As important as finance is for every business, raising funding for a startup can be an endeavour filled with ups and downs. As an entrepreneur going through the various startup funding stages, you must achieve the key performance indicators and metrics that matter most to investors to progress. Understanding what investors look for at each startup funding stage can help founders focus their efforts on the KPIs that matter most.
Each funding stage comes with unique expectations and criteria that investors will use to evaluate your startup’s potential. Understanding these metrics can help you focus on collecting the correct data and telling the most compelling story about your business. This guide will break down the typical funding timeline and highlight the essential metrics to track at each investment stage.
How Funding Stages Work
The primary goal of the startup fundraising phase is to give the company the funds it needs to reach its next milestones and keep growing. Before an investment is made, the parameters of each fundraising round, such as the firm valuation, are often agreed upon. Each investment round involves the firm issuing fresh shares to investors in return for money. Typically, the funding process involves the following stages:
Key Metrics that Founders and Entrepreneurs Must Know
When assessing businesses for funding, investors consider several indicators. Growth and customer retention are two of the most crucial measures for investors. Strong retention suggests that the firm has established product-market fit and has a strong basis for future development.
Investors additionally consider metrics like CLTV, MRR, ARR, ROI, and burn rate. These metrics are important for startups to monitor since they give useful information about the business’s success and aid decision-making. Other important metrics that matter are:
- Gross Margin: This shows how much it costs to produce your product or provide your service.
- Revenue Growth: This gauges the revenue growth of your startup over time.
- Net Income: It is the total amount of money your startup earns after all costs have been covered.
- Contribution Margin: It assesses the viability and profitability of specific products or services.
- Churn Rate: It indicates the rate at which consumers discontinue using your product or service.
- Customer Acquisition Cost (CAC): This metric gauges how much it costs a business to bring on new clients. All of your marketing and sales costs, as well as the wages and commissions paid to the teams tasked with acquiring new clients, are included in CAC.
- Cash Runway: This shows you how long the cash reserves of your business will survive. This enables you to determine if you should increase present efforts or add new sources of funding for your firm.
- Customer Lifetime Value (CLTV): It is an estimation of the net profit attributable to a customer’s potential future relationship.
- Monthly Recurring Revenue (MRR): It is the amount of income that a business can predict with reasonable certainty every 30 days.
- Annual Recurring Revenue (ARR): A company’s annual recurring revenue is the amount of revenue it can predict with reasonable certainty every 365 days.
- Burn Rate: This is the rate at which a business spends money to pay for overhead before realizing a profit from activities.
- Return on Investment (ROI): It is a measure of how much profit or loss an investment generates in relation to the capital invested.
Metrics Investors Look for at Each of the Startup Funding Stages
Investors have different expectations and requirements for startups at each funding stage. Understanding what metrics investors will be looking for at each of the different stages of funding can help you focus on collecting the correct data and telling the most compelling story. Here are the metrics that matter for every stage and their importance for investors:
| Funding Stage | Key Metrics | Importance of Metrics |
| Seed Funding | User EngagementProduct UsageRevenue Growth and ValidationSocial proof | These metrics offer insightful information about the business’ performance and can aid in decision-making. |
| Series A | Revenue GrowthUnit EconomicsMarket PenetrationProduct-market FitOperational Scalability | These metrics provide quantifiable evidence that your company model has value, traction, and the potential for considerable development. |
| Series B | Revenue GrowthProfit MarginsMarket ShareBrand RecognitionBurn RateCustomer Acquisition Costs | These metrics show concrete plans and momentum that will disrupt the market and that the startup is positioned to dominate its respective niche. |
| Series C | Revenue GrowthMarginsMarket PenetrationBrand EquityCapital EfficiencyNew Growth Opportunities | These metrics show investors that the startup has a strong market presence and traction. |
| Series D | Revenue Growth Market ShareProfitabilityProduct Usage Customer Lifetime Value Brand Equity | These metrics show investors that the company has a bright future and is worth investing in. |
| Series E, F, and G | Revenue GrowthProfitabilityMarket ShareCustomer Acquisition Cost (CAC)Customer Lifetime Value (CLTV) | These metrics prove to investors that the startup is successful and looking to expand its operations. |
| Pre-IPO | RetentionMonthly RevenueGrowth RateBurn Rate and Runway | These metrics prove to investors that the company is financially healthy with a strong growth potential. |
01. Seed Funding
The earliest days of startup funding revolve around proving an initial product that’s market-fit. It also revolves around demonstrating traction and conveying future vision. As an early-stage Startup founder, you must convince investors that you are building something people want and have a plan that can scale. Typically, seed funding rounds raise anywhere from $500,000 to $2 million from angel investors, accelerators, and VC firms focused on early-stage investing.
