The appendix slides are not part of your core pitch deck. It’s hugely beneficial to prepare them as it allows the founder (or presenter) to have clarity while answering questions. Also, investors like founders who come ready to answer the questions. We work with every client through the appendix slides just like how we work with the core slides. Note: You can have unlimited number of appendix slides. What goes inside your appendix section depends heavily on your startup and your business modal.
If you ask me to pick the top 3 metrics that VCs care about, user engagement ratios are one of them. They give the investors a good indication of the overall health of your startup.
Why are user engagement ratios important?
Let’s say you have an app in the app store. You might have a huge amount of initial downloads (say 1m+ downloads) due to an initial celebrity endorsement (say, you were featured in the Kardashians’ snap story). You probably used the number of downloads as a hook to get the investor interested to meet you.
However, having a huge number of downloads doesn’t mean your startup is actually healthy.
Healthy startups have users who are actively interacting with the app/product on a regular basis. If you have a low MAU (say, 20k active users per month out of 1m+ downloads), that means your startup is actually failing despite the initial push from the launch marketing. We call this a leak in the user activation and retention.
On the other hand, if you have only 100k+ downloads with 90k+ MAU, that means you are healthy. This shows that if the investors give you their money and you spend more on marketing, you will be able to grow really fast (i.e. adding fuel to the fire).
The user engagement metrics that investors care about
If there’s one number every founder should always know, it’s the company’s growth rate. That’s the measure of a start-up. If you don’t know that number, you don’t even know if you’re doing well or badly.Paul Graham, Founder of Y-Combinator
When it comes to measuring your engagement metrics, it’s actually up to you as the founder to figure out which one matters most to you. But, investors typically look for certain metrics across the startups that they are meeting as it allows them to compare you to some other startup in the same space.
When I work on this with my clients, I start with understanding what is considered user engagement in the context of the startup.
This normally goes hand in hand with your value proposition. Anything that indicates accurately that the users are utilising your product to get the value is considered the best way to measure it. For example:
- If you are building an Instagram like app: your user engagement should be related to photos shared/taken within the app. You also need to track the users who did it repetitively compared to just the first time. If they do it once and never did the same again, then you have a huge leak.
- If you are a business invoicing app: You should measure the amount of invoices generated on your platform, or the amount of invoices paid through your app compared to how many businesses have registered with your platform.
- If you operate a marketplace: you will measuring the amount of transactions through your platform. This can be the total volume of transactions or number of orders placed per month/week/day.
- If you are building an AI powered asset management service, then it should be the amount capital managed by or deployed by the platform.
- If you are building an Enterprise SaaS, typically you will track the amount of active licenses on a weekly or monthly time period.
- If you are an IOT startup, you will be measuring the volume of smart-device data processed.
Based on examples above, it’s apparent that user engagement metrics differ from startup to startup. So, if you are measuring some data that is not included in the list here, but you believe that it’s a good measurement of your engagement, go ahead and add it to your deck.
Before going through the list, there are few assumptions that you need to make and formalise. This assumptions will stay consistent through out the measurement of your engagement metrics through out your deck.
- Who are considered as users – Lets take Netflix as an example. You can have users logged in and watching at the same time, but the amount of paying user is only one (single account with five users). So, it’s misleading to say you have five users when in reality, you have one. So, make sure you define who is a user before you start the process.
- What are considered as significant actions within your platform: Most startups will track the logged in users only. But, you can also track other metrics that shows that your users are engaged with your platform. A good example is time spent on the platform.
- What time frame are you using: Investors can’t figure out much about your growth by looking at a static number, they rather see a trend or month-on-month comparison as it shows your growth trajectory. You can use daily, weekly, monthly or quarterly. Just make sure that you are consistent through out your deck. It helps you to tell the story of your startup better.
Number of app downloads/new users per month
This is the easiest to measure. The bigger the number the better it is. I like to show the downloads increasing month on month compared to just the total number. If you have had multiple versions of your app (or multiple pivots), this graph can be used to tell the story of how your users reacted to your releases.
