Comment by dm8 | Hacker News Reader

Comment by dm8 | Hacker News Reader

I'd like to add two more points - unit economics, and bottoms up market analysis. And these are helpful to founders, these 2 give an important insight into viability of business before you start the multi year grind in to make your business work -

Unit economics - what it'll take to make this work with healthy profit margins? This is crucial in case of online-offline startups, infra heavy products, or hardware products. May not be critical in consumer startups until they start monetizing.

Bottoms-up analysis of market - what will be your CAC (cost to acquire customers), ARPU/LTV (avg. rev per user/lifetime value) etc.

Both of these things are quantifiable and it'll answer an important Q - how much money will it take for the biz to reach whatever milestones that are decided.

Those are important, but very difficult to know with any certainty at the seed stage. They've never really come up for me until later rounds.

Anecdotally, I believe the act of going through the exercise is important, even if the the precision is off. Perhaps not a deal breaker, but IMO shows that you're at least thinking about these things. As with everything fundraising however, context is key and when you're raising your seed relative to company maturity/development matters very much whether such things will come up.

I agree that it's difficult to know exact numbers at the seeds stage, but it's good to do some sort of exercise on user/customer acquisition costs, expected margins (particularly important in case of h/w products or online-offline work startups) etc.. It will help - 1. to know how long will this money last 2. can you build good business (even though it may not be profitable) before next round of financing.

And founders who do this exercise really set themselves apart as they know their business and gives strong signal to investors. Moreover, investors that I've spoken to often talk that they fund startups not only based on growth, or existing business but also ability to raise next round.

My perspective is that unit economics guesses are important because you want to estimate the scaling factor. You might not know where they are now, but it's important for runway goals to know where the unit economics will breakeven.

Directionality rather than absolute value.

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