For companies that educate capital in the coming year, the news of rising interest rates, market volatility and falling valuations paints a discouraging picture.
Understandably, founders are eager to understand how current public market conditions can impact fundraising in the private markets. The good news is that, in the context of history, periods of market correction are common – and big companies are still poised to thrive.
In more favorable market conditions, it is best practice to use performance data to articulate a clear story about your company’s potential. But in today’s volatile environment, it’s imperative to use data to tell your story. Whether seeking to raise equity or debt, investors pay even more attention to a company’s performance and projections to manage their own investment risk.
Good news: In the context of history, periods of market correction are common, and large companies are still poised to thrive.
As a former venture capitalist, I tell all founders that trust in their data will have a major impact on their company’s valuation and deal terms when raising capital.
Unfortunately, many companies don’t have an efficient way to collect, synthesize, and interpret data in real-time insights, resulting in the default reliance on static, Excel-based sampling that may not capture the full picture of your company’s potential.
With all this friction, it can be challenging for business owners to even know where to start. For founders and startup teams looking to become more data-driven in their fundraising approach, the following steps are a good start.
Start Earning Cohort Analysis
A cohort analysis looks at different groups of customers, whether they are users over time periods or segmented by region or size, and allows investors to see how they are performing individually. Investors like to look into the future because they know that the value of a company is the present value of its future cash flows.
By parsing the drivers of revenue growth through cohort analysis, you can increase investor confidence in your cash flow forecasts, resulting in a higher valuation or more favorable loan terms.
Take the chart above as an example. The cohort analysis shows that newer groups of customers are larger and more tenacious than ever before. This signals to investors that there is a trend towards higher customer lifetime value, ultimately instilling confidence in your company’s future growth.
Companies that can link the same cohort performance to improving sales and marketing efficiencies will help demonstrate that business growth isn’t just a function of increased spending on customer acquisition and retention. In other words, this is a company that builds value and thus is even more valuable to investors.