With limited data at the seed stage, you must get creative to showcase traction. You must also prove the future potential of your product or service. Some of the key metrics to emphasize include:
The most important metrics that matter to investors are revenue validation, user engagement, product usage, and social proof. You must demonstrate early user engagement with your product by analyzing usage trends across core features and flows. Highlight increasing usage of essential functions over time. You can leverage content like testimonials, reviews, referrals, and social shares to demonstrate organic excitement and interest.
At this stage, you must show that the targeted audience is interested in using your product or service. Track and highlight metrics like daily/monthly active users, user retention rates, session length per user, and stickiness to convey loyalty. Testimonials and qualitative feedback from early users are also powerful. Even if not monetized, showcase the evidence that people would ultimately pay for your solution. It could include survey data, waitlists for paid plans, or interest from potential commercial partners.
Primary Objective of Seed Stage Funding
Your pre-seed and seed stages goal must be to craft a compelling story around the problem you are solving. As a founder, you must also show that your product is valuable and exhibits signs of early traction. With more data to rely on, you can get creative to showcase promising early signals that excite investors about your future potential.
02. Series A Stage
The Series A funding stage marks the transition from seed funding focused on initial product validation. It also validates the market traction to secure significant capital needed to scale operations and business models sustainably. Typically raising between $2-15 million from VC firms, the Series A sets the stage for long-term growth trajectories.
For investors, the Series A round signals that it is time to evaluate concrete proof points for the startup’s viability and scalability potential. The focus shifts from early vanity metrics to core drivers of growth and repeatable business models. Conveying traction is no longer about teasing possibilities based on limited data – founders must showcase undeniable momentum.
Revenue growth, unit economics, market penetration, and product-market fit are the important metrics that matter to investors. Revenue growth shows that real customers are willing to pay for your product. Series A investors want increasing monthly recurring revenue (MRR) and solid quarter-over-quarter growth. Analyze metrics like customer lifetime value (LTV), customer acquisition costs (CAC), churn rates, and margins. Show that your startup has developed a viable, profitable customer model that can scale efficiently.
Provide evidence that you are steadily gaining market share within your niche. Quickly establishing a beachhead and showing incremental progress in penetrating the target demographic is vital. You must also leverage metrics like Net Promoter Scores (NPS), retention rates, cohort analysis, and customer testimonials to solidify product-market fit claims. Show that your product resonates with your target customer base.
Primary Objective of Series A Funding
Series A investors seek assurance that the key elements required for efficient, sustainable growth are locked into place. Metrics must underscore market validation, repeatable business models, and strategic readiness to scale. Beyond showcasing traction, founders should demonstrate responsible use of capital.
Providing benchmarks for customer acquisition costs and conveying a thoughtful growth strategy can help. The Series A stage for startups is about embracing the metrics that matter – the core KPIs that convincingly showcase your potential and reduce investor risk. With a data-driven pitch focused on the right metrics, founders can secure the fuel to accelerate startup success.
03. Series B Stage
The Series B funding stage is about rapid growth acceleration and demonstrating business model sustainability. This round typically raises between $10-30 million as startups look to turbocharge expansion. Investors will be laser-focused on concrete evidence that your startup can grow exponentially and dominate your niche.
In the series B funding round, investors review profit margins, revenue growth, market share, customer acquisition costs, and brand recognition. Revenue growth is a metric that is significantly important as investors want to see scope for rapid and exponential growth. Demonstrate exponential increases in overall revenue month-over-month and year-over-year.
Show how your profit margins have expanded over time. This highlights the ability to extract more value from each customer as you grow. To show the strong foothold, provide updated market share statistics. You must flaunt decreasing customer acquisition costs, proving that your startup can efficiently scale up marketing and sales. Besides all these, you must demonstrate measured opex spend and how your judicious growth produces outsized revenue expansion.
Primary Objective of Series B Funding
The overarching goal is to showcase concrete plans and momentum that will disrupt the market. Founders must instill confidence that their startup is positioned to dominate its respective niche. Continuing to improve unit economics and highlighting operational leverage will also resonate.
As with Series A, you focus on the metrics that matter most for Series B investors. However, the emphasis is on demonstrating undisputed product-market fit, conveying excellent unit economics, and spotlighting ecstatic user endorsements of your solution. Supplementing your data narrative with customer testimonials can powerfully express satisfaction. For startups, the Series B round centers on embracing ambitions of hypergrowth. By meticulously tracking and reporting on the metrics underscore market leadership potential, founders can keep their startup’s momentum accelerating.
