way to get your business off the ground. If you find you are too early to raise a seed round, an accelerator or incubator are a great way to wrinkle out your business plan and hit the ground running to find customers and determine if VC is right for you in the future. Crowdfunding Crowdfunding has become increasingly popular as more options become available. The crowdfunding instruments have become easy to manage for founders and more widely accepted across the industry. Related Resources: How to Raise Crowdfunding with Cheryl Campos of Republic Understanding The 4 Types of Crowdfunding Loans As the team at U.S. Small Business Administration puts it, “If you want to retain complete control of your business, but don’t have enough funds to start, consider a small business loan. To increase your chances of securing a loan, you should have a business plan, expense sheet, and financial projections for the next five years. These tools will give you an idea of how much you’ll need to ask for, and will help the bank know they’re making a smart choice by giving you a loan.” Business Plan Competitions Business plan competitions are common at universities and for startups that have potentially not made any progress on developing a product or building a team. The competitions generally reward entrepreneurs with a small check or capital to get started and pursue their vision. Related Reading: How to Write a Business Plan For Your Startup Streamline Your Fundraise with Visible Being able to tie everything together and build a strategy for your fundraise will be an integral part of your fundraising success. Check out how Visible can help you every step of the way below: Visible Connect — Finding the right investors for your business can be tricky. Using Visible Connect, filter investors by different categories (like stage, check size, geography, focus, and more) to find the right investors for your business. Give it a try here. Pitch Deck Sharing — Once you’ve built out your target list of investors, you can start sharing your pitch deck with them directly from Visible. You can customize your sharing settings (like email gated, password gated, etc.) and even add your own domain. Give it a try here. Fundraising CRM — Our Fundraising CRM brings all of your data together. Set up tailored stages, custom fields, take notes, and track activity for different investors to help you build momentum in your raise. We’ll show how each individual investor is engaging with your Updates, Decks, and Dashboards. Give it a try here. Related resource: Top 18 Revolutionary EdTech Startups Redefining Education

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

Startups and founders are faced with countless challenges and decisions on a daily basis. Many might be small challenges that can be solved personally but there are always larger decisions and challenges looming that require the help of a lawyer or law firm. In order to better help you choose the right law firm for your startup, we put together some tips, advice, and a few actual firms dedicated to helping startups below. As always, we recommend speaking with your peers, mentors, board members, general counsel, and others when making the decision to bring on a contractor, partner, or law firm. Why It’s Important to Be Selective About Your Law Firm Unfortunately, there is more to building startups than building a product and taking it to market. Along the way, there are events, situations, and decisions filled with legalese that requires the help of a lawyer or law firm. While it might be tempting to get going with the first law firm you speak with, they ultimately will be a partner to your business and should require some selectivity. So what areas will you likely need a hand with from your future law firm? As always, we recommend speaking with your peers, mentors, board members, general counsel, and others when making the decision to bring on a contractor, partner, or law firm. 1. Incorporation Incorporating your startup is an early step in the startup journey. As put at the team at Startup Savant, “Incorporating your startup means establishing your business as a formal legal entity, separate from its founders or owners.” To help with this legal process, you’ll want to make sure you have legal representation to help throughout the process. As written by the team at Contracts Counsel, “A partnership agreement lawyer assists members of a partnership to decide on a business structure through drafting a legal document. Partnership agreement lawyers essentially help businesses craft partnership agreements that reflect the relationship.” 2. Partnership agreements Another early technicality of building a startup is the partnerships and agreements that come with it. 3. Employment Issues Inevitably throughout the life of building a business, employment issues will arise. In order to make sure everyone involved is covered it might make sense to bring in legal help. 4. Protecting your Idea Law firms are also a great way to protect any original ideas or products. This can include trademarks, patents, copyright protection, and more. 5. Protecting your Brand’s Identity Going hand in hand with protecting ideas is protecting your brand’s identity. As the team at HG.org puts it, “Another manner of protecting the ideas of the creator is through a trademark. These may be but are not required to be registered through the United States Patent and Trademark Office. There are benefits when this is completed, but the trademark itself protects the image or brand of a company or owner.” 