Entrepreneurs have a tendency to forget what investors care about most: the numbers. If you’re a startup founder who’s been losing sleep at night over your new website’s architecture, stop and ask what you’d show an investor tomorrow if they wanted to see your pitch deck. Sure, brand identity is important, but what’s going to pay for that fancy new website? Before prospective investors put capital into a business, they want to see if the startup is scalable.
So before you head out to that next networking event, familiarize yourself with the following terms to fund your startup. They’ll help you catch (and keep) an investor’s eye. And if you don’t know what these mean and need some assistance, let us know. An outsourced bookkeeping and accounting firm like Accountfully can help you make sense of things.
Burn Rate:
Investors will be curious about your burn rate during the pre-revenue stage. It encompasses the monthly outflow of cash required to cover fixed operating expenses like rent, payroll, utilities, legal and professional fees, technology fees, etc. The burn rate gives investors an idea of the “length of the runway” you’ll have and when you might knock on their door in the future to ask for money.
Lifetime Value of the Customer (LVC):
The lifetime value of the customer is how much revenue a customer generates, on average, over time. This metric can look different depending on the type of industry as well as some other variables. Is the nature of the relationship ongoing? Will you sell a product to the customer once or twice in a lifetime? This is an important number investors use to drill down into the balance sheet before investing capital in your business.
Customer Acquisition Cost (CAC):
This metric represents the total direct and indirect costs it takes for a prospective customer to become an actual customer, or selling costs. These can include things like sales commissions, advertising expenses, trial period costs, etc. If you’re tallying these up right now and stressing about the future, don’t worry: costs associated with retaining customers are generally less than creating customers.
Margins
In an investor nutshell, the higher the margins the better the opportunity. Margins are variable in nature but it should be assumed that as sales volumes increase, margins should as well. These can include the cost of product manufacturing, shipping charges, sales commissions, wholesale application costs, credit card fees, etc.
When working with an outsourced bookkeeping and accounting firm like Accountfully, you can sleep easy knowing that your financials are available and up to date at all times—your P/L and balance sheet are literally just an email or phone call away. Furthermore, your team will be ready to help interpret the data and share it in a clear, concise, and consistent manner for your investor. We’re good like that.
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