Making Sense of Revenue Metrics for Fundraising
How to navigate the complexities of mixed revenue models in your next fundraise
DEAR STAGE 2: I’m a founder getting ready to fundraise and want to get a sense of what investors are looking for in reporting. We have businesses on both monthly and annual contracts and about 25% of our monthly revenue comes from transaction fees. We manage the business on a cash basis, but I’m starting to get questions about our contracted and live ARR. What’s the best way for me to report on our revenue during the fundraise? ~Fundraising Founder
DEAR FUNDRAISING FOUNDER: Investors love clarity and consistency, and when it comes to revenue reporting, the key is making sure you’re presenting a clear, apples-to-apples view of your business’s performance. Given your mix of contract structures and transactional revenue, let's break down the best way to approach this.
Key Revenue Definitions
CARR (Contracted Annualized Recurring Revenue): This includes all revenue under contract—whether the customer has gone live or not.
ARR (Annualized Recurring Revenue): The annualized value of your live recurring subscription revenue. Live means any onboarding/implementation is complete and customers are using the software - it should be a subset of CARR.
Revenue (GAAP vs. Cash): Since you’re managing on a cash basis, keep in mind that some investors will want to understand the accrual-based (GAAP) view as well. GAAP revenue recognizes revenue when it's earned, not just when it's received.
RPO (Remaining Performance Obligations): This is the total value of contracted revenue that hasn’t been recognized yet. If you are selling multi-year contracts, this is an important metric to measure.
Tricky Parts of Your Revenue
Transaction-Based Revenue & Usage-Based Billing: Transactional revenue can be unpredictable, which is why most investors don’t consider it part of ARR. That said, if your transaction revenue has a consistent pattern, you can highlight it separately. A common approach is to take a trailing three-month average and annualize it (multiply by four) to smooth out month-to-month variability or seasonality. If a meaningful portion of your transaction revenue is tied to customers on long-term contracts, consider breaking it out as a separate metric.
Recurring Services Revenue: Some companies include recurring services in ARR, but tread carefully and be explicit about what you are including. Investors will want to understand if services revenue is scalable, whether it renews at similar rates to your software revenue, and the margin profile.
POCs (Proof of Concepts & Pilots): Tempting as it may be, avoid including POCs in your ARR. Investors discount these heavily since conversion from POC to full contract isn’t guaranteed. If you run a structured POC program (e.g., 80% convert to annual contracts), share that conversion data instead.
Presenting This in Fundraising
Be Clear About Your Revenue Mix: Investors appreciate transparency. If you have multiple revenue streams, break them out:
Subscription ARR: $X
Transaction Revenue: $Y (calculated as trailing 3-month average * 4)
Services Revenue: $Z
Show Trends, Not Just a Snapshot: Instead of just reporting a single ARR number, show how your ARR, CARR, and transactional revenue have trended over the past 6–12 months.
Be Ready to Explain Seasonality: If you have seasonal swings in transaction revenue, highlight them proactively. Investors don’t like surprises, and explaining seasonality upfront builds trust.
At the end of the day, investors want to understand the health and predictability of your revenue. If your business has complexity in its revenue model, that’s okay—just be clear in how you present it.
Until next week!