6. Generating Website Documents and Dealing with Data Privacy Issues As internet regulation continues to change and mature so do the documents and data that deal with privacy issues. As companies have been impacted by GDPR, legal documentation and privacy issues are a standard. Lawyers are a great source to help here. 7. Issuing Stock to Co-Founders When working with cap tables and issuing stock and stock options to co-founders and employees, seeking a lawyer’s help is inevitable. Related Resource: Employee Stock Options Guide for Startups 8. Complying with SEC Regulations When working in the US, startups, and companies are subject to regulations from the SEC. Working with a law firm can be a great source to make sure you are compliant. Related Resource: 6 Components of a VC Startup Term Sheet (Template Included) 9. Financing your Business There is a growing interest amongst law firms to invest in their clients. This has the chance to help fuel growth for your business but can also change the relationship with your law firm. What to Look for In A Startup Law Firm When it comes down to looking for your specific law firm there are certainly questions and thoughts to keep in mind. Before even taking a meeting with a potential law firm, ask yourself the following questions. While you might not be able to answer them fully before speaking with them, you should have a strong understanding and can spend your time meeting with them to focus on the fine details. As always, we recommend speaking with your peers, mentors, board members, general counsel, and others when making the decision to bring on a contractor, partner, or law firm. Do they have startup experience? There are countless types of law firms that all specialize in different areas. Even within business, there are law firms that will hone in on different aspects. Make sure you are communicating and working with law firms that understand the mechanics of startups and have done it before. What does their scope of work look like? Working with a law firm is another relationship and partner for you and your business to take on. Be sure you understand how they communicate, their standards, and more before hiring a firm. Talking to current and past clients of theirs is a great way to verify their scope of work. Do they have valuable startup connections? If you are hiring a law firm that specializes in the startup world, chances are they have connections to other startups and partners in the space. Determine their willingness to make connections and consider if that is something you are looking for in a law firm. Is the cost in-line with your budget? Simply put, are they affordable? Law firms come in all shapes and sizes. It can be a considerable expense for your business so make sure they align with your budget and goals. Do you share similar values and/or culture? As we’ve alluded to previously, adding a law firm is adding a partner to your business. Making sure there is a chemistry and match in your values/culture is a great way to ensure a strong relationship. Related Resource: A User-Friendly Guide to Startup Accounting Great Startup Law Firms to Consider As always, we recommend speaking with your peers, mentors, board members, and others when making the decision to bring on a contractor, partner, or law firm. However, we have laid out a few law firms below that specialize in working with startups: Cooley Cooley is a startup-focused law firm based out of Palo Alto. As the team at Firsthand puts it, “The go-to firm for startups and early-stage companies, Cooley is ideal for those seeking cutting-edge work with innovative clients. The firm has a highly social culture that will no doubt appeal to affable personalities and boasts a strong commitment to diversity and inclusion. With more than 1,200 lawyers practicing across the U.S., Europe, and Asia, Cooley is synonymous with tech and venture capital work. The firm is also well regarded for its cleantech, cyber/data/privacy, IP, M&A, private equity, and securities practices.” Learn more here. Related Resource: Private Equity vs Venture Capital: Critical Differences Fenwick Fenwick has offices across the United States and has built a name for itself by working with high-profile technology companies and startups. Fenwick features a startup resources section on their website and takes a founder’s first approach. Learn more here. Gunderson Dettmer As put by the team at NYC Founder Guide, “Six years in a row, Pitchbook has ranked this firm #1 for high-growth technology and life sciences companies and investors globally. With a singular focus on startups and emerging companies, they are recognized as one of the most active law firms in the VC market, and in 2019, they closed $18+ billion of venture capital private financings. Startups they’ve worked with include Harry’s, Vimeo, Skillshare, and Oscar.” Learn more here. Goodwin From their website, “We are a global law firm with a history of working on groundbreaking matters, and an increasingly focused approach to working with clients in the financial, private equity, real estate, technology and life sciences industries. Our more than 1,800 corporate and litigation lawyers leverage their specific experience and assemble full-service teams to advise clients in these and adjacent industries.” Learn more here. Keep Investors Up-To-Date with Visible Getting in the habit of sending monthly investor updates is a surefire way to help with fundraising, hiring, and growing. To get started, pick a template from our library and tailor it to your business. Just remember that at the end of the day, sending anything is better than sending nothing at all. Visible allows founders to update investors, track key metrics, and raise capital all from one platform. Try Visible for free to send your next investor update.

