If you’re a startup that thinks enhanced valuation stands at the crux of your venture-capital-attractiveness, then it’s time to rethink the system. Inc. recently said, “Traditionally, revenue and profit have been the gold standard metrics. But those metrics rarely reveal what really makes growth-stage companies tick.” Today, venture capitalists are far more apt to get googly eyes at other, more dynamic metrics. Take a look:
“Lifetime Value” is a key component that venture capitalists look at. How long will your product or service be relevant to its customers? Most VC’s aren’t interested in investing in a startup that is only going to have five minutes of fame, and are more interested in businesses that offer the promise of longevity.
A plethora of the top startups today offer free trials – Spotify, Hulu, Amazon Prime are all doing it. Typically, this free trial inspires free users to convert to paying members after the trial period is up. Keep in mind that free trials are only a good idea – and one that is attractive to venture capitalists – if it converts trial users to paying customers. Potential investors will be attracted to a free trial if it attracts clients… but they will walk in the opposite direction if people show no interest in paying for your service.
We live in a startup world where most apps cost 99 cents or less. This is a tricky balance. A recent study found that 80% of startups who conducted pricing experiments on their apps ultimately decided to make them free, illustrating that users are far more likely to subscribe to apps that don’t cost them a dime (even if they have to endure ads). From a user-to-user perspective, products or services that cost so little aren’t going to be lucrative. It’s inherent, therefore, that the service have “Buzz Value.” This means that people are talking about it; it’s getting press; it’s attracting users. Even if your startup’s product is inexpensive or free, venture capitalists will come running if they see that it has some viral value.
Armed with these perspectives, you can turn your startup into a nugget of gold for venture capitalists. Employ a view that focuses on the long-term potential, rather than immediate profits, and your small business will shine.
Image Credit: [Flickr/MissMae]