Startups: The Ecosystem and How They're Funded · Part 17 of 19
Growth Metrics Investors Look At
A shared vocabulary for talking about whether growth is healthy.
Once a company has revenue, conversations with investors start relying on a specific set of metrics, most of them borrowed from SaaS businesses because that model produces the clearest, most measurable growth signals. Knowing what each one means, and how they connect, matters whether or not the company being discussed is SaaS.
Revenue metrics
- MRR (Monthly Recurring Revenue): the predictable revenue a company can count on receiving every month from active subscriptions.
- ARR (Annual Recurring Revenue): MRR multiplied by 12, used as the standard headline growth number once a company has meaningful recurring revenue.
- ACV (Annual Contract Value): the average annual value of a single customer contract, useful for comparing deal sizes across an enterprise sales motion.
Acquisition and lifetime value
- CAC (Customer Acquisition Cost): the total sales and marketing spend divided by the number of new customers it produced.
- LTV (Lifetime Value): the total gross profit a business expects to earn from a customer over the time they stay a customer.
A worked example: a company spends $50,000 on sales and marketing in a month and closes 25 new customers.
Those same customers pay $500 a month on average, the business runs an 80% gross margin, and monthly churn is 2%, implying an average customer lifetime of 1 ÷ 2% = 50 months.
Comparing the two gives an LTV:CAC ratio of 10:1. A healthy ratio for a mature SaaS business is often cited around 3:1 or higher, so this company's 10:1 sits well above that bar.
Margin and retention
- Gross margin: revenue minus the direct cost of delivering the product, as a percentage of revenue. Software businesses often run high gross margins because delivering an additional unit costs little.
- Churn: the rate at which customers cancel or stop paying over a given period, usually measured monthly or annually.
- Net revenue retention (NRR): the percentage of revenue retained from an existing cohort of customers over a year, including expansion revenue from upsells and lost revenue from downgrades and cancellations. A figure above 100% means existing customers are spending more on average than they were a year earlier, before counting any new customers.
Spending efficiency
- Burn rate: how much cash the company is spending each month or quarter, covered earlier in this series as the basis for calculating runway.
- Burn multiple: net burn divided by net new ARR added over the same period, measuring how much cash it costs to generate a dollar of new recurring revenue.
A worked example: a company burns $600,000 in a quarter and adds $400,000 of net new ARR in that same quarter.
A lower burn multiple is better, meaning less cash spent to produce each dollar of new recurring revenue. Thresholds for what counts as efficient vary by investor and by stage, though the direction is consistent: a rising burn multiple over time is a warning sign, even when absolute growth still looks fine.
The next article looks at how these metrics interact with valuation once a company crosses into unicorn territory, and why a high valuation and strong revenue are separate claims.