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”Reading 3 ”minutes”

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. You can have unlimited number of appendix slides. What goes inside your appendix section depends heavily on your startup and your business modal.

Note: This is an advanced chart/metric to explain and work into your deck. In order to make sure that you understand this concept, make sure you have read these posts. If you haven’t I will strongly suggest for you to do so.

  • User engagement ratios (link)
  • Churn and retention rates (link)
  • CAC, LTV and business viability (link)
  • Burn rate and runway (link)
  • Monthly recurring revenue (link)

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What is ‘unit economics’?

When a startup pass through the early stage to growth stage, it gets harder and harder to get a simple breakdown of how the profit is made as you might have dozens of user cohorts, multiple different pricing, and many marketing channels with employees who are paid in wages and stock.

The “unit” in unit economics is the fundamental minimum piece of your business that you can measure to understand where your revenue comes from. It’s whatever best represents the exchange of value which drives your business.

Unit economics helps investors to reduce the complexity of the growing financial model and brings the attention back to one unit of your product (e.g. selling one software license, selling one book or even selling one annual plan).

Investors like to use unit economics as it also helps them to understand:

  • Break-even points (the point at which your revenue is the same as the cost to produce your product).
  • In the growth stage of a startup, it’s not unusual to forgo (small) profit today and reinvesting in the growth of the startup to get a bigger user base or higher profit in the future. Hence, the financial statements will definitely show a loss. To avoid misjudging a startup by just looking at the financial statements, investors look at the unit economics. Having positive unit economics metrics means having high potential and immediately turns your business into a viable investment opportunity.

as important as forecasts are, they are high level analyses that focus on the overall expectations of your business. Early stage companies need to analyze their business at a more granular level. Founders need to know how much value they can capture at a per unit level. This is unit economics.

Unit economics, such as CAC and LTV, explicitly determine the true value-capturing ability of your product. They help answer the question of whether or not each dollar you spend for that specific sale generates or will generate more than it costs: how much does it cost your business to generate $1 of value? Strong unit economics create value with each new customer and give your business a chance of success. Weak unit economics destroy value with each new customer and accelerate failure.

In some cases, founders raise capital without this understanding. Capital may be raised for marketing and acquiring users. If a business has poor unit economics (i.e. you spend $2 for $1 of value), with no plans for improvement, growing your customer base too quickly will destroy value. Companies may be able to buy growth, but not all growth is created equal.

At a high level, the point of unit economics is to understand how much profit a business makes before fixed costs so that one can estimate how much a business needs to sell in order to cover its fixed costs. Unit economics are thus a fundamental part of breakeven analysis.

for example Uber, the unit economics will be the relationship between the revenue from their service (e.g., one taxi ride) vs. the costs associated with offering and servicing the customer.

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Sathyvelu Kunashegaran

Sathyvelu Kunashegaran

I don’t know 99.9% of things out there, but the 0.1% that I do know — I am world class at it. My current 1% is entrepreneurship, product design (UI,UX) and non-fiction books.

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