2. Unit Economics
After identifying your startup’s competitive advantages, identify and evaluate its unit economics and the company’s potential for significant economic achievements in the form of profit when it scales. Investors, especially in the early stages, are always trying to assess what will happen to a project in the future and what kind of economy awaits it.
During this analysis, founders and investors might learn that rapid growth is only possible at the very beginning when early customers want such a product, but the company doesn’t have much long-term potential. Or, they might learn that with further growth, the cost of a client will be much higher in operational form. That’s often why many early startups can’t overcome the “death valley
” curve. In my experience, early investors might try to evaluate startups as private equity. This helps them see the real estimate the project might have if it can’t grow quickly and remains with a limited client base.3. Metrics
After defining your unique features and unit economics, you need to make investors believe that you are the one who can build a company worth investing in. You need to be thoughtful about how you present your startup and what you say in that presentation. Your pitch must be well-calibrated.
I learned from Scott Kupor’s book Secrets of Sand Hill Road
that startup money is needed for derisking the business and growth. From my perspective, company valuation depends on whether you can reduce the very risks I described above. By showing killer features, unit economics and metrics to investors, founders can prove their understanding of the market and their ability to lead the company to success and overcome difficulties that might occur in the process.
In my experience, while examining new startups, investors will be looking for the features they’ve already seen in the companies that worked well for them in the past. Thus, founders should research portfolios of investors and venture funds in order to understand whether their startup has any similarities with those companies and use it in their pitch.
Everything in consumer finance is based on funnels, such as marketing, sales, risk, etc. Investors know about these funnels and pay attention to the way founders present them. So-called neobanks, for example, might be guided by indicators related to monthly active users and daily active users, as the entire profitability of the company is based on the client’s involvement and their actions. So, any investor will look at the ratio of sleeping to active clients and compare them with benchmarks and their own understanding of the industry.
Every metric, or funnel, should give a clear description of the client path and how this path works or needs to be improved. Banks also have lead magnets (i.e., hooks), downside/upside and so on. Investors very often sit down and sort out the business funnel of sales and customer acquisition.
Today, the main problem is that the markets are shrinking, and the evaluation of any startup is based on many things, such as the competitive environment and the ability of a startup to find the right features that can attract and retain a client. Founders should sort these things out if they want to sound reliable to investors.