SaaS metrics and financial models: What investors are looking for

As a business seeking venture capital funding, your ability to clearly communicate your financials and key metrics is one of the key factors in convincing investors to fund you. 

But just showing them page after page of numbers won't always cut it. 

Instead, you need to grab and hold their attention from the beginning of your pitch. One way to do this is by weaving your metrics into a compelling story.

We spoke to VC investors and a leading SaaS advisor, who suggested placing a revenue trajectory slide near the beginning of your presentation, perhaps after the team members. 

This slide should contain a clear diagram showing momentum, growth rate, and the size of the business over time. Here’s an example:

You can also annotate the trajectory diagram to show the effects of different significant events – such as the pandemic, or getting a new VP of sales – on your overall revenue. 

The end result is to encapsulate the growth of your business into a compelling story, rather than all those numbers.

Monthly Recurring Revenue (MRR) 

MRR refers to the amount of revenue your company expects to generate every month, based on the value of your existing user subscriptions. MRR is important because it pays your bills every month – essential for maintaining smooth day-to-day operations. Investors want to be sure your company can survive – and MRR plays a key role in deciding that. You can calculate MRR by adding up the monthly fee of every user.

Annual Contract Value (ACV)

If your company has long (e.g. a year or more) contracts, then it's worth reporting your SaaS bookings (annual contract value (ACV)) data alongside your MRR. This creates another easy-to-understand snapshot of your business’s traction – perfect for your potential investors. Here’s the standard formula to calculate ACV: 

ACV = Total contract value ÷ Number of years

Net Revenue Retention (NRR)

NRR is another key SaaS metric, and one which investors are increasingly focused on. The industry standard approach is known as the static pool method. Here, you examine your customer base from a year ago, comparing their MRR from then with their MRR now. That leads to your net revenue retention rate – a critical number for investors. 

Gross Revenue Retention

Other potential funders, such as private equity investors, may also want to know your gross revenue retention rate. The gross figure gives a clearer picture of your customers’ actual churn, which the net figure may not reveal, especially if your business has experienced significant organic growth. Gross revenue retention rate allows potential investors to strip away other forms of growth and focus on the underlying retention.

CAC Payback Ratio

Customer acquisition cost (CAC) payback ratio is one of the most useful sales efficiency metrics to include in your pitch. Investors like it because it's intuitive. They know that if they invest a certain sum in sales and marketing, it will take X number of months before that money gets paid back for each new user that signs up.

The profit and loss (P&L) sheet is another central part of your pitch deck. But what exactly should you include in it? 

Well, good news – there’s a standard P&L format that investors are used to seeing. It's best to stick with the standard, so investors don't have to put in any extra mental effort to understand your numbers. Using the standard format also helps investors to easily benchmark you against other SaaS businesses. 

Check out an example from SaaS Capital below.

Notion Capital recommends adding extra granularity to the Revenue section, incorporating separate lines for recurring revenue, usage-based revenue, and implementation fees, then summing these up into total revenue. 

Breaking it down like this allows you to more clearly align your cost of goods sold (COGS) with different revenue line items. It also allows investors to dissect your business a little more and understand the financial drivers.