"What is Your MRR?" and Why Founders Hate that Question

As a startup founder, you may think that your innovative idea and impressive traction are enough to secure a fundraising round. However, as crass as it may sound, from an investor's standpoint, nothing matters more than your current Monthly Recurring Revenue (MRR). In this blog post, we'll dive deep into what MRR is and why it's critical for startup fundraising.

MRR is a measure of the predictable revenue that a startup generates each month from paying customers. In simple terms, it’s the total revenue a startup expects to receive each month from a client base made up of users who make regular payments for the product or service. To achieve sustainable growth, startups need to focus on generating enough MRR to cover their expenses and create profits.

For software companies, having a high MRR indicates scalability potential, which investors are keen to see. If you can demonstrate that you sell a scalable product at a margin of over 75%, you’re on the right track. The MRR number not only signifies revenue you can rely on but also represents a future cash base that is scalable over time and can be built upon. With time, as your customer base continues to grow, your MRR will build, representing a more significant valuation of your business.

Once you establish a customer base and consistently collect revenue, you have an opportunity to compound your company's value by reinvesting in the business. Upselling or expanding the MRR factor for a fraction of the cost to acquire a new customer is a great way of compounding company value. By doing so, you demonstrate a willingness to innovate your product, which is an essential aspect of scaling your business.

MRR from multiple customers signals product-market fit, which increases your chances of getting more clients within that ideal customer profile. It is evidence that the market values your product at the same price point and sends a signal to investors that you have that ideal product and market alignment. This, therefore, provides evidence to enhance your sales and marketing efforts, knowing that you already have a solid customer base.

In conclusion, while there are many important aspects of a startup, MRR is the most critical aspect of fundraising, especially for software companies seeking to scale. A high current MRR signals revenue that is dependable and a future cash base that can scale over time. Demonstrating that you have established product-market fit is vital, and investors will use the MRR value to assess the potential for growth and scalability. Therefore, as a startup founder, never shy away from discussing MRR with investors as it could mean the difference between securing funding or not.