I can go in-depth about evaluating products, markets, and founders. There are endless amounts of articles on the subject. However, one metric above all else gets me the most excited. That is how much tractions (revenue) the company has per how much money it has burned. This equation is often called the burn multiple. There are 6 reasons why this is relevant.
It shows the scrappiness of the founders when it comes to resourcefulness.
It indicates how much the founder values their equity. This mindset means they will value my equity down the line.
It demonstrates that measure twice cut once mentality. Lightly capitalized or bootstrapped companies do the work to find product market fit instead of guessing.
Margin means everything. Profitability from a unit economics basis prevails over all else. Capturing logos unprofitably does not fit in their strategy.
Fewer stakeholders on a cap table can interfere with getting a deal done.
Companies that are overcapitalized by nature are overvalued. There isn’t a valuation stretch into which the company needs to grow.
These types of founders are my type of people. How does your company sit in terms of a burn multiple?
