Underwrite the Numbers, Not the Pitch
A founder’s deck shows you what the founder wants you to see. The actual underwriting work happens in the operating metrics, and the discipline that separates competent angels from spray-and-pray ones is asking for the same numbers a real VC partner would ask for — in writing, before the wire. The metrics below are SaaS-flavored because most venture-scale businesses today are subscription or consumer-software businesses; for hardware, biotech, or deep-tech the names change but the underlying questions do not.
Unit economics: can the business survive a customer? Customer acquisition cost (CAC) is total sales and marketing spend divided by new customers added in the same period. Lifetime value (LTV) is the gross profit a single customer is expected to produce before churning — for a subscription business, average revenue per account divided by monthly churn rate, multiplied by gross margin. The single most-cited sanity check is the LTV-to-CAC ratio: below 3:1 the business is paying too much for customers it cannot monetize; above 5:1 it is usually under-spending on growth and leaving market to a competitor. Pair this with CAC payback period (months of gross profit needed to recover acquisition cost); twelve months is a common benchmark for healthy SaaS, twenty-four-plus indicates the unit economics are broken even if the LTV math looks fine on paper. Gross margin sets the upper bound on what scale can do for the business. SaaS targets above 70%, e-commerce above 40%; a marketplace depends on take rate. Any venture-scale company with sub-30% gross margin should justify why scale fixes that, because it usually does not.
Cash and runway: how long do they have? Burn rate is monthly net cash consumption; runway is cash on hand divided by burn. A pitch describing the next eighteen months of plans on six months of runway is a pitch you are subsidizing with bridge capital you have not yet been asked for. Ask explicitly: what does burn look like under the bear case (revenue at half of plan, hiring on schedule), and at what month does the company need to raise again? A founder who has not modeled this is not running a company yet.
Revenue traction: how fast is the topline compounding? Monthly recurring revenue (MRR) is active accounts times average revenue per account; annual recurring revenue (ARR) is the same number multiplied by twelve. Both exclude one-time fees and consulting. Headline “revenue” that mixes recurring and non-recurring is either sloppy accounting or deliberately misleading. Month-over-month growth rate is the standard velocity measure; rough benchmarks for what triggers VC interest are 15–20% MoM at seed stage, 8–12% at Series A, decelerating to 5–7% as the company scales. Anything sustained above 25% MoM should be cross-checked against the underlying customer count, because mathematically that pace cannot survive more than a quarter or two.
Customer behavior: do they stay, and do they grow? Churn rate is lost customers over starting customers in the same period; for SaaS, a healthy figure is under 1% monthly logo churn for SMB and meaningfully lower for enterprise. Net dollar retention (NDR) is the percentage of last year’s revenue from the same customer cohort that the company retained after accounting for upsells, downgrades, and churn — the gold standard is above 110%, meaning existing customers grow faster than they leave. For consumer products the equivalent question is engagement: a daily-to-monthly active user ratio above 50% indicates a product people use as a habit; below 20% indicates a product they tried and forgot.
Capital efficiency: what does a dollar of growth cost? The metrics above were assembled when capital was cheap and growth alone cleared the bar. It no longer does, and two ratios now carry most of the weight in a diligence conversation. The burn multiple is net cash burned divided by net new ARR added over the same period — how many dollars the company consumes to manufacture one dollar of recurring revenue. Under 1 is exceptional, 1–2 is fundable, and above 3 the company is buying vanity top-line growth instead of building operational durability, which stops working the moment the next round is priced off efficiency instead of momentum. The Rule of 40 applies only to mature companies at scale, not early-stage startups: growth rate plus profit margin should sum to at least 40, which lets a business trade one against the other but not escape both. A company growing 20% at a margin and one growing 60% at breakeven are the same score; a company growing 15% at is failing on both axes and usually knows it.
Ask separately about customer concentration — revenue from the top five and top ten accounts. A business where one customer is 30% of ARR does not have a product, it has a contract, and its valuation should reflect the renewal risk of that single relationship, not a generic market multiple.
Market size: is the ceiling worth the bet? Total addressable market (TAM) is the maximum revenue the business could earn if it captured every plausible customer at current pricing. Founders systematically inflate TAM through top-down arithmetic (“a 1% share of a $100B market is a $1B business”). The rigorous version is bottom-up: realistic number of customers times realistic price. For a venture-scale outcome the company needs a path to roughly $100M+ in annual revenue, which back-solves to a TAM of at least several billion. Below that, the math will not work even if execution is flawless.
The discipline these metrics enforce is not investment skill; it is investment hygiene. A founder who cannot produce them quickly, accurately, and consistently is either too early to fund or running the business by feel. Either way, you are paying retail to find out.