Sample interview questions: How do you approach investing in startups with subscription-based business models?
Sample answer:
Evaluating Subscription-Based Business Models for Investment
When investing in startups with subscription-based business models, I adhere to a rigorous evaluation process that considers the following key factors:
MRR and Customer Acquisition Cost (CAC):
- I assess the startup’s monthly recurring revenue (MRR) and customer acquisition cost. A high MRR relative to CAC indicates a strong and sustainable revenue stream.
Customer Churn Rate:
- I analyze the startup’s customer churn rate, or the rate at which subscribers cancel their subscriptions. A low churn rate reflects a loyal customer base and a recurring revenue model that is less susceptible to attrition.
Average Revenue Per User (ARPU):
- I determine the average revenue generated per user, which provides insights into the value proposition and pricing strategy. A high ARPU suggests potential for revenue growth and scalability.
Lifetime Value (LTV) vs. CAC:
- I calculate the LTV of a subscriber, which represents the total revenue expected from a customer over their lifetime. I compare this to the CAC to assess the startup’s ability to generate a positive return on investment.
Market Size and Competition:
- I thoroughly resear… Read full answer