04. Series C Stage
When a startup pursues Series C funding, typically raising upwards of $50 million, it should generate substantial revenues and cement its status as an industry leader. Investors will evaluate if your metrics demonstrate readiness to take your market by storm. Revenue growth, margins, market penetration, brand equity, and capital efficiency are the pivotal metrics you must focus on as a founder.
Give emphasis on demonstrating exponential growth in overall revenue and for current products. Show strong gross margins and consistent margin growth over time. Demonstrate how you separate yourself from rivals and secure a dominant share.
As a founder, you must utilize measures, such as NPS ratings, surveys, and retention rates, that demonstrate brand awareness, reputation, and loyalty. Showcase careful, effective capital allocation that results in disproportionately high revenue growth. Prove your sustainability. Besides all these, you must also share your intentions for expanding into new market groups, regions, and product lines.
Primary Objective of Series C Funding
Founders must prove their startup has all the pieces to own the market for the long haul. In earlier rounds, an intense focus on the key performance indicators that matter to Series C investors remains essential. However, the emphasis shifts to demonstrating operational excellence and plans to boost growth in new areas. For startups, Series C emphasizes instilling confidence that market dominance has been obtained and won’t be relinquished. It represents the last major funding round before considering a potential IPO.
For startups, Series C emphasizes instilling confidence that market dominance has been obtained and won’t be relinquished. It represents the last major funding round before considering a potential IPO.
05. Series D Funding
When a high-growth startup pursues Series D funding, typically raising over $100 million, metrics must demonstrate undeniable market leadership and momentum. Investors will evaluate if you have an unassailable position and blueprint for continued dominance. The important Series D metrics investors look for are revenue growth, market share, profitability, customer lifetime value, and brand equity.
Maintain triple-digit revenue growth year-over-year, even as absolute numbers get larger. Update market share statistics to highlight how competitors are still in your niche. Show investors how leads are expanding. Demonstrate current and increasing profitability. With scale, showcase growing profit margins and positive cash flow.
As a founder, you must examine product usage analytics for depth of usage and growing customer reliance on your platform. With maturity, demonstrate longer customer lifetimes and increase customer lifetime value thanks to cross-sells and expansions. You must also flaunt brand surveys showing your brand’s dominating awareness, affinity, and reputation in your category.
Primary Objective of Series D Funding
Founders must prove their market leadership is unassailable and have strong visibility into sustaining dominance. Backing claims with impartial third-party data and analysts is vital. For later-stage startups, the Series D cements its status at the top of the heap. By spotlighting the growth metrics and operational excellence that convey enduring leadership, founders can keep their competitive edge razor-sharp.
When metrics unambiguously validate dominance, significant global expansion funding is readily available. Each funding stage brings new opportunities and expectations. However, you must persistently hone in on the KPIs that track with investor priorities, enabling startups to showcase their momentum. For seasoned startups pursuing Series D capital and beyond, metrics proving undisputed leadership and market ownership unlock growth to the next level.
06. Series E, F & G Funding
Pursuing startup funding beyond Series D is quite rare and indicates a company needs to capitalize on prior investments to achieve liquidity and self-sustaining growth. While metrics remain essential, the context shifts to justifying extended life support.
Series E Funding
Series E rounds generally raise over $100 million from investors tolerant of exceptionally high risk and extended timelines. This stage indicates previous funding could have produced expected growth and profitability.
Key metrics still matter, but the emphasis is on convincing investors the potential remains worth betting on. Founders must communicate a revised blueprint for success after prior missteps. Revenue growth, market penetration, and improving unit economics must be spotlighted.
Series F & G Funding
Reaching Series F or even G funding is extraordinarily uncommon and suggests a persistently struggling startup needing help to achieve self-sufficiency. These rounds represent hail mary shots at survival.
For highly patient investors, metrics conveying the promise of a turnaround can catalyze investment. Minor improvements in revenue growth, market share, and margins may show a glimmer of hope. Transparency around past issues is essential. However, most investors will be skeptical of founders needing help to right the ship with billions in prior capital. The likelihood of terminal value delivery or a profitable exit is slim.
In general, startups reaching Series E and beyond face mounting scrutiny from investors. Despite a history of missed targets, demonstrating traction becomes secondary to justifying additional capital injection. Founders must make a compelling case that lessons have been learned from prior stumbles.
