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Interpreting Startup Historical Financials

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While evaluating potential investment opportunities to list on our platform, we review a high volume of startup historical financials. While it’s important to understand what each component of a financial statement means, it’s not until you put these elements together that the real story emerges. When examining a startup’s financial statements, a few key dynamics are helpful to consider as a potential investor.

Cash & Burn Rate

For any startup, but especially those that have yet to begin generating revenue, having cash on hand is critical to helping the company make it to the point where it can generate revenue. Simply knowing how much cash a startup has isn’t very useful. To gain real insight into a startup’s financial situation, cash on hand must be paired with the startup’s burn rate or monthly operating loss. This ratio is key. For a startup that is spending wisely and has its operating expenses under control, cash can be stretched much farther, providing a longer runway. This can be indicative of good planning and discipline on the part of the founders. Conversely, a widely fluctuating burn rate from month-to-month and overspending can quickly eat away at cash reserves if not kept in check. This a potential major red flag that something is off­–whether it be reckless spending or poor planning. Some amount of burn is normal, and a relatively steady cash to burn ratio is not an immediate sign for concern. Once a startup begins to generate more and more revenue over time, some level of monthly burn becomes less risky.

Customer Acquisition & Retention

Customer acquisition cost (CAC) and churn rate are two more metrics that go hand in hand. CAC measures how much it costs a business to acquire a new customer. Ideally, CAC is an investment that is paid off quickly through revenue generated from that new customer. Customer churn rate measures the rate of customers lost within a set timeframe. When the churn rate is high, that may lead to spending more money on marketing and sales efforts to make up for those losses. Low CAC and churn can indicate that a company is efficient at getting and keeping new customers. High CAC and churn are indicative of inefficiencies somewhere within that dynamic.

Revenue Growth

As a company starts to generate revenue, the focus turns to growing that revenue. Revenue growth is great to see in general, but there is more it can tell you if you ask the right questions:

  1. Under what market conditions did that growth occur?
  2. How is the growth shaped?

Theoretically, under good market conditions, a well-positioned startup with a viable product or service should be able to grow revenue steadily. What is more interesting to note is if a company is able to thrive under down or volatile market conditions. For example, the COVID-19 pandemic has wreaked havoc on many businesses over the last year. Despite the challenges the pandemic has presented for many businesses, with the need for lockdowns and social distancing, some startups have been able to thrive.

How the revenue growth is “shaped” can also tell you a lot. Clustered or spiked revenue growth could indicate revenue cycles that are seasonal or linked to specific efforts. The best thing to see is steady, upward trending growth over time. 

In general, monthly revenue growth should give you an idea of if the business’ efforts are coming together effectively or if there is a piece that is broken–whether it be the lead pipeline, marketing and customer acquisition efforts, sales strategies, product pricing, churn rate, etc.

These are just a few key dynamics to consider when evaluating a startup’s historical financials. Depending on the business model and industry, different metrics may be more or less important. Just remember, a single financial metric will never give you the full picture of a startup’s financial health and potential for future growth. To get the most accurate representation, financials must be considered holistically.


The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.