The Fund Pool Glossary: Growth & Market Metrics

A pitch deck is a collection of claims; metrics are the verification of those claims. For an early-stage investor, analytics provide the only objective view of a company's momentum, efficiency, and scale. Following our previous entries on Seed Round Valuation and Cap Table Mechanics, this entry defines the core metrics used to quantify business performance.

TAM, SAM, and SOM (Market Sizing)

The Definition: A tiered calculation of market opportunity. TAM (Total Addressable Market) is the 100% theoretical limit of the industry. SAM (Serviceable Addressable Market) is the portion of that market targeted by your specific products. SOM (Serviceable Obtainable Market) is the portion of the SAM you can realistically capture in the short term.
The Impact: These metrics establish the "ceiling" of the investment. If a founder presents a top-down percentage of a massive industry rather than a bottom-up calculation of their SOM, they lose credibility. Without a precise SOM, investors cannot judge the feasibility of your go-to-market strategy, often leading to a rejection based on a perceived lack of venture-scale potential.

CAC (Customer Acquisition Cost)

The Definition: The total cost associated with acquiring a new customer, calculated by dividing all sales and marketing expenses by the number of new customers acquired during a specific period.
The Impact: CAC measures the efficiency of your growth engine. It is not enough to grow; you must grow efficiently. An unmeasured or rising CAC indicates a business that will eventually exhaust its capital trying to buy a market it cannot afford to keep.

LTV (Lifetime Value)

The Definition: The predicted net profit attributed to the entire future relationship with a single customer. It is typically calculated as: Average Revenue Per Customer × Gross Margin % × Average Customer Lifespan. Investors typically look for an LTV to CAC ratio of 3:1 or higher as a sign of a healthy, scalable business.
The Impact: LTV demonstrates the long-term viability of your product-market fit. It tells the investor how much capital is worth deploying into the growth engine. If LTV is lower than or equal to CAC, the business loses money on every customer it acquires, making it an unbackable venture regardless of total revenue.

MRR and ARR (Recurring Revenue)

The Definition: MRR (Monthly Recurring Revenue) is the total predictable revenue generated by active subscriptions in a single month. ARR (Annual Recurring Revenue) is the annualized version of this figure.
The Impact: These are the primary indicators of momentum and product-market fit. Unlike one-time sales, recurring revenue proves that the product provides ongoing value. Founders who rely on project-based revenue instead of recurring models face higher scrutiny regarding long-term stability. Churn Rate — the percentage of customers lost in a given period — is the direct counterforce to MRR growth and will be covered in detail in next week's entry.

Burn Rate and Runway

The Definition: Burn Rate is the net amount of cash a company spends each month to stay in operation. Runway is the number of months the company can continue to operate before running out of cash, calculated by dividing current cash by monthly burn.
The Impact: These metrics define the company's lifespan. They tell an investor exactly how much time the team has to reach the next milestone or achieve profitability. Miscalculating burn rate leads to emergency bridge fundraises at highly unfavorable terms or total insolvency.

Next Week in the Glossary: Unit Economics and Margins — the per-customer profitability metrics that tell an investor whether your growth is actually worth anything