We recently completed a new funding round for one of our startups. The startup prepared a press release for the round and the founder shared it with me to get my feedback.
As is the case for most press releases around funding rounds, it didn’t contain any numbers highlighting the company’s absolute performance. Instead, it shared growth rates for specific performance metrics. So rather than say that the company achieved X on metric Y, it said that the company achieved a growth of Z% on metric Y during a specific time period. This is a tactic that startups often use to signal how well they’re performing without sharing their actual performance. However, unless we also know the base figure from which the growth rate emerged, it doesn’t carry much insight into the company’s actual performance.
I believe that companies shouldn’t fear sharing their high-level absolute performance metrics like their number of active users, transactions, and net revenue. The reason is that being aware of an opportunity and being able to capture that opportunity are very different things. Companies succeed because of their ability to capture opportunities, not because of their knowledge of the size of the opportunity in a specific market.
However, my feedback on this press release wasn’t about the use of growth rates rather than absolute performance metrics. Instead, it was on the specific performance metric which the company was using to demonstrate its performance. In particular, the company had chosen the growth in its valuation as an indication of its performance.
A startup’s valuation is simply the value which one investor, or a small group of investors who are strongly influenced by the lead investor, places on the company at a given point in time. While it is derived from the fundamentals of the company, it’s subject to the whims of a small group of people and market multiples at a certain moment in time. What ultimately matters is not an intermediate valuation but the valuation at exit. And that will be determined by a much larger group of people (if not the entire market in the case that the company goes public) at a point in time where market multiples may be very different.
So rather than highlight your company’s valuation in a funding round, if you want to show how well you’re performing, you should highlight a fundamental performance metric like your number of active users, transactions, or net revenue. That’s much more reflective of the underlying strength of your company than the valuation which one or a small group of people assign to your company at a given moment in time.