| Metric | Description | Formula | What VCs Look For | |
|---|---|---|---|---|
| Customer Acquisition Cost (CAC) | Measures the cost of acquiring a new customer. A decreasing CAC over time indicates efficient scaling. | Total marketing & sales expenses ÷ Number of new customers acquired | A startup should show decreasing CAC over time. Rising CAC without improved LTV is a red flag. | |
| Customer Lifetime Value (LTV) | Estimates the total revenue a customer generates throughout their lifetime. A higher LTV shows strong retention. | (ARPU × Gross Margin) ÷ Churn Rate | LTV should be at least 3-5 times CAC for a sustainable business. | |
| Average Revenue Per User (ARPU) | Shows how much revenue each user contributes on average. A rising ARPU indicates better monetization. | Total revenue ÷ Total active usersе | Growing ARPU suggests strong monetization strategies. | |
| Net Dollar Retention (NDR) | Measures revenue retention, including upsells and churn. An NDR above 100% is ideal for SaaS. | [(Revenue from existing customers + Upsells - Downgrades - Churn) ÷ Revenue from existing customers] × 100 | Investors favor companies with 110-130%+ NDR, indicating strong expansion revenue. | |
| Net Logo Retention (NLR) | Tracks customer retention in volume rather than revenue. A higher NLR signals lower churn. | (Customers at start of period who remain ÷ Total customers at start) × 100 | 85-90%+ NLR for enterprise SaaS, 75%+ for SMBs shows strong retention. | |
| Monthly Recurring Revenue (MRR) & Annual Recurring Revenue (ARR) | Provides predictable revenue for subscription-based businesses. Investors look for steady ARR/MRR growth. | ARR = MRR × 12 | Seed-stage companies should aim for $1M ARR potential within 12-24 months; Series A: $3M-$5M ARR. | |
| Annual Contract Value (ACV) & Total Contract Value (TCV) | Used for B2B startups with contract-based revenue models, indicating stability through long-term deals. | ACV = Total contract revenue ÷ Contract duration (years), TCV = ACV × Contract length | Long-term contracts with high ACV/TCV reduce investment risk. | |
| Burn Rate & Runway | Tracks cash burn and financial sustainability. A startup should maintain 12-18 months of runway. | Runway = Cash in bank ÷ Monthly burn rate | A company burning cash too fast without hitting growth milestones will struggle to raise more funding. | |
| Growth Rate | Measures the speed at which revenue or users are growing. Fast but sustainable growth is key. | (Current Revenue – Previous Revenue) ÷ Previous Revenue × 100 | Investors look for sustainable growth rates that align with industry benchmarks. | |
| Gross Margin | Indicates how much revenue remains after covering direct costs. Higher margins mean stronger profitability. | (Revenue – Cost of Goods Sold) ÷ Revenue × 100 | Higher gross margins indicate pricing power and operational efficiency. | |
| Total Addressable Market (TAM) | Estimates total revenue potential if a company captures 100% of its market. Investors assess market size realism. | Market size estimation | A large TAM with a clear go-to-market strategy attracts funding. | |
| Gross Merchandise Volume (GMV) | Tracks the total value of transactions on a marketplace or e-commerce platform. Investors check take rate. | GMV = Total value of all completed transactions on the platform | A strong take rate matters more than GMV alone. | |
| K-Factor | Measures viral growth by tracking how many new users each existing user brings in. | K-Factor = (Average invites per user × Conversion rate of invites) | A K-Factor above 1 means the company is experiencing self-sustaining growth. | |
| Daily Active Users (DAU) & Monthly Active Users (MAU) | Tracks user engagement and retention. A DAU/MAU ratio above 50% indicates strong engagement. | DAU/MAU Ratio = DAU ÷ MAU × 100 | A high DAU/MAU ratio signals engagement, improving long-term retention and monetization. | |
| Metric | Description | Formula | What VCs Look For |
|---|---|---|---|
| Customer Acquisition Cost (CAC) | Measures the cost of acquiring a new customer. A decreasing CAC over time indicates efficient scaling. | Total marketing & sales expenses ÷ Number of new customers acquired | A startup should show decreasing CAC over time. Rising CAC without improved LTV is a red flag. |
| Customer Lifetime Value (LTV) | Estimates the total revenue a customer generates throughout their lifetime. A higher LTV shows strong retention. | (ARPU × Gross Margin) ÷ Churn Rate | LTV should be at least 3-5 times CAC for a sustainable business. |
| Average Revenue Per User (ARPU) | Shows how much revenue each user contributes on average. A rising ARPU indicates better monetization. | Total revenue ÷ Total active users | Growing ARPU suggests strong monetization strategies. |
| Net Dollar Retention (NDR) | Measures revenue retention, including upsells and churn. An NDR above 100% is ideal for SaaS. | [(Revenue from existing customers + Upsells - Downgrades - Churn) ÷ Revenue from existing customers] × 100 | Investors favor companies with 110-130%+ NDR, indicating strong expansion revenue. |
| Net Logo Retention (NLR) | Tracks customer retention in volume rather than revenue. A higher NLR signals lower churn. | (Customers at start of period who remain ÷ Total customers at start) × 100 | 85-90%+ NLR for enterprise SaaS, 75%+ for SMBs shows strong retention. |
| Monthly Recurring Revenue (MRR) & Annual Recurring Revenue (ARR) | Provides predictable revenue for subscription-based businesses. Investors look for steady ARR/MRR growth. | ARR = MRR × 12 | Seed-stage companies should aim for $1M ARR potential within 12-24 months; Series A: $3M-$5M ARR. |
| Annual Contract Value (ACV) & Total Contract Value (TCV) | Used for B2B startups with contract-based revenue models, indicating stability through long-term deals. | ACV = Total contract revenue ÷ Contract duration (years), TCV = ACV × Contract length | Long-term contracts with high ACV/TCV reduce investment risk. |
| Burn Rate & Runway | Tracks cash burn and financial sustainability. A startup should maintain 12-18 months of runway. | Runway = Cash in bank ÷ Monthly burn rate | A company burning cash too fast without hitting growth milestones will struggle to raise more funding. |
| Growth Rate | Measures the speed at which revenue or users are growing. Fast but sustainable growth is key. | (Current Revenue – Previous Revenue) ÷ Previous Revenue × 100 | Investors look for sustainable growth rates that align with industry benchmarks. |
| Gross Margin | Indicates how much revenue remains after covering direct costs. Higher margins mean stronger profitability. | (Revenue – Cost of Goods Sold) ÷ Revenue × 100 | Higher gross margins indicate pricing power and operational efficiency. |
| Total Addressable Market (TAM) | Estimates total revenue potential if a company captures 100% of its market. Investors assess market size realism. | Market size estimation | A large TAM with a clear go-to-market strategy attracts funding. |
| Gross Merchandise Volume (GMV) | Tracks the total value of transactions on a marketplace or e-commerce platform. Investors check take rate. | GMV = Total value of all completed transactions on the platform | A strong take rate matters more than GMV alone. |
| K-Factor | Measures viral growth by tracking how many new users each existing user brings in. | K-Factor = (Average invites per user × Conversion rate of invites) | A K-Factor above 1 means the company is experiencing self-sustaining growth. |
| Daily Active Users (DAU) & Monthly Active Users (MAU) | Tracks user engagement and retention. A DAU/MAU ratio above 50% indicates strong engagement. | DAU/MAU Ratio = DAU ÷ MAU × 100 | A high DAU/MAU ratio signals engagement, improving long-term retention and monetization. |