4 Crucial Indicators to Know Before Seeking Venture Capital Funding

The opinions expressed by entrepreneurs contributors are their own.

At a time when venture capital funding for startups is dwindling, you might think your company is the exception. You may think your business model is so ripe for growth with a small injection of cash that venture capitalists should compete to see who your lead investor can be.

Besides the fact that startup founders are rarely objective about their business prospects, it's always good to get some outside perspective before embarking on the potentially long, winding, and deadly road of VC pitches.

Do you know who you might want to speak to first before spending a lot of time and energy on your pitch deck? Your marketing agency. (If you don't have an agency, immediately make friends with an agency manager.)

If an agency isn't your first choice as a sounding board, hear me out. I've worked with dozens and dozens of smart, ambitious startups since Playbook Media was founded. Throughout these relationships, I've recognized a few significant indicators that indicate whether your business is capable of growing unicorn wings with additional resources - or whether you have some fundamental issues to address before presenting your version of Sand Hill. Road. /p>

Related: The 10 Most Reliable Ways to Fund a Startup

Also known as a “burn multiple,” this metric takes a big picture view of your business to calculate how much revenue you generate for every dollar spent. Divide your net consumption by the net new income for a given period, and you have your figure. (Anything over 2 these days, and you'll have a hard time getting funding because your operational efficiencies need to be worked on.)

Your partner agencies won't have all of this data to calculate your drinking threshold, but they can help you improve it in many ways. They can reduce costs by lowering your average CAC (the cost of acquiring a customer). They can improve the average LTV (lifetime value) of your customers by using lifecycle marketing, referral programs, upsell campaigns, and more. They can also run frequent forecasting models to ensure your strategic decisions are informed by current data and market conditions – which have been changing rapidly. .

An agency can be helpful in understanding your overall marketing image and assessing where you can cut expenses and experience minimal impact on your revenue. Agencies with expertise in MMM (media mix modeling, which I'll get to in more detail in a moment) will be great partners in this endeavor.

Your K-factor is your natural growth rate if you're not marketing. It usually comes down to product-driven growth and virality from your existing customer base, site users, media outlets that take advantage of your momentum, and more. This is not specific to the products; if you have a service or software platform, you can create tons of product-driven growth.

Agencies can help you determine your K-factor if they are able to understand the impact of each of your advertising channels. Ideally, your agency uses media mix modeling to determine the incremental impact of each channel; when they analyze all of your channels and touchpoints and compare them to your overall growth, they will be able to isolate a base level of growth that is not explained by those channels. It's your K-factor.

The key to optimizing your K-factor is in growth loops. Reforge defines growth loops as "a closed system...