TL;DR

• Run your business on cash-truth and straightforward metrics
• Ditch LTV/CAC in favor of CAC payback
• GAAP is for reporting, not operating
• In many cases, napkin math beats complicated formulas

Most VCs rely on a handful of metrics to evaluate SaaS businesses. And for the most part, those metrics are closely tied to cash flow and simple enough to sketch out on a napkin.

The rest? Window dressing at best. Misleading at worst.

So, which metrics actually matter, and which are overrated?

To find out, we sat down with Ryno Blignaut, CFO & Operating Partner at Khosla Ventures. During our webinar, Metrics that Matter: How Silicon Valley VCs Look at Your Company, Ryno and Aleph CEO Albert Gozzi dug into the metrics that VCs care about, and how finance leaders can improve their metric selection and tracking.

Here are five key takeaways from the session:

1. Intellectual honesty beats pretty numbers

If a metric in your board deck makes you cringe, resist the urge to massage or bury it. VCs will see through that in a heartbeat. Your best move is to be honest about it and clearly explain your plan for improvement.

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Investors don’t expect all of your numbers to be pristine, but they do expect honesty. The more transparent you are, the more likely they are to lean in and help.

2. Ditch LTV/CAC in favor of CAC payback

Don’t get Craig Thompson started on this one. He and Ryno agree that LTV/CAC is, for all intents and purposes of a startup, a useless vanity metric. You don’t have enough customer data yet to know what your steady-state LTV is.

Better to focus on CAC payback instead—it’s impactful, easy to measure, and answers a cash question for investors: “when do we earn back the dollars we just spent?”

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While we’re at it, here are some other overrated metrics to avoid:

Bookings

Bookings can be helpful operationally, but be careful when using them for management reporting—they’re easy to game and often misused. A signed order does not always translate to recognized revenue.

Treat bookings as a pipeline signal rather than proof of financial performance. Also—whenever bookings come up in an investor meeting, be sure to pair it with ARR and revenue so investors can see the full picture.

Contracted ARR (CARR)

GTM teams love “contracted ARR” because it makes the top line look inevitable. Investors don’t.

What matters is how quickly and reliably that number turns into actual revenue. If there’s slippage, claw-backs, or implementation risk, say it—and don’t let inflated contracted ARR distract from the metrics that reflect how your business is actually doing.

Software capitalization

Capitalizing development costs might beef up your P&L, but it muddies the waters for your investors. Paying engineers to do R&D means cash is going out the door—whether it lives on your P&L or balance sheet doesn’t change that. Even public companies capitalize only a small fraction of their development costs.

3. Napkin math beats complicated formulas

If your metrics can’t be calculated on a napkin, they’re probably too complex. Overengineered models don’t impress investors, and they definitely don’t help your team move faster.

Ryno’s advice: boil it down to five numbers. That’s it. Just enough to keep everyone—sales, marketing, product, execs—aligned on what actually moves the needle.

4. Lean on contribution margin rather than gross profit

Investors want to get the most fire (return) out of the gas (capital) they pour on your business. The best way for them to project that is via contribution margin.

Gross profit is often too generous. It ignores real variable costs—payments, support, infrastructure, customer success, etc.—that directly scale with growth.

Contribution margin tells the real story: for the next $1M of revenue, how much cash actually drops to fund Opex? Think of it as the fuel-efficiency gauge for your business. It’s what investors want to know when they ask, “what will happen if I pour on more gas?”

Make contribution margin explicit in your P&L. Here’s a template to get you started:

5. Focus on cash in, cash out

If you’re a pure-play SaaS company, don’t let your management reporting stray too far from cash in versus cash out. Most of the time, EBITDA is a decent enough proxy for cash flow—and that’s what really matters.

SaaS businesses shouldn’t get too fixated on the balance sheet. It rarely drives the story. In some cases, it can even obscure it. Software capitalization is a prime example: shifting payroll to the balance sheet might make your P&L look leaner, but you’re still spending the money. All it does is blur the picture of what’s coming in and out.

That’s why your reporting should stay grounded in cash logic, not GAAP metrics. Leave GAAP for the accountants—operators need metrics that provide a pulse of the business.

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Plenty more where that came from

These are just a few snippets of a wide-ranging conversation between Ryno and Albert. Check out the full webinar replay for more on the nuances behind each metric and practical tips for improving your reporting.