In analyzing potential investments, it’s important to understand their business model and how well it meets the venture investors’ requirements. 

The business model consists of unit and customer acquisition economics as well as market and business economics.

Unit economics is the cost to provide a product that drives gross margin.  

This determines how much revenue is left to cover the business expenses.  

In general, 40% gross margin should be the floor.

Customer acquisition economics is the cost of acquiring a customer which drives scalability.  

This determines how much you have to spend to grow sales.

In general, your cost of customer acquisition should be ⅓ or less than your average customer revenue.

Market economics is the cost of penetrating a market which will drive fundraising requirements.  

This determines how much funding you have to raise to capture a portion of the market. 

You must show a growth rate of at least 50% year over year to continue raising funding. 

Business economics is the cost of running the business which drives profitability.

This determines how soon you can achieve cash flow positive and no longer have to raise funding to stay alive.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.