At Mixpanel's DDC event last week, Keith Rabois of Khosla Ventures, Frank Chen of Andreessen Horowitz, and Josh Elman of Greylock had very similar views on incorporating metrics into a startup pitch, and how companies should formulate and choose which metrics to drive their business forward. They shared insights into what they've seen inside of their portfolio companies with respect to metrics, and offered some high-level advice on how entrepreneurs should think about metrics, and bridging that data appropriately with both current and potential investors.
First? Beyond the metrics
Keith sees metrics as a way to gut-test the entrepreneur's vision. He believes that by looking solely at metrics, other VCs might be better at that method of assessment versus him, meaning that he won't generate better returns based on that method. To him, metrics are:
"…a sign of how much friction you're encountering. If there's no friction - the world is transforming underneath you, and that first person will get disproportionate value".
Josh agreed, adding that he looks for a huge vision. He doesn't look for people that simply have good metrics, but those that can really tell the story of their company and vision through their metrics. He looks for products where people are using the product more and more in their lives, and they'll use it more and more in the future. Frank had an even less metrics-focused approach, and spendsthe first 20-25 minutes of meeting an entrepreneur assessing 'product-to-founder' fit. He asks where they're from, why they're working on this particular problem, and other questions to try to understands what motivates them, and why they've chosen to solve this particular problem. He likes to find people who are consumed by their idea, not vice-versa. He sees numbers as a potential route into the psyche of the entrepreneur, allowing him to see how an entrepreneur is thinking about what's working (or not) in their product, and to understand what they're optimizing for.
Know your numbers
VCs look for mastery of the market, the product, but also mastery around how they're calculating metrics. Keith brought up the fact that if an entrepreneur can't specifically outline how they calculate their LTV - that's a problem! It's a hint to the investor that you don't have a firm enough grasp on your business. When entrepreneurs come in with growth numbers, Josh likes to dive into why that growth occurred - are they doing something different? Where is this growth coming from? According to Josh the worst answer is '…because', with no backup information or developed thesis on why the product is growing. He's not interested in funding someone who can't articulate why growth is occurring. Josh also defined a great entrepreneur as someone who perhaps may have had some luck, but they strategically looked at the world, found the next thing to crank on to grow their business, and luck was only the final piece of the puzzle that helped everything else finally 'fit'. Also, when running through numbers with potential investors, be prepared to provide actual data/access to dashboards/etc. Frank knows that there are many ways to manipulate data, and he always looks to get to first principles with any potential investment. Best case scenario? Hand over your Mixpanel login ;)
Picking the right metrics
Irrespective of stage (seed, A, B, and beyond), investors still care about seeing some metrics. Even for a growth round, the anticipation is that today's numbers will be '3, 5, 10, 50 times bigger in the future, so we're still looking for things to confound', according to Josh. He also shared a clear high-level, comparing a movie site to Twitter.
"If you're a movie site, don't tell me about number of movies - that's not relevant. You should be looking at Thursday, Friday, or Saturday - so you should be looking at weekly numbers, that's important, the increase in people week over week. If you're Twitter, you want people checking their feed all the time - multiple times per day. Pick the metric that's relevant."
Josh's guidance is to choose the numbers that get you really excited, what you think shows that your product is really working.
Keith shared a great piece of advice on this topic too, noting:
"As the CEO, what's your dashboard everyday? That should map to your presentation."
He'll also go as far as recommending or suggesting a particular metric that he thinks the company should start looking at, based on his previous experience and learnings from portfolio companies.
Driven mad by metrics?
The final question posed to the panel was 'Have we become overly obsessed with numbers? Have we stopped looking at things that we can't measure?'. Josh's response was that the startup community has become overly obsessed with thinking that there's an answer - 'If I have this number, I'll get funding/hires/press/etc.'. However, there is no 'right' answer, and each startup has a unique story. It is true that you have to understand what tools you're using to give you confidence that your product is working - and Josh believes that metrics give a sustainable way to talk about what you're doing over time. He believes that it's great we're talking about metrics, but there's no normalization. This means that sometimes people are falsely led to believe that if they show a great ARPDAU or DAU/MAU, that's all they need.
This was my favorite panel of the event, if you have time you can watch the video here - starts at the 1:19:00 mark (video quality is poor, but sound is fine)