Understanding the performance and impact of your portfolio is critical for decision-making, follow-on investments, and raising future funds. Available today, portfolio metric dashboards will give investors instant insights into portfolio company operational performance. Visible will automatically provide investors the following: Total – The total sum for a given metric included a time series trend chart Minimum – The minimum value and respective company Maximum – The maximum value and respective company First Quartile 25% Median Quartile 50% Third Quartile 75% Investors will also be able to view benchmark data for any current portfolio segments or for a particular period. Quartiles Investors can also select any portfolio company to quickly view their performance relative to the respective portfolios. As always let us know if you have any questions or feedback! Up & to the right, Mike

As eCommerce startups begin to evolve, so do the metrics and KPIs around them. In 2020 alone, eCommerce totaled over $4.2 trillion. With the explosion of Amazon, Shopify, Casper, Warby Parker, and Allbirds, shopping online has become the norm in the United States. As more eCommerce and direct-to-consumer (DTC) companies begin to scale and exit, the funding options and growth plans are scaling as well. In order to best launch, scale, and fund your e-commerce startup you will need to make sure you have the proper metrics and key performance indicators (KPIs) in place to track and improve. Related Resource: Our Google Sheet Template to Track eCommerce Metrics Related Resource: 20+ VCs Investing in E-commerce and Consumer Products Related Resource: Top Trends and Leading VCs Investing in D2C Brands: A Comprehensive Guide for 2024 Defining Metrics According to eCommerce Tracking and monitoring metrics across the eCommerce sales & marketing funnel is vital. With thinner margins, a larger customer base, and less predictability than a software company, there are countless touchpoints and conversion points that eCommerce leaders need to keep their eye on. Metrics are used to measure the overall health of your business. While some metrics can fall into the “vanity:” category, there are certain metrics that should be monitored and tracked to ensure your business is healthy. We’ll continue to dig into the most vital metrics for eCommerce metrics to track later in this post. Defining Key Performance Indicators or KPIs in eCommerce On the flip side, there are key performance indicators (KPIs) that can be tracked and monitored for an eCommerce startup. KPIs should be used to track individual objectives for your business that you believe are crucial to growth and success. KPIs should be periodically updated and reviewed to make sure they are relevant to your most recent objectives. As the name implies, they should be “key” to the success of your business moving forward. Related Resource: The Startup Guide To Building Successful OKRs (Examples Included) KPI vs. Metrics: What’s the Difference? As we previously mentioned, KPIs and metrics can have slightly different meanings and importance for your business. While metrics are something that naturally evolve and are tracked, they are generally used to measure the overall health of your business. Different metrics will have different levels of importance. Some metrics might be considered “vanity” metrics while others might be crucial to the success of your business. On the flip side, we have KPIs that are intentionally picked and tracked to improve certain aspects of your business. KPIs are generally tied into a specific objective or goal for your business and is something you are focused on improving for periods of time. As the team at BrightGauge puts it, “Let’s start with a basic tenet: metrics support KPIs. KPIs may be made up of a variety of different metrics that give you a full picture of your team’s progress toward a goal. If the business goal is to create 20% more sales qualified leads (SQL) over the next year, original/new website visits alone may not provide you with the data you need. However, understanding how that metric translates into other site interactions, like form completions and downloads, is vital. If the analysis has created a correlation between downloads and SQLs, then website visitors and new downloads become KPIs rather than just metrics.” How is eCommerce Success Measured? Nowadays almost anyone can launch an eCommerce site but the key is to understand your customers and be able to make strategic decisions based on evidence. This evidence and your overall eCommerce success is measured through KPIs and various metrics. Also, it is important to understand that not all metrics are as valuable as others. Identifying the right KPIs to track will help you improve the overall success of your eCommerce business. The Best eCommerce Metrics to Keep Track of There are various metrics you can use to keep track of your success but this may vary based on the company. For most, we have seen these metrics be key and we’ve broken them down by categories: Customer