Primary Objective of Series E, F, & G Funding
The context and expectations evolve with each funding stage based on a company’s maturity and capital needs. But for seasoned startups, the metrics that matter center on an honest assessment of shortcomings and communicating a prudent path forward. Rare late-stage investors may bet on turnaround stories, but their patience has limits.
While hitting key performance indicators is important early on, late-stage funding requires rebuilding investor confidence above all else. Startups unable to deliver ultimately face hard truths that even vital metrics may still need to overcome.
07. Pre-IPO Stage
For startups, the pre-IPO funding stage represents the final hurdle before going public. This round aims to provide operating capital until the liquidity event while meeting IPO readiness requirements. Pre-IPO rounds typically raise $50-$100 million+ from late-stage VC firms. Given the proximity to public markets, investors will be laser-focused on metrics demonstrating preparedness for retail investors and Wall Street.
Some key pre-IPO metrics that investors scrutinize include revenue growth, profitability, market dominance, and brand equity. You must show triple-digit revenue growth year-over-year with projections that justify heady valuations. Show irrefutable market leadership in your niche, exhibiting competitive solid moats.
Highlight brand surveys conveying strong awareness, affinity, and reputation with customers. Prove your executive leadership has the experience, pedigree, and operational maturity expected of public companies. Show your accounting, compliance, and reporting can match SEC regulations and auditing requirements.
Primary Objective of Pre-IPO Funding
Founders must eliminate doubts about their dominance, financials, operations, and leadership. The primary goal is to ensure a smooth transition to life as a publicly traded company. As in earlier rounds, an intense focus on the key performance indicators (KPIs) that convey IPO readiness remains essential. However, the emphasis shifts to demonstrating financial rigor and compliance.
For startups, the pre-IPO stage is all about tying up any loose ends and aligning with the expectations of Wall Street analysts and public shareholders. Founders can confidently take their company public by spotlighting the metrics that reflect sound financials and operational excellence. Each funding round brings unique dynamics, but persistently tracking the KPIs that minimize investor risk enables startups to showcase their readiness for the next level. For pre-IPO companies, metrics proving financial maturity and market dominance pave a clear path to liquidity.
Also Read: How does your Startup Spend the Fundraising Money?Executing at Each Stage
For founders, obsessively tracking metrics for the sake of investors alone needs to be revised. Building a solid product and company requires staying laser-focused on understanding your customers, iterating intelligently, and solving real problems.
However, insight into the metrics investors expect at each funding stage can empower startups to align priorities and tell their stories in the most compelling way possible. Here are some tips for making the most of metrics at each stage:
- Early Stage: Establish goalposts and dashboards to monitor the engagement, activation, and retention metrics demonstrating traction. Be religious about measurement even with limited users and data.
- Series A: Set quarterly targets for revenue growth, customer acquisition costs, churn, and other metrics tied to repeatable business models. Continuously report on progress.
- Series B: Structure executive dashboards and goals around the hockey stick growth trends investors want to see at this stage. Prioritize showcasing momentum.
- Series C: Benchmark metrics like market share and customer lifetime value to showcase growing dominance in your niche. Plot progress quarterly.
- Late Stage: Maintain intense focus on profitability, capital efficiency, and metrics that convey readiness for public markets and Wall Street.
Across stages, conduct cohort analyses to showcase progress over time versus aggregate data. Highlight compounding growth through metrics like net revenue retention. And focus reporting on metrics most directly tied to your core value drivers.
For founders, a keen understanding of investor expectations enables intentional tracking of the KPIs that matter most at each junction. Their metrics focus should mirror their startup’s stage. But this alignment allows them to control the narrative with investors by showcasing the progress and potential that earns funding.
While building an exceptional product for customers remains paramount, insight into the key performance indicators investors will inspect at each turn allows startups to fundraise from a position of strength. Maintaining razor-sharp focus on the metrics that fuel the next growth phase enables founders to tell compelling, data-driven funding stories.
Final Takeaways
For founders and entrepreneurs, the startup funding process can feel like a rollercoaster ride with new expectations and metrics to meet at every turn. However, focusing on the key performance indicators that matter most to investors at each stage can enable data-driven narratives that propel startup success.
Revenue growth, net income, churn rate, and burn rate are all important metrics that investors look for. Besides all these customer acquisition costs, monthly recurring revenue and annual recurring revenue are also emphasized by investors. These key criteria take center stage when an investor evaluates whether or not to fund a startup. That is why these metric matters a lot for both investors and founders.
