While the allure of impressive numbers is tempting, seasoned VCs see through the hype.
With a rising number of startups riding the AI Hype, and everyone trying to leverage the opportunity to slap AI into their pitch, VCs are starting to get (and some even fall for) metrics that don’t actually measure anything useful in terms of traction or valuation.
Here are the metrics you should avoid to present a credible and convincing pitch.
1. Vanity Metrics
Vanity metrics are numbers that look good on paper but don’t reflect the actual health of your business. These include metrics like social media followers, app downloads, and website visits. While these figures can be impressive, they don’t necessarily translate to engaged users or paying customers. Focus on metrics that demonstrate user retention, engagement, and conversion rates instead.
2. Contracted ARR
Contracted Annual Recurring Revenue (ARR) is a popular but problematic metric. It refers to revenue from signed contracts that will only materialize once the product is delivered. This metric can be misleading as it assumes all contracts will convert into actual revenue without considering potential delays, cancellations, or performance issues. Instead, emphasize realized ARR, which reflects revenue that has already been earned and provides a clearer picture of your financial health.
3. Number of AI PhDs on Staff
Having a team of AI PhDs may seem impressive, but it’s not a reliable indicator of business success. While expertise is crucial, VCs are more interested in how this expertise translates into a viable product and market traction. Highlight practical achievements, such as product development milestones, successful deployments, and customer testimonials, rather than just academic credentials.
4. Hardware Inventory
Touting the number of Nvidia AI chips or other high-end hardware you possess can seem like a mark of technical prowess. However, this metric says little about your company’s actual performance or market potential. VCs are more concerned with how effectively you utilize resources to create value. Focus on metrics that demonstrate your technological capabilities and how they drive user satisfaction and revenue growth.
5. Fuzzy Revenue Projections
Overly optimistic revenue projections based on potential market size or hypothetical scenarios can be off-putting. VCs prefer concrete data and realistic forecasts. Provide clear, evidence-based revenue projections grounded in current performance and market conditions. Transparency and honesty build trust and credibility.
6. Overemphasis on Market Potential
While understanding your market potential is essential, overemphasizing it without concrete plans to capture that market can be a red flag. VCs want to see a detailed go-to-market strategy, evidence of market demand, and a clear path to scaling your business. Show how you plan to achieve and sustain growth rather than just highlighting the size of the opportunity.
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To win over investors, focus on metrics that reflect the true health and potential of your business. Avoid vanity metrics and questionable figures that may raise red flags.
Instead, provide clear, honest, and data-driven insights into your company’s performance and growth prospects. By doing so, you’ll build trust and make a compelling case for investment.