Breakdown Metrics (Impressions, Reach, Engagement), Acquisition Metrics (Email Click-Through Rate, Cost Per Acquisition or CPA, Organic Visitor Acquisition Rate, Social Media Engagement) Customer Behavioral Metrics (Shopping Cart Abandonment Rate, Checkout Abandonment, Micro to Macro Conversion Rates, Micro to Macro Conversion Rates, Average Order Value or AOV, Sales Conversion Rate) Customer Retention Metrics (Customer Retention Rate, Customer Lifetime Value or CLV, Repeat Customer Rate, Refund and Return Rate, Churn Rate) Advocacy Metrics (H4 Net Promoter Score, Subscription Rate, Program Participation Rate) A few years back Dave Ambrose, Managing Partner at Steadfast Ventures, shared a template full of KPIs for eCommerce startups and founders. Since Dave’s original template, we’ve surveyed a few of our customers and friends to make some tweaks and add in new metrics. Special thanks to Dave and the team at Italic for allowing us to share their key KPIs. Italic is an eCommerce company that sells “unbranded luxury goods straight from the source.” With $13M in venture funding and customers across the globe, it is vital for Italic to keep a tab on their metrics across the funnel. Check out our Guide to E-Commerce Metrics (with Google Sheet Template)! 1) Customer Breakdown Metrics Impressions, reach, and engagement track different elements of how your content is coming across to your audience (how many people see it, how often they see it, and how much they engage with it). These metrics are important to track because it allows you to track your return on investment (ROI) and give you a clearer understanding overall of how well your content is performing. Impressions Impressions measures how many times your content showed up in front of someone’s eyes, regardless of whether they interacted with it or not (i.e how many times your ad showed up in their feed). Even if the same person saw it twice it would be recorded as two impressions. Possible tools: Sprout Social, and Google Analytics, (can view total Web impressions). Reach Reach on the other hand tracks how many people saw your content- the qualification here is that the view is unique and every person is recorded only once. So even if the ad in someone’s feed showed up multiple times the reach would still be counted as one. Possible tools: Sprout Social and Hootsuite Engagement This metric reveals how people are interacting with your content. Whether it be through a click, like, comment, or reshare- any and all interactions are recorded. Possible tool: Hootsuite. Acquisition Metrics Acquisition metrics give you insight into how your social channels, content, and ads are performing in terms of customer acquisition. Email Click-Through Rate Click-through rate is a metric that tells you the percentage of people who clicked on a link within the email out of how many people opened it, to begin with. A click rate on the other hand measures this based on how many people were sent the email vs how many people opened it (the CTR). Possible tool: Campaign Monitor Cost Per Acquisition or CPA When using a cost per acquisition model you paying for every action that your audience is completing whether that be a form submission, download, or sale. In short, if they click and convert from your ad you pay. Marketers prefer this method since you only need to pay once your customer completes the desired action. When you are able to break down what your cost is per acquisition you are able to most accurately measure whether the content you creating is compelling enough for people to convert/ to what extent your audience wants to engage with it. Possible tools and methods to track: Generate link codes for affiliate marketing or social by utilizing UTM parameters CRM systems such as Hubspot Using AdWords to export PPC campaign data Building custom links using promotional codes for internal campaigns When submitting an action add a form field asking how your customer found the campaign Organic Visitor Acquisition Rate When someone lands on your website from an unpaid source (google/ any search engine) then this is considered organic traffic and results are driven through SEO (search engine optimization). Landing Page Traffic gives you insight into the top pages that people are arriving at your website from. This lets you know what topics people are interested in and how well your pages are performing for SEO. Looking at bounce rates and session durations is also important to understand how engaged people are with your articles. Possible tool: Insider and Google Analytics Social Media Engagement Tracking social shares, followers, comments, and likes is a good way to monitor how engaged your audience is with your social media content. This is why there is a focus on creating quality content. If people like what you’ve created they are more likely to want to engage with your content, brand and eventually share it with their followers. You can keep track of which channels and content are producing the most shares and convert them into leads. Then spend more time