The Ledger
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Alter: Index passed on a $10M ARR startup lacking metrics clarity
“The business was ten million in ARR, they were tripling year on year, they had a 150% net dollar retention, 95% gross dollar retention, And they were burning the same amount that they were adding in net new ARR during that year. We ended up passing on the busi…”
Alter: Later-stage investors want line of sight to 20-30% FCF margins
“Many investors, particularly at later stages, want to see a line of sight to 20 to 30% free cash flow margins.”
Iconic early customer logos signal product trust to VCs, says Crespo
“One thing that always got up our attention at Index was when companies very early stage would come and talk about some iconic brands they managed to sign very early on, and that would always trigger our attention because we would think, well, You know, they pr…”
Alter: High NDR with low GDR signals selective product-market fit
“What that tells an investor is that some of your customers are doing exceptionally well with your software. They're upselling in a massive way. But others are not having product market fit at all, and they're falling off. This is really good to know. It's a pr…”
Alter: A 1:1 ratio of net new ARR to burn is excellent
“And I think one of the most interesting metrics to track with burn is just your net new ARR divided by your burn. And some people do it the other way around. They do your burn over your net new ARR. Generally speaking, around one is considered very good.”
Alter: Index Ventures advises portfolio companies to maintain 24 months of runway
“So we've adjusted at Index our own guidance around this to extend runway as much as possible, ideally to 24 months, which should give everyone enough time to ride out different market fluctuations and continue to grow and optimize other metrics as well.”
Alter: Paycom achieved best-in-class CAC payback by hiring inexperienced sales reps
“They took their sales reps they took their sales rep model and threw it out the window, and instead of hiring experienced reps from other companies who had sold that kind of software before, which you think would be pretty rational, they instead decided to hir…”
Alter: Reaching $1M ARR within one year post-launch is very good
“So from one year after launch to get to one million in ARR would be considered very, very good. Nine months is excellent. This is from launch, not after incorporation.”
Alter: Venture investors treat total contract value metrics with skepticism
“Investors have began to take this with a grain of salt, particularly in today's market. Nothing is for sure.”
Alter: ARR should represent at least 80% of enterprise ACV
“On the first, I'd say 80% plus would be a good benchmark. Anything below that there should be a really clear reason or a really clear understanding for why that is the case.”
Alter: CAC payback and 3-year LTV-to-CAC are top sales efficiency metrics
“The two most important ones are CAC payback period in months, and three year LTV to CAC.”
Alter: Show cohort retention only after major timestamped product changes
“For enterprise software businesses, I recommend that you show cohort retention, cohort based retention, if you've had time stamped changes. So for instance, let's say you made a big change to your product in September of 2020, and after that change, you've see…”
Alter: Revolut had a negative gross margin when Index Ventures invested
“When we invested in Revolut, they had a negative gross margin, and it was something that we saw the founder be really attentive to over time, and he made decisions over the, ah, over the reoccurring occurring years that helped push this margin up to the place …”