Loading...
Answers
MenuWhen starting a social networking startup, what are great KPI analytics that would draw attention from investors to be interested in funding it?
As I'm moving forward with building a social networking startup, I'm very curious about what KPI's an Angel or VC would be interested in prior to investing money. I understand that Users, Retention Rate, Growth Rate, User Downloads, DAU, and MAU are great indicators, am I missing anything critical?
Also, what are some great KPI numbers that I should be aiming for to show good traction and retention?
Answers
Our product stalled for 4 years by getting this wrong and it wasn't until the founding CEO of Netflix showed me how to set proper KPIs that we finally started making gains on optimizing our product.
Based on your interest in angel investors, I assume this is an early stage startup and most social networks don't try to monetize very early. If you're not trying to drive ads, subscriptions or other revenue yet, your KPIs (key performance indicators) will primarily be:
- week-over-week growth rate
- engagement (frequency, recency, stickiness)
- retention
- referral rate
Y Combinator suggests that a 5-7% week over week growth rate is good, while 10% is very strong. If all of your growth is organic, any of these numbers would be interesting to most angels after about 6+ consecutive weeks, especially if you can explain how you have systematically driven those numbers up using data. If it's all paid acquisition, your cost per acquisition, engagement, and retention will be the numbers they focus on.
Engagement should be a factor of frequency, recency, and potentially, time spent on site. The level of engagement that you want would depend a lot on what kind of social network you are and how people are engaging. If you increase logins by forcing people to check messages that they ultimately won't find valuable, they'll quickly lose interest in your network. It's possible that the ideal engagement rate is determined by seeing what level of engagement results in the best retention and referral rates.
When you roll out monetization, you'll add new KPIs. What they are will depend on your business model. If you are ad-supported, some of your KPIs might be month-over-month growth of ad impressions, incremental improvement to click rate or your effective revenue per thousand impressions. If you are subscriber-supported, you will measure other metrics entirely.
It's important to know what the final, most important KPIs are. At my streaming music company, our most important metric was the average number of songs completed per user per month. We made the obvious observation that, if we got more people to turn on music in the first place, we would increase this number. We implemented our most popular channels as options on the homepage instead of making people navigate to find their favorite channel. Our activation of new users skyrocketed but nearly all of them selected a broad genre channel like Rock instead of the niche Shoegaze channel they would really love, and our engagement and retention plummeted. So, the metric we were trying to improve through our test did, in fact, improve, but the health of our business declined further down the funnel.
You gotta get these right. Let me know if you want to talk through your situation.
Good question. I've worked with many different startups that struggle with this same question and I sat on the advisory board of a (now defunct) social media startup that was focused on sharing photos of high school sports events that sadly never actually solved this exact question properly.
While I think that you have listed all of the relevant metrics that most financial analysts and investors use to analyze social networks like Facebook and Twitter above, I think that you are likely going about this process the wrong way.
You need to define:
1) What is the mission statement and purpose of your company?
and
2) How is your company going to generate revenue?
You need to define these two items on day 1, -- though in many cases they will change over time (Apple used to be a computer company -- now they primarily sell phones!). Once you've got both of these answers crystal clear, you can determine what metrics that you believe you should be measured against and what your definition of success would be. It will be different depending on the specific goals of your company. For example, I suspect that one of the early metrics for Instagram was the number of photos shared on the site per day or per month. The social media site that I was involved with never figured out the answer to #2 above -- and though they went through multiple rounds of funding, they were not able to succeed because they didn't have any real business model except "getting acquired". Ultimately, later stage investors balked at investing in a pre-revenue company that had a high valuation and no real business model.
You should create a "benchmark" of what you think your company's most important metric shouldpitchn 6 months or one year and then manage and measure to try and achieve that goal. Though it is early days, I would also create a financial metric that shows some kind of progress on the revenue front -- this is important because it shows that there is a real value to the service that someone (advertisers, users) is willing to pay for. Ultimately, all companies are valued based on the expectation of future profits, and other metrics, such as MAU, DAU, growth rate, etc. are really indicators that analysts and investors use to try and extrapolate what those future profits will be.
From there, you need to execute, execute, execute. You should be executing against your own plan and your own measure of success. If you do that successfully for a few months and have a good vision and demonstrated traction then you can go share your story with investors. Your last consideration in launching your business should be how it will look to potential investors; you should NOT be executing to merely get funded by a VC, you should be working to build a viable and self sustaining business in the long run. Far too many entrepreneurs brainwash themselves into thinking that "getting funded" is the ultimate goal -- and make "short term smart, long term stupid" decisions because of that thinking.
Finding investors to fund your company is like finding a marriage partner. You'll likely have to pitch to a lot of folks before you find the one that a) understands your vision b) believes you are the right person to execute over the long term and c) agrees with you on the valuation and terms that you are raising money at. If you have a compelling business model and demonstrated traction it makes parts a) and b) easier in your pitch with potential investors.
If you have more questions or want to discuss your specific situation, I'd happy to chat more about this over the phone. Please request a call below.
It's fantastic to see you progressing with your social networking startup! You're absolutely on the right track with the KPIs you've mentioned. Metrics like Users, Retention Rate, Growth Rate, User Downloads, DAU, and MAU are indeed crucial indicators that investors pay close attention to.
In addition to these, another important metric that investors often look at is Engagement Rate, which measures how actively users are interacting with your platform. Metrics related to user engagement such as comments, likes, shares, and time spent on the platform can provide valuable insights into the level of user involvement.