on the channels and types of content that your audience is engaging with most. Strong social signals also help you rank higher organically within Google. Possible tools: Sprout Social, Hoosuite, and Falcon.io Customer Behavioral Metrics Customer behavioral metrics can give you some of the best insight into how customers are responding to your UX/ UI experience as well as your brand/ company. Monitoring their behavior and adapting to changes that might need to be made to help influence decision making, keeps you one step ahead and able to repeat mistakes that cause your customers to convert. Shopping Cart Abandonment Rate The shopping cart abandonment rate is the percentage of your customers that added goods to their cart and left before checking out. Possible tools: Google Analytics allows you to set up cart abandonment tracking and Google sheets to set up cart abandonment measurement. Bolt’s article on how to set both of these up Checkout Abandonment Then there is checkout abandonment which is different than shopping cart abandonment because it tracks how far along in the checkout process a customer gets before they decide to leave. If they’re not advancing in the checkout process then they are essentially abandoning their shopping cart. Micro to Macro Conversion Rates Micro and Macro are the two main types of conversions (when a customer follows through with an action that you want them to take). Just as it sounds, a micro conversion is when a customer takes a small step or a macro- big step to converting. A micro conversion could be someone clicking a link or following you on a social channel. Whereas a macro conversion would be a customer taking the biggest step which is completing a purchase or creating an account. Possible tool: Hotjar Average Order Value or AOV The average order value is the average amount that your customer spends each time they place an order. You can calculate this by dividing the total revenue by the total number of orders. Sales Conversion Rate This metric lets you know how many of your visitors or leads you are converting into sales (or any action that you want the user to take). Sales Conversion Rate= Number of Sales (or conversions) / Number of (qualified) Leads(or visitors) *100 Customer Retention Metrics Customer Retention metrics are important to track and always try to improve upon since new customer acquisition is more expensive and harder to obtain than keeping the customers you have happy and ensuring repeat business. Additional resource: Hubspots 10 Customer Retention Metrics & How to Measure Them Customer Retention Rate A companies customer retention rate measures how many of your overall customers are repeat customers (someone who has purchased from you again). Companies often incentivize this through loyalty programs, subscriptions and other incentives. Keeping customers happy also increases this rate which is why customer feedback surveys can be helpful as well. Possible tools: Segment Additional resources: Hubspots 6 Customer Retention Systems (& Why CRM Should Be One of Them) Customer Lifetime Value or CLV CLV indicates how valuable a customer is to you not just on a per purchase basis but over the entire period of your companies relationship with them(the revenue that one customer generates). If a company is able to increase this value is a huge growth driver. Possible tools: ChartMogal and Hubspot (both are integrations that can be found within Visible- check out all our integrations here) Additional resource: Hubspots How to Calculate Customer Lifetime Value Repeat Customer Rate Repeat customer rate gives you the percentage of customers that have made a purchase more than once. How to calculate: Repeat Customer Rate = the # of customers that made a purchase more than once over a given period of time / your total number of customers for that same period of time. Then multiply that by 100 to get the percentage. Possible tools: Shopify and Stripe Refund and Return Rate The refund and return rate can be calculated as a percentage that shows how much was returned or refunded by customers who initially purchased your services or goods versus the total number that was sold within a certain period of time. How to calculate: Refund and Return Rate = total number returned / total number sold x 100 Churn Rate Churn rate is also known as customer churn, is a metric that calculates the rate at which customers stop doing business with a company. Most often this relates to subscribers who discontinue their plans within a given time frame and is represented as a percentage. Possible tool: ChartMogal Additional resource: Our Ultimate Guide to SaaS Metrics Advocacy Metrics Advocacy metrics are important to the companies that want to put their customer first and provide solutions and strategies that fulfill their customer’s needs. Some companies even hire a customer advocate who analyzes the needs of their customers and helps to build a business strategy around that. Tracking the following metrics will also help give you insights into this. Net Promoter Score NPS is used to gauge the loyalty of a firm’s relationships. It can measure a company, employer or another entity. You have likely received an NPS survey yourself. It’s a score of 1 to 10 usually with a question of “How likely are you to recommend X to your friend or colleague?” X could be your company, your customer support experience, an event, etc. If you answer 1 to 6 you are considered a detractor and at risk of customer churn, 7 & 8 are considered passives, and 9 & 10 are considered promoters. To get your score take % Promoters – %, Detractors. This creates a scale ranging from -100 to 100. 