Venture Capital Due Diligence (Investment Framework)
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Venture Capital Valuation (VC Method)
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Growth Equity Primer
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LTV/CAC Ratio: SaaS KPI Metric (Step-by-Step)
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Bottom Up Forecasting (Price × Volume Build)
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Top Down Forecasting (TAM Sizing Method)
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All Venture Capital (VC) Content
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Activation Rate
Activation RateWhat is Activation Rate? The Activation Rate (%) represents the percentage of users that complete a specific action defined by a SaaS company as a “milestone.” Often referred to as the “us...
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Annual Contract Value (ACV)
Annual Contract Value (ACV)What is Annual Contract Value (ACV)? The Annual Contract Value (ACV) refers to the annualized revenue per customer contract, excluding any one-time fees.
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Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR)What is ARR? Annual Recurring Revenue (ARR) estimates the predictable revenue generated per year by a SaaS company from customers on either a subscription plan or a multi-year contract.
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Attrition Rate
Attrition RateWhat is Attrition Rate? The Attrition Rate measures the employee turnover within a company, i.e. the number of individuals that leave their positions over a specified time frame. Tracking the employee...
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Average Order Value (AOV)
Average Order Value (AOV)What is AOV? Average Order Value (AOV) estimates the typical amount spent by a customer in each order, commonly placed on a website (i.e. e-commerce) or mobile app.
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Average Revenue Per Account (ARPA)
Average Revenue Per Account (ARPA)What is the ARPA? ARPA, or “average revenue per account”, quantifies a SaaS or subscription-based company’s average monthly recurring revenue (MRR) per account and is most often segm...
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Average Time on Page
Average Time on PageWhat is Average Time on Page? The Average Time on Page measures the approximate time spent on a specific webpage by the visitors of a website. By tracking the amount of time spent on a page, a company...
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Bessemer Efficiency Score
Bessemer Efficiency ScoreWhat is the Bessemer Efficiency Score? The Bessemer Efficiency Score is a measure of capital allocation and spending habits to determine the efficiency at which a SaaS company is growing.
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Bookings vs. Billings
Bookings vs. BillingsWhat are Bookings vs. Billings? Bookings are a SaaS metric that represents the value of a customer contract with a contractual spending commitment, most often structured as an annual or multi-year agr...
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Bottom Up Forecasting
Bottom Up ForecastingWhat is Bottom Up Forecasting? Bottom Up Forecasting consists of breaking a business apart into the underlying components that ultimately drive its revenue generation, profits, and growth.
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Burn Multiple
Burn MultipleWhat is the Burn Multiple? The Burn Multiple measures the amount a startup is spending in order to generate each incremental dollar of annual recurring revenue (ARR).
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Burn Rate
Burn RateWhat is Burn Rate? The Burn Rate measures the rate upon which a company spends its cash (i.e., how quickly a company is spending, or “burning,” its cash). In the context of cash flow negat...
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CAC Payback Period
CAC Payback PeriodWhat is the CAC Payback Period? The CAC Payback Period refers to the number of months needed by a company to recoup the initial costs incurred in the process of acquiring a new customer.
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Capitalization Table
Capitalization TableWhat is Capitalization Table? The Capitalization Table is tracked by venture capital (VC) firms to provide a summary of the current capitalization (i.e. equity ownership) in a startup or venture-backe...
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Cash Runway
Cash RunwayWhat is Cash Runway? The Cash Runway measures the implied amount of time that a company can continue operating at a loss before depleting its cash on hand.
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Churn Rate
Churn RateWhat is Churn Rate? The Churn Rate measures the percentage of a SaaS company’s existing customers that have opted to cancel their subscriptions (i.e. or otherwise discontinue being a customer) during...
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Click Through Rate (CTR)
Click Through Rate (CTR)What is Click Through Rate? The Click Through Rate (CTR) measures the effectiveness of an ad by dividing the number of clicks on the ad (or link) by the total number of impressions.
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Committed Monthly Recurring Revenue (CMRR)
Committed Monthly Recurring Revenue (CMRR)What is CMRR? CMRR, shorthand for “committed monthly recurring revenue”, represents a company’s monthly recurring revenue taking into account new bookings and churn.
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Conversion Rate
Conversion RateWhat is Conversion Rate? The Conversion Rate refers to the number of conversions (e.g. orders placed, subscribers, trial sign-ups), expressed as a percentage of the total number of visitors to a webpa...
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Convertible Note
Convertible NoteWhat is a Convertible Note? A Convertible Note is a form of short-term financing wherein the loan converts into equity rather than being repaid in cash. Startups rarely qualify for traditional debt fi...
