Discovering the Holy Grail metrics for your business

As a founder, you may think that success metrics are fairly intuitive in nature and investors assess each business the same way. That is not the case. Metrics can make or break your narrative. 

For us, the holy grail metric was annual recurring revenue (ARR). In spite of strong unit economics and large loan origination volumes, valuation discussions would centre around revenue multiples. Armed with this insight, we focused our energy on growing our ARR by 100 percent from January to October 2022, making our valuation on an ARR multiple much more palatable to potential investors.

Our longtime investor, Vertex Ventures Southeast Asia & India, reminded us to prepare for fundraising and improve the metrics before we even need the money. I find it valuable to learn from my investor partner Genping Liu that investors will have doubts if the increases in MR (monthly recurring revenue) only happen in recent months. It is therefore critical to show that the ARR has increased over a sustained period, which, in our case, is 10 months.

Building a relevant network

Receiving multiple rejections from VCs can be deflating and the resulting low morale could percolate to the rest of the company. But there are times when rejections are not based on the merits of the deal, but due to other factors such as low dry powder (cash reserves kept on hand by a company), end of fund life at the VC, competing investments in the portfolio or a lack of interest in the sector. 

Founders can avoid barking up the wrong tree by building an active network of fellow founders and investors in the market. That way, you can identify the firms that are on an “investment freeze” and those that are actively writing cheques. Having been through months of painful waiting myself, doing your own due diligence is a task I cannot stress enough.

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Break the lead investor cycle

Instead of spending an inordinate amount of time chasing an elusive lead investor in today’s difficult fundraising market, founders should rethink the need to secure a lead investor in the first place. 

It is better to change the approach by setting key terms with existing investors—so they can seed the round as a show of confidence—and then add new investors to the round sequentially. It is also crucial to structure the deal well so existing and new investors are incentivised to join the round.

Map your investors

Having a large capitalisation table (meaning lots of investors) can cause matters to become messy quickly. So I recommend founders map investors according to how collaborative they are, their depth of understanding of the business and their alignment with the startup. 

The danger is that investors who are out of touch with reality can derail your fundraising process during the closing stages. You would need to, again, do your homework on your investors and their preferences in order to devise a bespoke strategy to align each existing institutional investor to back the round.

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Hire your corporate development champions

As a founder, more often than not your hands are full of tasks requiring your urgent attention. So hiring a strong corporate development professional armed with previous sell-side or private equity experience to run the process, including due diligence, data rooms, definitive docs and investor relations, can be extremely helpful. This is critical for companies raising beyond Series B, as the process can be gruelling. It also helps if the process owner understands the target market well.

Validus’ corporate development head, for example, is Japanese and has contributed to the company greatly in the areas of investor communications and due diligence. This is especially a boost for us now, as many of the new investors in our Series C round were Japanese institutions.

The early bird gets the worm

Accounting for time is incredibly important during the fundraising process. It doesn’t matter when you are going to raise, start the soft process now. 

In contrast to raising large rounds that will last a long period, the paradigm is shifting where raising multiple small ongoing rounds will be the new trend given the depressed macroeconomic conditions.

For founders, the hard truth is that we need to always be in fundraising mode. I hope my sharing here has been useful, and if you are an entrepreneur too, I wish you all the best for your own fundraising journey.

Nikhilesh Goel is the co-founder and group CEO of Validus, an SME growth financing platform. Established in 2015, the award-winning company uses alternative data and AI-driven data analytics to drive growth financing to the underserved SME sector via funds from individual and institutional investors.

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