0 to 49 is considered good, 50 to 70 is Excellent and 70+ is World Class. Additional resource: Why We Love Net Promoter Score (NPS) Subscription Rate This is the rate at which you are able to convert users into subscribers, usually paid but can also be a measure of email subscribers for instance. This can be measured to reflect different aspects of your business as well. For example, if you are a SaaS company, like ours, you may be measuring how many subscribers you have for your paid plan as well as how many people subscribe to your newsletter. The latter is also very important to us because it signals whether people find value and are interested in the content that we provide. Program Participation Rate The program participation rate refers to how many customers (or participants) you have enrolled in advocacy programs such as loyalty programs, referral reward systems, or take part in review platforms. The higher the number of participants reflects the greater value of the program. Share Your eCommerce Growth with Contact Visible Check out our E-commerce metric template- which all started a few years back when Dave Ambrose, Managing Partner at Steadfast Ventures, shared a template full of KPIs for eCommerce startups and founders. Since Dave’s original template, we’ve surveyed a few of our customers and friends to make some tweaks and add in new metrics The setup of the template should be simple and ready to use and customize to your own liking out of the box. We’ve set the data to monthly but feel free to change to weekly, quarterly, etc. From here the template is broken down into 4 major metric categories — Customer Breakdown, Acquisition, Behavioral, and Operational. Download the template here and also check out Our Guide to E-Commerce Metrics (with Google Sheet Template). Additional Resources From the Visible blog with a video: Shopify Ecommerce Dashboard Sprout Social’s Social Media Metrics Map Hootsuite’s 19 Social Media Metrics That Really Matter—And How to Track Them Hubspot’s Free Download: Monthly Marketing Reporting Templates

About Malcolm Malcolm Burenstam Linder is the CEO and Co-founder of Alva Labs. The team at Alva Labs is creating a more fair and data-driven recruitment process. Malcolm joins us to break down his story and journey as a founder. Episode Takeaways A few key topics we hit on: About Alva Labs and Malcolm How Alva found their first customers Using personal networks to find their first customers Why founders need to be extremely diligent about their first hires Why seeing a professional coach has been a gamechanger for him Why everyone should look beyond a resume when hiring Watch the Episode Give episode 4 a listen below (or give it a listen on Spotify, Apple Podcasts, or wherever you normally consume podcasts): Related resource: Why the Chief of Staff is Important for a Startup

About Matt & Zach Matt Achariam and Zach Hamed are the Co-founders of Clay. Clay is a beautiful and private home for all your relationships. Populated from the ground up using your calendar and social history, Clay is the most stunning, powerful way to remember who you’ve met—and what matters to them. Episode Takeaways Matt and Zach joined us for season 3 of the Founders Forward Podcast to share their stories. Clay has scaled rapidly and has raised capital from the likes of Forerunner Ventures and General Catalyst. They join us to break down: How they acquired their first customers Why they manually onboarded their first users Why they focus on the problem to better build product Why founders should stop overthinking outreach The importance of empathy in the startup world Why you should compliment more people A relationship-based approach to fundraising Related Resource: Investor Outreach Strategy: 9 Step Guide Watch the Episode Give episode 3 a listen below (or give it a listen on Spotify, Apple Podcasts, or wherever you normally consume podcasts)