Tools to use: Play Store and App Store reports, Any analytics platform (Google analytics, Mixpanel, etc)
Note: Most investors consider downloads as a vanity metric. Investors want to see engagement, ideally expressed as cohort retention on metrics that matter for that business — for example, DAU (daily active users), MAU (monthly active users), photos shared, photos viewed, and so on. (Source: a16z)
Number of sessions/ total time spend on your platform per user
I have seen startups that have a slow-growing user base with users who are highly engaged. In this case, just measuring the number of users, downloads, or logged in users is not the best representation of actual growth. A way to go around it is to measure the number of sessions per user or total time spend on the app per user.
When you are using these metrics, avoid averages and take medians over means, as they are less sensitive to outliers and give more robust statistics. You can also show a comparison of churned vs returned users to show greater engagement with your users.
Tools to use: You can use any analytics platform. Use a good heat mapping or screen recording software to gauge the user’s experience as they use your app.
Monthly active users (MAU), Weekly active users (WAU) or Daily active users (DAU)
The best thing to measure the growth rate of is revenue. The next best, for start-ups that aren’t charging initially, is active users. That’s a reasonable proxy for revenue growth because whenever the start-up does start trying to make money, their revenues will probably be a constant multiple of active users.Paul Graham, Y – Combinator
DAU is the number of unique users who engage with your product in a 24-hour window. MAU is the number of unique users who engage with your product over a 30-day window (usually a rolling 30 days).
A high MAU indicates that you are doing things right for your users. It gives the investors a simple way to access if your users are using your app and you have an experience that users are addicted to.
The key to make sure that your MAU or DAU doesn’t become a vanity metric, you must make sure that you have a good definition of what you consider as an active user. Is “user signed” in enough to define a user as “active”? Perhaps its better to to measure a more valuable action like “update profile”, “invite collaborator”, “share content” or “upload a picture”. Some charts don’t even define what that activity is, while others include inadvertent activity — such as having a high proportion of first-time users or accidental one-time users. So, make sure you add a definition along side your chart on how you define ‘active’.
Stickiness Ratio: DAU/MAU Ratio
“The metrics we start with are total active users (monthly/weekly/daily) it’s growth, alongside any ratios like DAU/MAU or DAU/WAU. These help us understand how frequently active people are in using the products.”Josh Elman, Partner at Greylock Partners
By comparing your DAU to your MAU, you will be able to measure your stickiness. It provides insight into the number of monthly active users who engage with your product in a day. A DAU/MAU ratio of 60% would mean that the average user of your app is using it 18 out of 30 days that month.
A variation of this metric is to swap MAU with the total number of unique weekly active users (WAU). This gives you the DAU/WAU Ratio.
Increasing the ‘stickiness’ of your app means transitioning users who use the app a few times a month into those who use an app multiple times per month. This can be done by improving the in-app experience, reducing bugs, offering new features, or by incentivising users for using the app continuously throughout the month.
Note: When you include DAU, MAU and stickiness ration within your appendix or core pitch deck, you will notice few common patterns in the trend of your charts:
- It’s normal to have a dip in the MAU after launch as it takes a few months for the MAU to stabilise. Based on my experience, it takes 3 to 6 months for MAU to normalise after a big launch.
- Over time, MAU figures will change depending on the rate of acquisition of new users, retention rates of existing users, and the reactivation of lapsed users. So, if you have a sudden spike or change within your charts, do know what were the reasons behind it. I will normally include it within the presenter notes and the reading deck.
- A standard DAU/MAU for a good startup will be around 20% or 0.2. It’s very unusual to see anything more than 50%. As far as I know, only Whatsapp had an extremely high ratio at 70% making it worth a $19bil acquisition.
- When your investors ask you about why there’s a bump or spike in any of the charts, do know that the investors are also accessing your ability to market your product. Spikes that came from PR or paid marketing is considered inferior considered to spikes that originated from organic exposure or referral traffic.