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| Example for a Geckoboard KPI dashboard |
Last week I spent a day in Stockholm to attend a metrics seminar organized by our friends at
Creandum. It was a great event with talks from people of some of the best Internet companies from the Nordic region such as
Spotify or
Wrapp. Thanks
Johan,
Joel,
Daniel,
Frederic and everyone at Creandum for setting it up and inviting me!
I did a talk about SaaS metrics (I'll post the slides shortly), and in the Q&A session
Andreas Ehn asked a really good question:
"As a VC, what are the most important KPIs for yourself?"
Ultimately our #1 KPI is the return that we deliver to our LPs. If you're new to the world of venture capital, LP is short for "Limited Partner" and means the people and funds which have invested in our fund. That return is expressed as a return multiple or as the internal rate of return (IRR). As it obviously takes a lot of time to build (and eventually sell or IPO) great companies it will of course take many years until we know our final performance. Like most VCs our fund is set up for a lifetime of ten years.
In the meantime we (and other VCs) track our performance by:
1) Adjusting the value of our portfolio whenever a portfolio company raises a new round of financing from a new investor at a new (hopefully higher) valuation. While there's no guarantee that we will ever sell our shares at these "Fair Market Valuations" (FMVs), the assessment of the portfolio based on current FMVs is usually the best way to measure success. Valuations are usually marked up on an ad hoc basis internally (i.e. when a new round closes) and reported to LPs on a quarterly basis.
2) Monitoring
our portfolio companies' key financial data, KPIs and operational performance. This is the best near-time proxy to long-term success, and so we're constantly looking at these things. We usually get either access to live dashboards or monthly reports and I'm hoping that we'll soon find the time to create a beautiful
Geckoboard dashboard with the top KPIs across the entire portfolio (requires some work because we get data from portfolio companies in a variety of different forms and shapes).
Besides these pretty obvious ones there are a few other KPIs that we're looking at:
Number of deals that we're evaluating
It's not a KPI in the sense that there's a direct "the higher the number, the better it is" correlation, as quality of deal-flow is of course more important than quantity. But there is a connection between quantity and quality, and since we're
using Zendesk to track each potential investment it's easy to monitor this number (for what it's worth, we're currently at deal #3,773 since we started using Zendesk about two years ago, and in the last 30 days 148 new ones have been added).
Response time for investment inquiries
For founders it's important to get fast responses, even if the answer is "no". Depending on our workload sometimes we're fast and sometimes we're slow. There's still a lot of room for improvement, so this is a KPI that we're going to keep a closer eye on in the future.
"Rating" of our responses
Zendesk allows you to let your end users rate the customer support experience for every support ticket. We're not using this feature yet, but I'm wondering if we should do it in order to keep track of how successful we are in leaving positive impressions with the entrepreneurs that are pitching to us.
How well are we at picking the right investments?
Of all the potential investments that we look at, how well are we at picking the winners and avoiding the losers? And how well are we doing when it comes to allocating follow-on investments among our portfolio companies? We're not yet using a simple set of KPIs to track this, but we're regularly reviewing our past deal flow, trying to understand when we were right and when we were wrong and what we can learn from it.
Finally, there's one other KPI, and while it's again not something you can quantify on a short-term basis, it's just as important or even more important than our fund performance in the long run: It's the concept of
Net Promoter Score applied to us. What it means is that when we ask our portfolio founders two simple questions – "Would you raise money from Point Nine in your next startup?" and "Would you recommend Point Nine to other founders?" – we want to hear two wholehearted YESes.
PS: Just like Web startups have their vanity metrics, you can also hear VC talk about vanity metrics – i.e. metrics which sound good but don't mean much. I'll leave that for another post.
