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The Red Flags and Magic Numbers That Investors Look For in Your Startup’s Metrics

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The Red Flags and Magic Numbers That Investors Look For in Your Startup’s Metrics

Andrew Chen,

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If you want to know where user growth is going, you’ve got to understand where it’s coming from.

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Editorial Rating

9

Qualities

  • Analytical
  • Innovative
  • Applicable

Recommendation

Entrepreneurs and investors base decisions on user growth forecasts. But common models for user growth rely on lagging indicators. In this clever article, venture capitalist Andrew Chen details a method for understanding and predicting growth via user “acquisition loops” and “engagement loops.” Start-up investors and entrepreneurs will appreciate Chen’s authoritative take on this crucial subject, as well as his emphasis on sustainability and quality.

Summary

Entrepreneurs and investors look at customer growth curves to see where growth is headed. But a climbing curve won’t necessarily stay on that track. Investors and entrepreneurs commonly turn to the Growth Accounting Framework for insights, but this model gives lagging metrics. Instead, investors and entrepreneurs can build a predictive model by examining customer “acquisition loops” and “engagement loops.” Analyzing the details of these loops can reveal the quality of user growth and enable forecasts of user growth.

Acquisition loops reflect how gaining a cohort of new customers leads to drawing in additional...

About the Author

Andrew Chen is a general partner at the venture capital firm Andreessen Horowitz.

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