What Do VC Firms Look for in a Company? CFO-Backed Financial Metrics That Matter
Venture capitalists are not in the business of losing money. When deciding where to invest, they first carefully evaluate all of a company’s critical financial data. They’re looking for specific information that can help them determine a company has solid financial health and management practices, handles assets responsibly, and has significant potential for growth. What do VC firms look for? Companies trying to attract venture capital need to provide the right financial metrics, organized and presented in a way that grants clear and transparent insight. A CFO experienced in preparing pitch decks that can attract VC firms can significantly improve a startup’s chances of securing funding, from pre-seed to Series D and beyond.
Skillful Cash Flow Management
Every company lives and dies by its cash flow. It’s one of the most important indicators of how a business is doing financially. While financial projections can be useful, they’re a best guess at what may happen in the future. VC firms look for cash flow figures that illustrate where a company’s revenue comes from, how it’s managed, and most importantly, whether it’s positive from operations alone.
Sustainable Revenue Growth
Positive cash flow isn’t enough on its own. The indication of a sustained positive growth in the amount of revenue a company makes over time is another vital piece of information. Venture capitalists see strong revenue growth as one of the best indicators of a company’s likelihood of success. If a company is earning an increase in profits quarter over quarter, it shows it’s scaling up to meet increasing demand.
| Category | Growth Rate |
|---|---|
| Public SaaS Companies | 35% |
| Private SaaS Companies | 30% (down from 35% previous year) |
| B2B Private SaaS Companies (ARR < $1M) | 50% |
| Vertical Market SaaS Companies | 31% |
| Horizontal Market SaaS Companies | 28% |
| Industry Revenue Projections | |
| Projected SaaS Market (2025) | $315.68 billion |
| Projected SaaS Market (2032) | $1,131.52 billion |
| Projected CAGR | 20% |
| Online Computer Software Sales CAGR (over past 5 years) | 4.1% |
Citations
- Custify – Future of SaaS Trends and Predictions 2024
- Omnius – SaaS Marketing Statistics
- Salesmate – SaaS Trends
- Fortune Business Insights – SaaS Market
- Vena Solutions – SaaS Statistics
- Statista – SaaS Revenue
- IBISWorld – Online Computer Software Sales
- Aventis Advisors – SaaS Valuation Multiples
- Go-Globe – SaaS Statistics Infographic
- EIN News – SaaS Market Growth
Efficient Profit Margins
If a company only earns as much as it costs to run, it’s not a tenable venture. VCs will look for businesses with high profit margins. These typically mean a company can charge more for its product, or that its production costs are low, or both. That’s a competitive advantage that can help the company hold or even improve profit margins over time. It’s also an indicator that a company operates efficiently and handles its assets well.
Data-Backed Financial Projections
VCs will look for a company with clear, accurate, and attainable financial goals. This is best illustrated with a financial projection or revenue forecast based on reliable data for a number of different scenarios. The goal is an informed and candid prediction of a company’s likely financial performance over time.
Attracting Investment with Expert Financial Support
Attracting VC investment isn’t trivial, but it’s not mysterious. It’s a matter of putting the right numbers in the right places and being able to showcase past performance, future operations, and likely outcomes in a positive light. Preparing the kind of financial reports and pitch decks that venture capitalists look for takes a certain amount of expertise, and this is where outside help can make a difference. CFO Hub provides a comprehensive suite of expert financial services to startups and growing businesses, including tailored CFO services that can help startups attract investors with solid numbers backed with reliable, transparent data. From interim accounting services to fractional controller services to a full complement of outsourced accounting services, CFO Hub can provide the expert financial guidance your company needs to succeed. Contact CFO Hub today to learn how we can help position your company as an attractive opportunity for venture capital firms.
General Venture Capital Investment Criteria and Why Your VC Firm Should Use Outsourced Accounting Services can provide valuable insights into what VCs are truly looking for. Additionally, our page on 5 Questions You Should Ask Before a VC Investment offers essential discussion points for potential investors.