From Hypergrowth to Efficiency: Craft a Winning Venture Narrative with 3 Timeless Metrics

By Ryan Janssen

Building a strong venture narrative is critical to securing funding for your startup. And that narrative has changed rapidly in recent months, as investors have shifted focus from hypergrowth to efficiency.  In this article, I'll discuss three key metrics that are essential in the current fundraising environment:

1. Capital Efficiency Ratio

The capital efficiency ratio is a simple but powerful metric that measures how much capital a company has raised in relation to its annual recurring revenue (ARR). The formula is straightforward: Total capital raised/Total ARR.

A good capital efficiency ratio is using under $2 in capital to generate $1 of ARR. Ideally, you would calculate it by fundraise and show that it's accelerating. This metric is important because it shows investors that your business is efficient and can generate revenue without requiring too much capital. A high capital efficiency ratio can be a strong signal that you’ll be well-placed to raise your next round, while still showing the potential to grow quickly.

2. Revenue per Employee

Another important metric is revenue per employee, which measures how much revenue a company generates for each employee.  This was also popularized by Battery Ventures as APE. 

This metric is a good way to show investors two important things: a durable runway and a high-performance team.

What's considered "good" varies depending on the stage and business model of the company.  For example, a Series A SaaS company might have a revenue per employee of $300k gross revs/emp, while a Series C DTC company might have a revenue per employee of $1m gross revs/emp. This metric is important because it shows investors that your business can generate revenue with a lean team and that you're making efficient use of your resources.

3. Net Profit

Finally, net profit is a metric that has become increasingly important in the startup narrative. In the past, growth rate was the main metric that investors focused on, but now profitability has taken on more significance. 

Good net profit is >$0 (duh). But your startup probably doesn't have any, and it might never have any.  If your startup is not profitable, it's important to at least show investors a strong unit economics, and a path to how you can get there if necessary.  Articulate your growth loops by showing how a dollar spent on top-of-funnel will ultimately generate strong revenues; then show those revenues are large in the context of overall team costs.

Building a strong venture narrative is critical to securing funding for your startup in every environment. By focusing on key metrics like capital efficiency ratio, revenue per employee, and net profit, you can show investors that your business is efficient, sustainable, and has the potential for growth. In fact: while the startup landscape is always changing, these metrics are timeless and can help you build a strong narrative in all markets.