A founder we’ve gotten to know over the past few months asked me to share benchmarks that we would want to see in order to lead a larger investment round in a commerce company. My answer is by no means an exhaustive list of what we look for.
I generally like to live my life by a basic set of guidelines, not strict rules. Rules ignore context. Context changes everything. Some benchmarks are relevant for some companies and some aren’t. We invest the same way.
I realized my answer applied to more than just the one company so I wanted to share it (and later link to it).
Seasonal is seasonal. It’s just a thing.
Benchmarks are relative for seed investments. Our primary concern for any early stage company is determining whether they can capture a repeat market. We see Kickstarter as a way to validate one component of the business but the real validation for investors and really for the company is when you develop a repeating direct retail relationship.
Can customers find you? Do they buy? Do they buy twice? Do they return? For a product made to last, what’s your growth strategy from customer to customer? What are your unit margins?
The only one of those we have a quantitative benchmark for is margin. If your margins are sub-50% you require venture capital to operate (as opposed to requiring VC to grow). That’s a huge red flag. Absent an empirical path to cost of goods savings from provable economies of scale, the margins are going to stay sub-50 and the business is capital-dependent. That’s a big problem.
First published on May 5, 2016