Top Financial Metrics Investors Look for Before Funding Your Business

Jan 14

Ready to seek investors? Gain an understanding of the financial metrics potential investors want to see before they'll fund your business.

If you’re at the stage of your business where you’re starting to look for investors, it’s critical to have a solid understanding of your business performance. Potential investors will evaluate various financial metrics to assess the health and potential of your business before committing their capital.

While specific metrics may vary by industry and investment goals, here are the most common financial metrics investors examine:

1. Revenue

Revenue growth over time helps investors understand your company’s ability to generate sales and achieve top-line growth. Demonstrating consistent growth or a clear path to revenue can build investor confidence in your business model.

2. Gross Margin

Gross margin reflects the percentage of revenue left after deducting the cost of goods sold (COGS). A higher gross margin indicates effective cost management and pricing power, both essential for scaling profitably.

3. Operating Margin

Operating margin measures profitability by showing the percentage of revenue left after operating expenses. It provides insights into how efficiently your business is managing costs related to core operations.

4. Net Profit Margin

Net profit margin reveals the percentage of revenue that becomes net income after all expenses, including taxes and interest. A higher net profit margin signals stronger overall profitability and financial health.

5. ESG Metrics

Environmental, Social, and Governance (ESG) metrics are becoming increasingly important to investors. Highlight your commitment to sustainability, ethical practices, and transparent governance. For example:

Environmental: Reducing carbon footprint, sustainable sourcing.
Social: Positive community impact, diversity, and inclusion.
Governance: Transparent decision-making processes and ethical leadership.
ESG alignment can attract socially responsible investors and position your business as forward-thinking.

6. Return on Investment (ROI)

ROI indicates how effectively your company generates profits relative to its invested capital. A higher ROI reflects better use of investor funds and is a critical metric for demonstrating efficiency.

7. Customer Acquisition Cost (CAC) and Lifetime Value (LTV)

Investors closely analyze CAC and LTV, as well as the CAC-to-LTV ratio. This ratio demonstrates how efficiently you acquire customers and the long-term value they bring to your business. Aim for a ratio of 3:1 or higher to show strong profitability.

8. Churn Rate

Churn rate measures the rate at which customers stop using your product or service. Pairing churn rate with LTV highlights the effectiveness of your customer retention strategies. A lower churn rate signals higher customer satisfaction and long-term stability.

9. Industry-Specific Metrics

Certain industries prioritize unique metrics. For example:

Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR): Critical for subscription-based businesses.
Burn Rate and Runway: Essential for startups to track cash reserves and time remaining before requiring additional funding.

10. Competitive and Market Position

Investors want to see how your business stands out. Conduct a competitor analysis to identify your strengths and gaps in the market. Use tools like SpyFu to highlight competitive advantages in your pitch.

11. Tools for Financial Analysis

To streamline financial reporting and analysis, consider using platforms like:

QuickBooks Online for managing financial records.
Wave Accounting for small businesses looking for free solutions.
Tableau or Fathom HQ for advanced metrics visualization and analysis.

These tools not only make it easier to monitor key metrics but also help present them professionally during investor meetings.

12. Beyond the Numbers: Vision and Leadership

While financial metrics are critical, investors also assess qualitative factors, including:

Vision: Does your business have clear long-term goals and a scalable strategy?
Leadership: Are you and your team experienced and capable of executing your plans?

Combining strong financials with a compelling vision demonstrates both the potential and the people behind the business.

Final Thoughts

These financial metrics provide investors with valuable insights into your business’s profitability, efficiency, and growth potential. Coupled with a strong vision and innovative leadership, you’ll be well-positioned to secure funding.

By staying transparent, using data-driven tools, and incorporating ESG initiatives, your business can stand out as an attractive investment opportunity.

Ryan Gencarelli

Ryan Gencarelli is the co-founder of Wild Idea Co., where he brings over 15 years of expertise in project management and operations. Known for his exceptional organization and problem-solving skills, Ryan ensures every project runs smoothly from start to finish. With a hands-on approach and a knack for turning big ideas into actionable plans, Ryan helps Canadian businesses grow and thrive. When he’s not managing projects, you’ll find him exploring nature or tackling creative ventures with his wife and business partner, Sarah.