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. As the saying goes, “you can’t improve what you don’t measure.” The most successful startups have a system to track and improve the metrics and financials that are most vital to their business. Before you can set up a system to track your key metrics, you don’t need to understand what specific metrics and financials you should be tracking. At the end of the day, revenue metrics are what makes a business tick. In order to best track your revenue metrics, you need to understand the nuances between different financials and metrics. Related Resource: Startup Metrics You Need to Monitor Learn more about the differences between revenue and EBITDA below: What is the difference between EBITDA and revenue? EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and revenue are two financial metrics that all startup founders should be familiar with. Simply put, revenue is the topline income a company is bringing in over a period of time. On the other hand, EBITDA is a financial metric used to help measure profitability. Learn more about the intricacies of both EBITDA and revenue below: What is EBITDA? As put by Investopedia, “EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternate measure of profitability to net income. By stripping out the non-cash depreciation and amortization expense as well as taxes and debt costs dependent on the capital structure, EBITDA attempts to represent cash profit generated by the company’s operations.” Related resource: What is a Schedule K-1: A Comprehensive Guide How to calculate EBITDA There are 2 common ways to calculate EBITDA. Both will generally use a combination of an income statement and a cash flow statement to pull the relevant metrics. Calculate using operating income The first way to calculate EBITDA is by using operating income. For this way, you can simply take operating income and add depreciation & amortization. It will look like this: EBITDA = Operating Income + Depreciation & Amortization Calculate using net income The other common way to calculate EBITDA is by using net income. For this method, you’ll need a few more financials. Net income takes operating income and subtracts non-operating expenses (like interest and taxes) so you’ll need to add those back into EBITDA. It will look like this: EBITDA = Net Income + Depreciation & Amortization + Net Interest Expense + Income Taxes Why is EBITDA an important metric? Oftentimes, EBITDA is considered one of the most important financial metrics that a company can track. This is because it removes any external forces that are impacting a business’s financials and is solely on its profitability trends. This helps companies determine their true valuation and can be easily used to benchmark against similar companies. A more clear understanding of valuation, also means that the company can be properly priced to potential acquisition partners. Related Resource: Startup Metrics You Need to Monitor Pros and cons of EBITDA Like any startup metric, EBITDA comes with its pros and cons. As we laid out above, EBITDA is important because it removes external forces and demonstrates the true financials of a business. When it comes to cons, EBITDA can sometimes lead to confusion. A typical con is that EBITDA gives an unclear look at cash flow and can lead to a misleading understanding of how much cash is truly coming into the business. What is revenue? As put by the team at Investopedia, “Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top-line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.” At the end of the day, revenue is the lifeblood of a business. If a business is not bringing in new customers or expanding existing revenue, its livelihood will be short-lived. Most projections and financials will start with revenue as it determines where the money can be allocated across the business. Related Resource: 6 Metrics Every Startup Founder Should Track Net revenue vs. gross revenue Gross revenue is the total income a business brings in over a certain period of time. For example, if you should $5,000 worth of merchandise over the course of a month, your gross revenue would be $5,000. On the flip side, is net revenue. This starts with gross revenue and subtracts your expenses. For example, in the example above your gross revenue is $5,000 and if you incur $2,000 in expenses over the same period – your net revenue would be $3,000. How to calculate total revenue Calculating revenue is very straightforward. To calculate your total revenue simply take the # of units sold and multiply it by the average price. Why is revenue an important metric As we mentioned above, revenue is the lifeblood of a business. At the end of the day, a business needs to generate revenue to fuel growth and sustain salaries, and develop new product. At the end of the day, without revenue, a business will cease to exist. Related Resource: 6 Metrics Every Startup Founder Should Track EBITDA vs. revenue comparison As we laid out above, EBITDA and revenue are both important financial metrics for every business. However, making sure you are properly tracking and understanding your financial metrics is a must. Learn more about the key differences and similarities between EBITDA and revenue below: Key differences between EBITDA and revenue EBITDA and revenue differ mostly in their purpose. On one hand, you have revenue. This is a true measure of sales and marketing activity and is simply based on the performance of your sales efforts. On the other hand, you have EBITDA. EBITDA uses revenue as one of its functions and tailors