Financial KPIs that investors want to see – tips from our VCFO team

When you’re a startup business raising capital, it’s essential to understand what critical financial performance indicators (KPIs) you need to measure to attract potential investors.

These KPIs provide crucial insights into the financial health and performance of your business, demonstrating to investors that you have a clear plan for growth.

Our team of Virtual CFOs (VCFOs) have hands-on experience in both successfully raising capital and investing in businesses, which supports in providing your business with strategies and direction on how to attract investors and leverage investment opportunities.

It’s a common occurrence for startup founders to prioritise product or service development, sometimes neglecting the financial aspect of their business. As a result, our VCFO offering helps bridge this gap by managing the financial side of the business, which is a vital communication bridge for investors.

To help you get started, we have provided some guidelines on common KPIs that every start-up should monitor, along with how our VCFOs have assisted startups along this process:

1. Revenue Growth
   Revenue growth is crucial because it indicates the potential for future profitability and scalability. Investors are often interested in the growth trajectory as it reflects your ability to capture market share and generate increasing revenue streams. Our team will generally analyse growth trends, forecasts, and can benchmark against industry standards. From there, we can explore ways to optimise revenue growth, such as pricing strategies, sales and marketing incentives and expansion plans.
   
2. Cash Burn Rate
   Cash burn rate measures the rate at which your business spends its cash reserves. Investors want to ensure that your startup manages its cash resources effectively and has a clear plan for sustainability. Our VCFOs help track your cash burn rate and provide recommendations around cash flow management strategies, such as expense controls, cash flow forecasting, and fundraising planning.
   
3. Gross Margin
   Gross margin measures the profitability of your business operations, reflecting the difference between your total revenue and the cost of goods sold (COGS). Investors are interested in your gross margin as it indicates your ability to generate profits from your core business activities before all your overhead expenses. Analysing gross margins helps us explore pricing strategies, supplier negotiations, and production efficiency issues.
   
4. Burn Rate vs. Runway
   Burn rate vs. runway is a financial KPI that compares your cash burn rate with your remaining runway. Runway being the length of time your business can operate without additional funding. This paints a picture to investors on how long the business can continue operating until the next funding round is required (if any). Keeping track and assessing the adequacy of your cash reserves will help us provide guidance on expense controls, fundraising strategies, and cash flow management.
   
5. Valuation Metrics
   These metrics are calculated to help get an understanding of the value of your business. The type of valuation metric used will depend on a range of factors, but the result of this is used by investors to assess their return on investment (ROI), and, additionally, used to help compare your business to other industry peers. A virtual CFO can help calculate and analyse your valuation, benchmark it against industry standards, and explore strategies to optimise the value, such as financial modelling, forecasting, and market positioning.
   
6. Customer Acquisition Cost (CAC) and Lifetime Value (LTV)
   CAC and LTV are KPIs useful for businesses with a recurring revenue model. These metrics demonstrate the efficiency and effectiveness of your sales and marketing efforts, as well as the long-term revenue potential from your customer base. Tracking this often helps identify opportunities for optimisation, customer acquisition strategies, pricing strategies, and retention programs.
   
7. Financial Reporting and Compliance
   In addition to the specific KPIs above, maintaining up-to-date financial reporting and compliance. This includes annual financial statements, tax returns, and other compliance reporting. A virtual CFO can help ensure that your reporting is accurate, timely, and compliant with the relevant regulations and standards. They can also provide recommendations on internal controls, risk management, and governance practices to strengthen investor confidence and trust in your business.

Conclusion

As you know, every business is different, and each start-up will have a set of qualities and/or opportunities that can make them worth investing in.

In this environment especially, it’s even more important to get a solid understanding on how to use KPIs as a tool to help direct your business, and how to highlight the qualities that will be appealing to investors.

A virtual CFO can play a critical role in helping determine and monitor these KPIs, while providing strategic financial advice, and optimising financial performance. By leveraging the expertise of a VCFO, startups can gain a competitive edge in the fundraising process, demonstrate their financial acumen to investors, and increase their chances of securing the necessary capital for growth and success.
If you’re a startup founder looking to raise capital and would like to understand how to tailor your KPIs, consider partnering with our VCFOs to unlock the full potential of your financial KPIs and push your business towards success. Our VCFOs are financial experts who can work remotely with businesses on a part-time or project basis to provide strategic financial advice and insights. Learn more about our VCFO offering here.