Evaluating Early Stage Companies: Part 3 - Metrics

The 5 M’s of evaluating early stage companies are Management, Market, Metrics, Moat, and Meaningful Impact. 

Today, a shallow dive into Metrics…

Target metrics become far more clear as you get to Series A stage and beyond. At the pre-seed and seed stage, target metrics are far less clear and may differ greatly based on business model and sector.

The metrics and traction that I look for in early stage startups can be boiled down to one thing - Momentum. Momentum across the team, product and customer insights, technology, and pipeline and commitments.

Team: The key questions I want to answer around the team momentum are:

• Does the founding team have the critical skill sets to get to the next stage? 

• If not, have they hired great people to fill those skill gaps?

• Are those hires truly A+ talent?

• How fast are they able to identify and hire that top talent?

• Have they built some level of diversity in the founding team and early employees? For this purpose, diversity is defined as both gender and racial diversity as well as diversity of thought and experience. 

Product and Customer Insights: Key questions to answer are:

• How many potential customers has the company interviewed?

• What is the depth of those interviews and resultant findings?

• How big of a pain point is the company's solution solving?

• What does the feedback loop look like once the MVP has been released?

Technology: Key questions are:

• How fast is the company shipping new releases / updates?

• How and how fast have they iterated their product, GTM, etc. based on the above insights?

• How well is the technology solving the customer’s pain points? How do you know?

• What does product usage look like and is it increasing over time?

Pipeline and Commitments: Key questions:

• What does the pipeline look like and how is it converting to customers?

• How many pilot customers and how many are they converting to paying?

• How many paying customers and what is retention and growth?

• If no customers yet, how many LOIs and are you on track to achieve the milestones for those LOIs to convert?

• What is growth or customers, revenue, etc. week over week, month over month, quarter over quarter?

Every company is on their own unique journey, and the answers to these questions will be different in every case. That said, the collective answers will paint a clear picture of whether an early stage company has true momentum.

Thanks to David Ventzel for the inspiration on evaluating momentum and check out his deep dive on this topic here.

Next up we will dive into moats!