“Something that blows my mind is if you ask 10 different start-ups—even high-flying unicorns—how they report their annual recurring revenue (ARR), you will get 10 different answers. You might even get twelve answers because one company reports it in two different ways,” says Sean Whitney, Principal at Craft Ventures, a San Francisco-based venture capital firm focused on early-stage startups.

“As SaaS investors that focus a lot on traction, [we want to know] how much ARR you have, how much you are growing, how well you’re retaining,” says Sean. “And then get into the weeds of how are users engaging with your tool? How are you utilizing data to educate your pipeline process and your sales process? How can we be sure that this growth can be maintained?”

Start tracking data from the very beginning

Start-ups looking for investment—whether now or in the future—must put themselves in a position to “tell a strong data story” right from the outset, says Sean.

“If you can't tell me what exactly is happening with each customer, how are you ever going to know what to work on in the product? Or if retention is going to be a problem?” he says. “If [a start-up] doesn’t have this figured out now, I would rather invest once I know they have some processes in place.”

While the decision to invest isn’t solely about data, notes Sean—VCs are also going to be considering the problem your product is trying to solve, and whether the founders have got what it takes to go the distance—early-stage start-ups shouldn’t neglect it either, no matter how compelling their pitch. “If you're not able to tell part of that story, to show us the metrics, it's going to be a hurdle for us as we think about investing.”

Disorganized data could hinder investment

Sean cites the example of one company he believed was headed for unicorn status but lost out on investment because “their data wasn’t organized enough”.

“I understood they were waiting for the capital to hire the people who could put this all together, but, from our side, how can we trust that that's going to happen? And will that involve a lot of handholding on our side?” he says. “I still think that business is going to crush it, but I was in a position where it was killing the deal, because I didn’t have a way of selling it to the partnership without the data. “

That’s why founders must ensure they have solid tracking in place from day one. “Without knowing what's going on in your tool, you're kind of screwed. Build that dashboard as early as possible to track the raw table stakes stuff like signups, but also what features are being used and which aren’t.” says Sean.

“If I were founding a company, or if I was going out for a series A or, you know, even a C, I would want to have all that buttoned up.”