There was a time when investing in startups was the brave new frontier, and everything gleamed with the dazzling sheen of infinite prospects, promise, and profits.
That time is over.
While a good pitch can still attract significant amounts of capital during initial funding stages, more and more investors are demanding to see hard figures once a startup has progressed beyond its teething phase. Such figures can include anything from current profits to realistic long-term projections, but two indicators, in particular, have been making rapid ascents up the must-see lists of investors: unit economics and cap(italisation) tables.
The importance of taking your own measure
Investors are interested in unit economics and cap tables because they provide a very clear picture of where your startup currently stands. More importantly, they show investors that you’ve taken the time to prepare the groundwork and evaluate your progress. This is invaluable for assuaging any doubts an investor may have about your startup’s future prospects or potential for growth.
The unit economics of your startup pertain directly to the revenues and costs associated with acquiring a single customer (i.e. unit) They take investors down to the nitty-gritty level of customer acquisition and retention. The key metric you’ll want to pay attention to is whether the projected Lifetime Value (LTV) of your average customer exceeds your average Customer Acquisition Cost (CAC). If your LTV to CAC ratio is healthy, investors are much less likely to waver even if you’re currently operating at a loss.
A cap table is an exhaustive list of all the shares in your startup, and who owns each of those shares. Investors in later stages of funding often want to know who has come before them, how much you’ve already received and what kinds of securities are being held. The cap table is, therefore, your best bet to exhibit previous investment coups and minimum-risk, diversified portfolios. Apart from wowing risk-averse investors, the cap table also allows you to keep track of your growing list of stakeholders and stave off potential headaches when the time for payouts comes around.
And now for some tips
The benefits of maintaining a clean cap table and good unit economics are manifold, but to reap those benefits, one must naturally sow the seeds first. Here are a few pointers to help you get started:
- Become truly excellent at Excel
The humble Excel spreadsheet will be your tool of choice when you start working on your cap tables and unit economics. It’s almost universally accessible, and a good helping of number-crunching wizardry and sophisticated models never fails to impress.
- Focus on the metrics that count
This applies more to unit economics, where you may be tempted to overwhelm investors with a flood of precisely calibrated statistics. Avoid doing that, and instead confine yourself to a few key indicators such as LTV, CAC and churn rate.
- Keep things up to date
Simple enough on paper, yet too rarely accomplished in reality. Maintaining cap tables and unit economics takes cumulative effort, and investors will quickly sniff out spreadsheets that have been sloppily cobbled together at the eleventh hour.
Take it to the next level at #tiatokyo2017
Hungry for more information? You’re in luck! The upcoming Tech in Asia Tokyo 2017 conference will feature two separate Startup Strategy Workshops on cap tables and unit economics, aside from other topics. By the end of each session, you’ll walk away with your very own cap table draft and plan to track unit economics respectively!
Both take place on Day 1 of the conference (Sept 27) and are open to all attendees with valid passes.
Conference passes are now on sale at our website from USD147 for startups. Get yours before 8 September 2359 (GMT +9), and receive a 10 percent discount with the promo code “tiatokyo10”!
About the Startup Strategy Workshops
Stay on for the ‘How to Determine Your Unit Economics’ workshop immediately after, and you’ll be treated to an enlightening talk by Shinichiro Hori of YJ Capital. Having invested in some of Japan’s top SaaS companies like Yappli, Hori-san knows what good unit economics look like, and is here to help you achieve them.
Disclaimer: Both sessions will be held in Japanese.
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