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Cost Per Lead (CPL)
Cost Per Lead (CPL)What is Cost Per Lead? The Cost Per Lead (CPL) refers to the dollar amount spent on ad and marketing campaigns to acquire a new lead, i.e. a potential customer. CPL is tracked as part of a company...
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Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV)What is Customer Lifetime Value? Customer Lifetime Value (CLV) estimates the average profit a customer brings in for a company throughout their entire lifespan of doing business together. The customer...
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Daily Active Users (DAU)
Daily Active Users (DAU)What are Daily Active Users (DAU)? The Daily Active Users (DAU) metric measures user engagement by counting the unique users or visitors that interacted with an app or site on a particular date.
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DAU/MAU Ratio
DAU/MAU RatioWhat is the DAU/MAU Ratio? The DAU/MAU Ratio is a user engagement metric that measures the approximate number of days in a month that users perform a specific action. Presented as a percentage, the DA...
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First Chicago Method
First Chicago MethodWhat is the First Chicago Method? The First Chicago Method is a probability-weighted valuation of a company using different cases and a probability weight assigned to each case.
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Forward Multiple
Forward MultipleWhat is Forward Multiple? A Forward Multiple is a valuation ratio that reflects a company’s value on the basis of an estimated financial metric, i.e. forecasted earnings performance.
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Golden Handcuffs
Golden HandcuffsWhat are Golden Handcuffs? Golden Handcuffs refer to the deferred incentives offered to employees in an effort to encourage them to remain a part of the company over the long run.
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Gross Revenue Retention
Gross Revenue RetentionWhat is Gross Revenue Retention? The Gross Revenue Retention represents the percentage of a SaaS company’s recurring revenue retained from existing customers, inclusive of the effects of downgra...
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Growth Equity Interview Guide
Growth Equity Interview GuideHow To Prepare For a Growth Equity Interview? For candidates preparing for a Growth Equity Interview, it is important to understand the job’s day-to-day tasks, the fund’s investment criter...
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Hype Factor
Hype FactorWhat is the Hype Factor? The Hype Factor is a ratio that compares the amount of capital raised by a startup to its annual recurring revenue (ARR).
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Lead Velocity Rate (LVR)
Lead Velocity Rate (LVR)What is Lead Velocity Rate? The Lead Velocity Rate (LVR) measures real-time growth in the number of qualified leads that a company generates per month. Frequently tracked by high-growth SaaS companies...
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Liquidation Preferences
Liquidation PreferencesWhat is Liquidation Preference? A Liquidation Preference represents the amount the company must pay to the preferred investors at the exit, after secured debt and trade creditors.
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LTV/CAC Ratio
LTV/CAC RatioWhat is LTV/CAC? LTV/CAC measures the relationship between the lifetime value of a customer and the cost incurred to acquire that customer. The customer lifetime value (LTV) refers to the profit broug...
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Monthly Active Users (MAU)
Monthly Active Users (MAU)What is Monthly Active Users (MAU)? Monthly Active Users (MAU) is a user engagement metric that tracks the number of unique visitors that engage with a site, platform, or app within a specified month....
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Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR)What is MRR? Monthly Recurring Revenue (MRR) refers to the normalized, predictable revenue on a per month basis that is generated from active accounts on subscription-based payment plans.
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Net Negative Churn
Net Negative ChurnWhat is Net Negative Churn? Net Negative Churn occurs when a SaaS or subscription-based company’s expansion revenue (e.g. from upselling, cross-selling) exceeds the lost revenue from churned customers...
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Net Promoter Score (NPS)
Net Promoter Score (NPS)What is the Net Promoter Score (NPS)? The Net Promoter Score, often abbreviated as NPS, measures a customer’s willingness to promote a specific product or service to their friends and colleagues.
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Net Revenue Retention (NRR)
Net Revenue Retention (NRR)What is NRR? The Net Revenue Retention (NRR) is the percentage of revenue retained from existing customers at the start of a period after accounting for expansion revenue and churn.
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Pre-Money vs. Post-Money Valuation
Pre-Money vs. Post-Money ValuationWhat is Pre-Money vs. Post-Money Valuation? When it comes to evaluating early-stage companies, the Pre-Money Valuation refers to how much a company’s equity is worth prior to raising capital in an upc...
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Renewal Rate
Renewal RateWhat is the Renewal Rate? The Renewal Rate measures the proportion of customers who opt to renew and extend their contracts at the end of a subscription period. SaaS and subscription-oriented companie...
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Repeat Purchase Rate
Repeat Purchase RateWhat is the Repeat Purchase Rate? The Repeat Purchase Rate measures the proportion of a company’s customers that make more than one purchase. By returning to complete another transaction on a later da...