it to measure your business’s profitability. This takes into account the performance of your business as a whole, not just your ability to add new revenue. Key similarities between EBITDA and revenue While the 2 metrics differ in what they track and measure, they are similar in the fact that they are valuable metrics that every startup should track. Because of their ability to measure how different aspects of your business, it is important to keep tabs on both. Both metrics hold merit and should be used to evaluate different aspects of your business. Which metric do investors prefer? Like most things in the venture capital world, different investors will have different opinions when it comes to EBITDA. Revenue should be a given when it comes to what investors want to see. Investors, especially early stage and growth stage investors, expect to see solid revenue growth to grow into a massive company. On the other hand, there are instances where investors will want to see EBITDA. As we’ve previously mentioned, EBITDA shows a company’s profitability and can be used when setting valuations so investors can have a better understanding of your company’s financial health. Track and share your metrics effectively with Visible Determining what metrics to track for your business is only half the battle. Having the right systems in place to track and share your key metrics is vital to growth. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

Stay engaged with your founders right from your pocket. Monitor your portfolio and be the value-add investor you want to be with Visible for Investors. Learn more One of the core responsibilities of a general partner (GP) is to report with both their Limited Partners (LPs) and portfolio companies. Gale Wilkinson, Founder of Vitalize Venture Capital, joined us to break down how their team engages with and reports to their LPs. Why send LP Reports? Just like any relationship, the LP <> GP relationship is all about trust. In order to better establish a relationship and improve the odds of raising capital for a future fund, GPs and venture funds need to have a system in place to report to and communicate with their LPs. >> Check out Visible’s LP Template Library here. Raise Future Capital Not only are venture funds and general partners competing against other venture funds for LP capital, they are also competing against other asset classes. Of course, LPs will look back at your performance of previous investments but will also be judging you and your skills as a partner. Having a proven history of strong performance and communication is a surefire way to increase a GPs odds of raising funds. Help Portfolio Companies Different limited partners will offer different skill sets and opportunities. All portfolio companies are looking for help — that might be customer introductions, fundraising options, and hiring. Limited Partners can be a great source for VCs to help out portfolio companies. In turn, this only improves a founder’s relationship with the fund and improves their odds of success. Due Diligence Some limited partners will have a proven track record or expertise in the market. Because of this, they might understand the space even further and can help when it comes to due diligence and vetting potential investments. As Gale shares above, they have an LP that has expertise in workflow tech and help them with due diligence in the space. How to create a tear sheet for your LPs Gale and the team at Vitalize have done an incredible job of using tear sheets to help keep their LPs in the loop. The Vitalize team uses both the qualitative and quantitative data they collect from their portfolio companies and create a single page tear sheet for each company they can share with their LPs. Check out a few example tear sheets below: A few things they include in their tear sheets: Company Information LPs are generally busy and have investments across many different asset classes. In order to help with them understand what a portfolio company does, be sure to include a quick description and the reason why you invested. Qualitative Updates The team at Vitalize also likes to include qualitative updates from each portfolio company. This is generally tied to revenue milestones but can also cover financing rounds and major hires. Investment Information Of course, LPs want to see the financials and information behind an investment. The team at Vitalize includes basic investment information like initial investment dates, capital invested, Vitalize’s value, and more. Core Metrics Using the KPIs and data that the Vitalize team collects from their portfolio companies they build a simple table that shows a companies quarterly performance. A few of the metrics the Vitalize team tracks and shares are: Revenue COGs/COS Gross Margin % Total Expenses EBITDA Cash Balance Months of Runway LP Reporting Templates to Get You Started Ready to take your LP reporting to the next level? Check out our LP Reporting Templates to get you started. Or schedule a call with our team to learn more here.