MY KEY METRICS

Investors have been key figures in business since the beginning of time.  Their roles, modi operandi and methodologies have changed greatly over time, and rightly so. As the business landscape changes, so do the investors. 

The past 18 months have been interesting, challenging, and opportunity laden all at the same time.  My outlook and choices have been affected, however my key metrics have proven right over and over. 

In choosing investments, I apply both qualitative and quantitative measures and parameters, which is not easy when investing in startups since the quantitative metrics and ratios are not easily available. 

Hence, I have developed 7 financial and analytic metrics that I apply to companies that are already generating some revenues. The first 3 are analytics the following 4 are financial metrics.

1. CAC – customer acquisition cost, or how much it costs a company to acquire a customer.This cost should go down in time as the company define its target market and the preferred channel of communication.
2. LTV – life time value of a customer, once acquired what is the revenue that a customer generates for your company.
3. Customer retention – the percentage of customers who you manage to retain, which is an indication of your ability to deliver the right value for them.
4. Cash flow – the first of the financial metrics, the king of ratios, cash flow indicates money going in and out, the liquidity available, the lifeblood of any company.
5. ROI – return on investment, it calculates the gains or losses from any investment.
6. Burn rate – is the amount of capital needed for a startup to run its operations.
7. Net Income – is the difference between revenues and expenses.

These are the very basic metrics every startup must pay attention to.  You can have the most amazing product or service, however if the above metrics are not working in your favor, your chances of success are close to zero.

In an effort to help startups to succeed and in encouraging more individuals to become active investors, I constantly share my methodology and my tools to evaluate and track investments over time. 

The metrics above are helpful in choosing the investments but also in tracking a company’s performance over time so as to be able to apply a proper portfolio allocation.  I encourage everyone to either develop their own metrics or use the above, but to use key metrics to measure, remember that was is not measured cannot be improved, managed and valued.