As for the numbers to aim for, it can vary depending on your specific market and target audience. However, generally speaking, showing consistent growth in these metrics, along with a healthy retention rate, is key to demonstrating traction and potential for long-term success.
Regarding your question about KPI analytics and traction, have you considered leveraging the expertise of a specialized development team? Cleveroad, for example, offers tailored solutions for social networking startups, providing not only technical expertise but also strategic guidance to help you achieve your goals - https://www.cleveroad.com/industries/social/. Exploring such partnerships could further enhance your chances of attracting investors. Best of luck with your venture!
Related Questions
-
Should I charge for a pilot project?
Generally speaking, Yes. I say this for a couple primary reasons. 1) If you do not place value in your product, why should the customer? And if you are not charging for it you are not placing value on it. 2) the customer will be more "invested" in the success of something that has cost them something. If it was free and it fails, "who cares"? if it cost them resources they may be more interested in making it work. There could be overriding factors, but this is where I start with a question of this nature.MF
-
What legal precautions can I take to make sure nobody steals my startup idea?
I've discussed ideas with hundreds of startups, I've been involved in about a dozen startups, my business is at $1M+ revenue. The bad news is, there is no good way to protect ideas. The good news is, in the vast majority of cases you don't really need to. If you're talking to people about your idea, you could ask them to sign an NDA ("Non Disclosure Agreement"), but NDAs are notoriously hard to enforce, and a lot of experienced startup people wouldn't sign them. For example, if you asked me to sign an NDA before we discussed your Idea, I'd tell you "thanks, but no thanks". This is probably the right place though to give the FriendDA an honorable mention: http://friendda.org/. Generally, I'd like to encourage you to share your Ideas freely. Even though telling people an idea is not completely without risk, generally the rewards from open discussions greatly outweigh the risks. Most startups fail because they build something nobody wants. Talking to people early, especially people who are the intended users/customers for your idea can be a great way to protect yourself from that risk, which is considerably higher than the risk of someone taking off with your idea. Another general note, is that while ideas matter, I would generally advise you to get into startup for which you can generate a lot of value beyond the idea. One indicator for a good match between a founder and a startup is the answer to the question: "why is that founder uniquely positioned to execute the idea well". The best way to protect yourself from competition is to build a product that other people would have a hard time building, even if they had 'the idea'. These are usually startups which contain lots of hard challenges on the way from the idea to the business, and if you can convincingly explain why you can probably solve those challenges while others would have a hard time, you're on the right path. If you have any further questions, I'd be happy to set up a call. Good luck.DK
-
What is the best way to write a cover letter to an early-stage startup?
Better than a cover letter is to actually proactively DO something to help them. It'll show them not only that you've researched them, but you're passionate about the startup and worth bringing on. A man got a job at Square early on for just making them a marketing video on his own (back before they had one). Since you're a web designer, design a stellar 1-pager that's targeting their message to a particular niche. Something they could use on social media or something. If they're like most startups, they're not interested in reading cover letters. They're interested in passionate individuals who can add value to the organization.AS
-
What's an alternative to equity based compensation that recruits, motivates and retains employees?
Before we dive into the equity,salary and such. Motivation and retention begins with the CEO. Ask yourself what is the culture of the company? If you don't know anything about culture then start with the basics: 1. Do you value employee opinions? Do you ask for others opinions? 2. Do you encourage people to listen to employee problems? Do you listen to what other people have to say? 3. Do you encourage others to come up with ideas and suggestion? 4. Can you sell your dream? 5. Can you build consensus? 6. Hire people for their strengths and fix their weaknesses 7. Don't assume shit, always ask 8. Treat your interns like employees and mentor them 9. Have a clear vision and be able to articulate it 10. Can you admit when you are wrong? VERY IMPORTANT So if you have a strong company culture this will help with new hires, motivate, and retain talent. The frosting on the cake is free food/snacks, happy hours, company paid healthcare benefits, etc.TP
-
How much equity should I give an engineer who I'm asking to join my company as a co-founder? (He'll be receiving a salary, too, and I'm self-funding)
You will find a lot of different views on equity split. I haven't found a silver bullet. My preference/experience is for: 1. Unequal shares because one person needs to be the ultimate decision maker (even if it's 1% difference). I have found that I have never had to use that card because we are always rational about this (and I think us being rational is driven because we don't want a person to always pull that card cause it's a shitty card to pull) 2. When it comes to how much equity, I like Paul Graham's approach best: if I started the business by myself, I would own 100% of the equity; if xxx joined me, he/she would increase my chances of success by 40% (40% is just an example) at this moment in time. Therefore, I should give him/her 40% of the company (http://paulgraham.com/equity.html) 3. In terms of range, it could go between (15-49%) depending on the level of skill. But anything less than 15%, I would personally not feel like a cofounder 4. Regarding salary and the fact that you will pay him/her, that's tricky but a simple way to think about it: If an outside investor were to invest the equivalent of a salary at this exact moment into the startup, what % of the company would they get? (this may lowball it if you think the valuation is high but then again if you think you could get a high valuation for a company with no MVP, then you should go raise money) One extra thing for you to noodle on: given you are not technical, I would make sure a friend you trust (and who's technical) help you evaluate the skill of your (potential) cofounder. It will help stay calibrated given you really like this person.MR
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.