The Definitive Guide on Product Metrics That Investors Care About

We talked to top investors at Sequoia, General Catalyst, First Round Capital, DCM, and Banana Capital about what product metrics matter for startup fundraising.

Perspectives
February 21, 2023
Image of Andrea Wang
Andrea Wang
Principal Product Manager, Growth
Investor Dashboard

Fundraising has always been challenging, but it has become much more challenging in a recession when investors are much more cautious about calling capital, and the valuations have come down. Funding rounds are taking longer to come together, and founders need to be more strategic about running their fundraising process.

At Amplitude, we want to help early-stage founders in their early journey find product-market fit and grow long-term. This is why we launched a startup scholarship program back in 2018, offering our growth plan for one year for free to startups early in their journey. We also recently made a monetization model change to offer unlimited events for up to 1M MTUs to help startups maximize what they get out of Amplitude without worrying about how much they instrument their product.

To help more founders on their journey, we tapped our network with some of the best VCs in the industry to write this guide on what product metrics matter to early-stage investors that founders should come prepared with when going into a fundraising process.

Sharing product metrics is a competitive advantage

Every VC is looking for evidence that a startup is solving a big pain point for their customers and that there’s pull in the market. And the best way to demonstrate that is through actual product usage data on how your users behave in your product.

More importantly, understanding what metrics the company tracks and cares about gives investors a glimpse into how the founders think.

“Seeing Amplitude dashboards gives me an illuminating glimpse into the founder’s brain—how they think about product-market fit, what their obsession metrics are, how they goal their team.”

Jess Lee, Partner at Sequoia Capital

Sharing your product metrics in a transparent, proactive way can earn you a lot of trust with investors and speeds up the due diligence process.

David Cheng, Principal at DCM shared:

“During the due diligence process, if founders share their Amplitude data directly to show us their engagement and retention data and KPIs, it makes due diligence much easier and helps us ensure the metrics are consistent with what is in the fundraising materials. It’s also interesting to see what metrics the company tracks and cares about, besides the few that get included in their decks.”

What product metrics matter

Regardless of which vertical investors invest in, there’s one thing they generally agree on: growth and retention are the most important signals to look for in making investment decisions.

A good growth rate shows the product is resonating with users and gaining momentum.

But retention often is the one most telling of whether a startup has hit product-market fit and how strong that PMF is.

“We prioritize retention above all else because, from social apps to ecommerce platforms, customers coming back over and over shows how well the core product is working.”

Turner Novak, founder of Banana Capital

David Cheng, Principal at DCM, lays out the different types of metrics/signals he looks for typically while evaluating an investment decision:

Category Metric
Growth User/customer growth rate MoM or YoY
Customer Acquisition Cost (CAC)/payback by channel
How concentrated and saturated are your channels
What growth initiatives and product roadmap items are you prioritizing?
Unit Economics Gross margins, contribution margins, and historical Lifetime Value (LTV) curves. Many investors have been burned by lofty forecasted metrics, so be prepared to show historicals or for your forecasts to be discounted.
How will you improve unit economics?
Do unit economics get better or worse with scale?
Conversion Retention What does conversion look like at each step of your funnel?
Repeat rate and purchase frequency
Net Dollar Retention (NDR)
Capital Needs How much have you burned cumulatively?
Where are the largest sources of burn? How do you justify them?
How much money do you need to go from $X revenue today to $Y revenue by some timeline? How much can you increase revenue without spending more on sales and marketing?

But there are sector-specific nuances in terms of what metrics matter more by business model.

Niko Bonatsos, Managing Director at General Catalyst, shared:

“For social networking / online community products, we care a ton about intensity of engagement and healthy retention metrics. As such, we ask the founders to send us their stickiness and retention across daily / weekly / monthly cohorts. Ideally, you see some smiley curves.

For gaming / ecommerce / online marketplaces, we pay a lot of attention to payback metrics across all stakeholders. Ditto for the net revenue retention graphs across weekly / monthly cohorts for all the stakeholders. Ideally, you see some smiley curves here too.”

For enterprise software startups, Todd Jackson, Partner at First Round Capital who focuses on early stage (pre-seed to series A) says he always looks for the following when he invests in B2B:

“If they’re bottom-up SaaS and have a prototype, I try to talk to some target users and see if there’s a feeling of ‘pull’ from the market. If they’re further along and have at least 100 users, then I want to see pockets of retention. In other words, out of those 100 users, are 20+ of them returning to the product again and again, using it heavily? And do those heavy users seem indicative of a larger set eventually? As a seed investor, my job is to help these founders get to 10K+ happy users and a healthy set of metrics to set them up for a successful Series A.

A top-down, sales-driven B2B business is totally different. At seed, they probably have fewer than five or ten customers. I often ask them to fill out a ‘CRM spreadsheet’ to understand a few things: Does this customer have a real, urgent business problem that we solve? Are they aware of this problem and looking for a solution? Have they tried to build a solution themselves? Do we think our solution will be highly effective for them? Is their use case ‘productizable’? Do they have a real business?”

When and how to share metrics

Sharing metrics with investors is a delicate balance. On the one hand, founders need to be transparent to build trust. On the other hand, they need to be careful not to over-share or share too much too soon.

With your existing investors, you should share key business and product metrics regularly (monthly or quarterly) and constantly communicate progress and milestones.

With new investors, the best time to share key metrics is usually when you are ready to raise and kick off your fundraising process. There are many different ways you could share metrics during the process:

  • Include key growth metrics in the main fundraising deck to highlight traction at a high level
  • Have a list of product usage and engagement metrics at the back of your pocket, in a presentable format in case questions come up
  • Prepare the raw data, such as cohort retention and stickiness as well as your business forecasts for the due diligence process

At Amplitude, we see founders share their Amplitude data with investors in different ways: some founders hyperlink certain data points in their slide deck to source charts in Amplitude; others directly share a dashboard with investors using our public link feature or invite investors into their Amplitude account.

BeReal’s CEO Alexis Barreyat, behind the social network app that went from 10,000 daily active users to tens of millions of daily active users in 18 months, shows an Amplitude dashboard instead of a standard pitch deck for fundraising because it shows how engaging this product is. And he personally spends several hours per day in Amplitude.

When the dashboards that matter are just one click away, investors notice.

“Though I never expect it, some founders have even given me access to their Amplitude to poke around in, which is the ultimate display of transparency and confidence.”

Jess Lee, Partner at Sequoia Capital

Start tracking your metrics

Knowing which metrics investors care about for your stage and industry can help you be more prepared going into the fundraising process—founders should know your data and business for any questions and diligence.

We strongly recommend founders track these metrics in Amplitude for daily monitoring regardless of preparing for fundraising. This way, the effort to pull everything together for the fundraising season becomes minimal. Much of the work becomes how you tell the story based on the data.

Get started with our startup scholarship program for free access to our growth plan.

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About the Author
Image of Andrea Wang
Andrea Wang
Principal Product Manager, Growth
Andrea is a Principal Product Manager, Growth at Amplitude, driving product-led growth for Amplitude’s business and leading the growth product pillar. She currently focuses on activation and monetization.
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