2023 will bring sharper methods for measuring startup success • TechCrunch

This year will focus on perfecting rather than scaling

momentum of At least the 12 most active months ever for venture capital activity did not extend into 2022. As interest rates and inflation skyrocketed, geopolitical challenges arose. birth and the economy begins to trend downward, fundraising slows down significantly throughout the year.

But if 2022 is a year of paradigm-shifting drivers, then 2023 will be the year we determine winners and losers — and more importantly, when clearer measures of success will emerge. .

Context for software companies

The tech ecosystem has seen several downturns (though none have been significant) since cloud computing emerged as a dominant trend more than a decade ago, but Inflation is a new monster for many of us.

It has been 30 years since inflation was a tangible macroeconomic factor in the real world. When inflation is at 7%, if you’re not growing at least that much, you’re shrinking.

In a tight budget environment, a high gross retention rate can be a strong signal that customers love your products and get real value from them.

In tandem with inflation, the demand curve is curving — we’ve seen a period of strong product growth driven by the COVID-19 pandemic for the first time, and now we’re seeing Budgets and spending are tightened as startups as well as mature companies prepare to weather the stormy pandemic.

We’re entering 2023 with a lot of known problems and limited ability to predict what’s to come. One thing is for sure, though: This year will focus on perfecting it rather than scaling it.

Success predictors

In this environment, investors will be looking for performance metrics such as high gross margin, strong gross retention (how many customers keep signing up each year), rapid expansion in customer reach, reduced customer acquisition costs, shorter sales cycles, and effective sales reps.

In particular, gross retention will be important, because companies must be able to retain customers to stabilize their 2023 growth plans. In a tight budget environment, a high gross retention rate can be a strong signal that customers love your products and get real value from them.

Investors are also tracking a breakeven path based on the current balance sheet – through metrics like cash burn as a multiple of new annual recurring net sales.

Assuming you have a high gross retention ratio, it may make sense to burn cash, but it doesn’t make sense if you’re burning more capital than the new business has accumulated. As growth slows, many companies are cutting their burn rates accordingly, leading to waves of layoffs even among those with strong balance sheets and market positions.

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