The following is a guest post from Brian Garrett, Co-Founder and Managing Director of early stage investment firm, Crosscut Ventures. His portfolio companies include DocStoc, GumGum and Verve Wireless. Brian will be participating on a panel at Startonomics in LA next Friday about the metrics of startup funding: what goals need to be set and met in order to attract the right investors… Brian’s opinion: there’s no cookie cutter answer..

Metrics that Matter in Early Stage Funding - A VC’s Tips
by Brian Garrett.

I have been asked to ponder what metrics a start-up should be focused on when thinking about trying to raise venture capital dollars. I will be addressing this topic on a panel at Dealmaker Media’s Startonomics on February 6th at UCLA.

I wish there was a simple answer to this, but unfortunately, there are just too many factors that contribute to getting a VC interested and in today’s environment, there are no set of common metrics that can be applied to all situations.

At the highest level, in this type of financing environment, we are looking for the following characteristics at Crosscut Ventures )these comments are specific to attracting a seed-round of investment in the $1M-$2m range):

1) Great team, passionate about their idea with some domain experience to validate their approach.

2) Some form of the Product developed and some customers using it to provide feedback - Crosscut likes highly-iterative product teams who manage the product feedback loop effectively.

3) First revenue either achieved or in their gunsights - We would like to speak to some potential customers to understand how important this offering is to them and what value they place on the solution.

4) A cohesive financing strategy for this environment - Crosscut wants to reduce our financing risk as seed-stage investors, so we want to make sure the company has enough money to survive 2009 and hit some meaningful milestones that will attract the next investor group.

Given the above, there are a couple of definable metrics that get our attention:

1) Hitting 1M uniques. This is meaningful, but only if there is a solid business model behind it. Completely ad-supported businesses in this environment are tough.

2) $50K-$100K/ month in revenue - This shows that a company is starting to build scalability to their business.

3) Operating at cash-flow break-even - This reduces the financing risk identified above, but is only meaningful if there is still a large opportunity to pursue with a more organic, cash-constrained approach.

Overall, it is absolutely brutal out there in the world of early-stage financing, but we continue to believe that some great companies will get build in this type of environment and we are actively looking to find those opportunities.

-Brian

Editor’s side note: Brian makes a great point that startups that are generating revenue are attractive investments. Yet many startups looking for a seed round might not be generating revenue yet. Want to learn how? Not sure how to bring in MORE revenue? Another session at Startonomics called “Revenue? What a Concept!” will address this. See you there!

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