Investors will look at several key financial metrics for startups to decide on funding, including gross revenue, cost of goods sold, and gross profit.
Heaptalk, Jakarta — Financial management plays a crucial role in startup operations. Financials refer to the metrics and data that drive the different financial statements, including income statements, balance sheets, cash flow, and changes in equity, as explained by Visible VC.
Every founder of startups should sharpen their skills to understand finances, primarily in accounting and finance. Founders do not have to be proficient, but at least they can understand multiple financial reports and be able to answer questions from current and potential investors.
Meanwhile, the investor’s task is to deliver profits for their investors or limited partners. To pick the most potential companies to invest in, investors will harness data based on their own insights to fund companies they believe have the opportunity to generate profits.
This action includes collecting financials and data from startups and other relevant sources. Visible VC reveals five essential metrics they look for in a startup’s pitch deck, spanning gross revenue, cost of goods sold, gross profit, operating expenses, and net income.
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Gross revenue
Gross revenue is the sum of all the money generated by the company. This metric is crucial to explain in the pitch deck as investors want to understand how much revenue the business is earning. Companies that have not yet generated revenue or commonly called pre-revenue startups, need to ensure that these investors invest in pre-revenue companies.
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Cost of goods sold
Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company, referring to Investopedia. This amount includes the cost of the materials and labor directly used to create the goods. It excludes indirect expenses, spanning distribution costs, and sales force costs.
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Gross profit
According to Investopedia, gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. The metric is important for investors to understand how startups can efficiently turn revenue into profit.
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Operating expenses
Operating expenses mean the expenses that a business incurs from normal operations. The metric helps investors understand how and where the business is spending money.
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Net income
Net income (NI), also called net earnings, is calculated as sales minus the cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses, as explained by Investopedia. This metric reflects company profitability since it takes into account all costs that the business will face.