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Retention Rate
Retention RateWhat is the Retention Rate? The Retention Rate measures the percentage of customers that continued to use a company’s products or services across a specified period.
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Return on Ad Spend (ROAS)
Return on Ad Spend (ROAS)What is ROAS? The Return on Ad Spend (ROAS) measures the revenue earned for each dollar spent on marketing and advertising initiatives. Conceptually, ROAS is practically identical to the return on inv...
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Revenue Churn
Revenue ChurnWhat is Revenue Churn? Revenue Churn measures the percentage of recurring revenue that a company lost due to customer cancellations, non-renewals, and account downgrades in a given period.
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Revenue Per Employee
Revenue Per EmployeeWhat is Revenue Per Employee? The Revenue Per Employee measures the sales efficiency of a company by comparing its revenue to its number of employees.
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Rule of 40
Rule of 40What is the “Rule of 40”? The Rule of 40 – popularized by Brad Feld – states that for healthy SaaS companies, if the growth rate were to be added to their profit margin, the combined value should typi...
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Run Rate Revenue
Run Rate RevenueWhat is Run Rate? The Run Rate is the expected performance of a company estimated from extrapolating data from a recent period assuming that current conditions will continue.
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SaaS Magic Number
SaaS Magic NumberWhat is the SaaS Magic Number? The SaaS Magic Number metric measures a company’s sales efficiency, i.e. how efficiently its sales and marketing (S&M) spend can generate incremental recurring reven...
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SaaS Quick Ratio
SaaS Quick RatioWhat is the SaaS Quick Ratio? The SaaS Quick Ratio ensures a company’s recurring revenue growth is balanced with enough customer retention. The metric is intended to measure the efficiency at which a...
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Sales Capacity Planning
Sales Capacity PlanningWhat is Sales Capacity Planning? Sales Capacity Planning is a type of predictive model wherein management attempts to optimize a company’s revenue growth (the “top line”) while making efficient hiring...
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Take Rate
Take RateWhat is Take Rate? The Take Rate refers to the fees collected by a third-party service platform, such as an eCommerce marketplace or payment services provider.
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TAM Sizing
TAM SizingWhat is TAM Sizing? TAM Sizing is a top-down forecasting approach used by companies to determine their product’s total market demand and revenue potential. The process of sizing a particular mar...
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Top Down Forecasting
Top Down ForecastingWhat is Top Down Forecasting? The Top Down Forecasting approach refers to estimating future sales by applying an implied market share percentage to a total market size estimate.
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Total Addressable Market (TAM)
Total Addressable Market (TAM)What is TAM? The Total Addressable Market (TAM) measures the market demand for a certain product/service, which can estimate the revenue opportunity applicable to a company.
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Total Contract Value (TCV)
Total Contract Value (TCV)What is Total Contract Value (TCV)? The Total Contract Value (TCV) represents the full value of a customer’s contract across an agreed-upon term, inclusive of all recurring revenue and one-time fees.
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Trial Conversion Rate
Trial Conversion RateWhat is the Trial Conversion Rate? The Trial Conversion Rate refers to the percentage of free users that convert to paid users over a defined period of time.
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Unicorn Startup
Unicorn StartupWhat is a Unicorn Startup? A Unicorn Startup in the venture capital (VC) industry is a term that refers to a private startup that has obtained a total valuation in excess of $1 billion.
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Upsell Rate
Upsell RateWhat is Upsell Rate? The Upsell Rate is the proportion of upsell revenue generated relative to a company’s total revenue, expressed as a percentage.
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Upselling
UpsellingWhat is Upselling? Upselling refers to the tactics utilized by businesses to generate more incremental revenue from their existing customer base.
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Venture Capital Due Diligence
Venture Capital Due DiligenceHow to Perform Due Diligence in Venture Capital? Venture Capital Due Diligence is performed by investors when evaluating potential investments in early-stage startups, which encompass substantial risk...
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Venture Capital Term Sheet
Venture Capital Term SheetWhat is a VC Term Sheet? The VC Term Sheet establishes the specific conditions and agreements of venture investments between an early-stage company and venture firm. The term sheet is short, usually l...
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Venture Capital Valuation
Venture Capital ValuationWhat is Venture Capital Valuation? In Venture Capital Valuation, the most common approach is called the Venture Capital Method by Bill Sahlman, which we’ll provide an example calculation in our...
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Venture Debt
Venture DebtWhat is Venture Debt? Venture Debt is a form of flexible, non-dilutive financing offered to startups to extend their implied cash runway and fund near-term working capital needs until their next round...
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Viral Coefficient (k)
Viral Coefficient (k)What is the Viral Coefficient? The Viral Coefficient (k) estimates the number of new users that the average customer can refer to a given company’s products and/or services. While there are vari...