10. June 2013–
After attending a metrics seminar in Stockholm organised by Nordic VC Creandum, Christoph Janz – partner at Berlin-based VC Point Nine Capital – was left mulling one question: "As a VC, what are the most important KPIs for yourself?"
Today, he tackles that topic, drawing on his own years of experience making early-stage investments. Read on to gain insight into the mysterious ways that VCs work...
#1 Keep the Limited Partners happy
Ultimately, our number one key performance indicator (KPI) at Point Nine Capital 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 naturally 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, this is how we (and other VCs) track our performance:
#2 The value of portfolio companies after new financing rounds
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 company based on current FMVs is generally the best way to measure success. Valuations are usually marked up on an ad hoc basis internally (ie when a new round closes) and reported to LPs on a quarterly basis.
#3 The dashboard – how well are portfolio companies doing?
Monitoring our portfolio companies' key financial data, KPIs and operational performance: This is the best near-time proxy to long-term success, so we're constantly looking at these things. We usually either get access to live dashboards or monthly reports and I'm hoping that we'll soon find the time to create a beautiful Geckoboard dashboard (pictured below) with the top KPIs across the entire portfolio (this 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:
#4 Deal flow – the 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).
#5 Response time – how quick do we get back to you?
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.
#6 Leaving a positive impression
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 on the entrepreneurs who pitch to us.
#7 How good are we at picking the right investments?
Of all the potential investments that we look at, how good are we at picking winners and avoiding 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 regularly review our past deal flow to try and understand where we were right and where we were wrong and what we can learn from it.
#8 What it all boils down to – do founders want another investment from your VC?
Finally, there's one other KPI, and while it's again not something you can quantify in 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 the founders of our portfolio companies two simple questions – "Would you raise money from Point Nine for your next startup?" and "Would you recommend Point Nine to other founders?" – we want to hear two wholehearted "yeses".