I’ve seen thousands of pitches. I’ve been on both sides of the table, as a founder raising money and as an angel investor writing checks. And I can tell you this: most founders are obsessed with the wrong numbers.
You come to me with your beautiful, exponential-growth charts, your 5-year projections that magically hit $100 million, and your TAM slide that claims you’re tapping into a trillion-dollar market. I’m not buying it. And neither are the other investors you’re trying to impress.
I’ve had two successful exits and invested in over 200 companies, including some you might have heard of like Anthropic, OpenAI, and Scale AI. I’m not saying this to brag, but to give you some context for what I’m about to share. I’m going to tell you what the smartest early-stage investors are actually looking at. It’s not what you think.
The Metrics That Don't Matter (As Much as You Think)
Let's start by clearing the air. There are a few metrics that founders love to show off, but that don't really move the needle for me.
- Total Addressable Market (TAM): This is the classic top-down number that says “if we only get 1% of this massive market, we’ll be a unicorn.” It’s a fantasy. I’m much more interested in your bottom-up analysis of a niche you can dominate.
- Hockey-stick projections: We all know you drew that curve in PowerPoint. I’m more interested in the assumptions behind your numbers. How did you get there? What are the real drivers of your growth?
- Vanity metrics: Things like website visits, social media likes, and even total sign-ups. These numbers are easy to pump up, but they don’t tell me if you have a real business.
The Metrics That Actually Matter
So, what do I look for? It comes down to a few key indicators that show me you have a strong foundation and a real path to sustainable growth.
1. Founder-Market Fit
This isn't a number you'll find in a spreadsheet, but it's the first thing I evaluate. Do you, as a founder, have a deep, almost obsessive understanding of the problem you're solving? Have you lived it? Have you felt the pain?
I once invested in a company building software for a very specific type of manufacturing. The founder had worked in that industry for 15 years. He knew the jargon, the workflows, the frustrations. He didn't need a TAM slide to convince me he was onto something. His expertise was the TAM.
2. Usage & Engagement
This is where the rubber meets the road. I don't care about how many users you have; I care about how many of them are active. What's your DAU/MAU ratio (Daily Active Users to Monthly Active Users)? If that number is high, it tells me your product is sticky. People are coming back, day after day.
One of my portfolio companies, a vertical SaaS platform for a specific type of professional, had a DAU/MAU ratio of over 60%. That's incredible. It showed me that their users weren't just logging in once and forgetting about it. The product had become an essential part of their daily workflow. That's a business with a real moat.
3. Net Revenue Retention (NRR)
If you only track one metric, make it this one. NRR tells you how much your revenue from existing customers is growing (or shrinking) over time. It's the single best indicator of a healthy SaaS business.
An NRR over 100% means your existing customers are spending more with you over time, through upgrades, cross-sells, or usage-based pricing. It's a beautiful thing. It means you can grow even if you don't add a single new customer.
I look for an NRR of at least 110% in early-stage SaaS companies. The best companies I've seen are in the 130-150% range. If you have that, you're on a rocket ship.
4. Payback Period
This is a simple but powerful metric: how long does it take you to earn back the money you spent to acquire a new customer? In other words, your Customer Acquisition Cost (CAC).
A good benchmark for a SaaS company is a payback period of 12 months or less. If you can get it down to 6-8 months, you're in a great position. It means you can reinvest your profits into growth much faster.
5. The "Magic Number"
This is a less common metric, but one that I love. The Magic Number is a measure of your sales and marketing efficiency. It answers the question: for every dollar I spend on sales and marketing, how many dollars of new revenue do I generate?
The formula is: (Current Quarter's Revenue - Previous Quarter's Revenue) / Previous Quarter's Sales & Marketing Spend.
A Magic Number over 0.75 is good. Over 1.0 is great. It tells me that your sales and marketing engine is working, and that it's time to pour more fuel on the fire.
The Rise of Vertical SaaS and Serverless AI
These metrics are especially important in today's market, with the rise of vertical SaaS and serverless AI. Vertical SaaS companies, which focus on a specific industry, need to demonstrate deep founder-market fit and strong engagement. They can't rely on a massive TAM.
Serverless AI and usage-based pricing models are also changing the game. With these models, NRR becomes even more critical. If your customers are getting more value from your product, their usage will grow, and so will your revenue. It's a powerful flywheel effect.
Stop Chasing Vanity. Start Building a Real Business.
So, my advice to founders is this: stop chasing vanity metrics. Stop trying to impress investors with hockey-stick charts and inflated TAMs. Instead, focus on building a real business with a strong foundation.
Obsess over your users. Build a product they can't live without. And track the metrics that really matter. If you do that, the money will follow. I promise.
Frequently Asked Questions
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.
How has this view evolved over time?
My thinking on most topics has changed significantly over the years. Early in my career, I held many conventional views that experience proved wrong. I try to update my beliefs when the evidence changes.
Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.