COM3: The One Metric Every Founder and Investor Focus On
Originally a thread on X/Twitter:
1/12: Most #startups need years of growth before they turn profitable. Some consume LOTS of cash. As a result, I suggest every Investor and Founder obsess about COM3 — Cash Out Minus 3 Months. This might be the most important metric to care about. A few thoughts on COM3:
2/12: COM3 stands for “Cash Out Minus 3 Months” and it’s a critical moment in every Startup’s journey because it’s when they typically begin their fundraising process. Remember: Startups die when they run out of cash, not when they run out of ideas, so cash is life.
3/12: Capital flows into attractive businesses, so when investing in a Startup it’s important to know how your money will be used. One way of building comfort around the pace of learning/de-risking is to stare at what the Startup is likely to look like at the COM3 date.
4/12: Traction matters. Proving out critical assumptions matters. Customer/Brand permission to expand matters. The quality of the product/service/solution matters. The key is believing that the COM3 business will be significantly better than the now business.
5/12: A good rule of thumb is that a business will be attractive to Investors if it’s growing by 2X+ annually while proving out critical business drivers. Every Startup’s “everything goes right scenario” can pass this test but how often does everything go right?
6/12: The “things go OK” or “things don’t go well at all” scenarios are what typically play out in the real world. Founders are only investible if they have faith and confidence in their plans but unfortunately they’re statistically wrong.
7/12: If “things don’t go well at all”, existing investors can infuse capital into the business or let it fail. Infusing capital should happen when there’s belief that the new capital will create an attractive COM3 future state or give it time to execute a sales process.
8/12: The options are much more varied if “things go OK”. If the Startup still passes the 2X+ growth test with the critical business drivers mostly in-line with expectations then it should be fundable. But if it falls short then existing Investors might have to step up.
9/12: This is a major reason why the COM3 date and COM3 business profile matters. Investing in a plan that only creates an attractive COM3 business if everything goes right is risky. Having cushion in the plan is comforting and in most cases necessary.
10/12: The COM3 date and profile is also important to understand when a Startup wants to increase burn. Investing in marketing and talent are both important, but timing might not be right if these investments don’t create a more attractive COM3 business.
11/12: Building a great business requires making long term investments in product, infrastructure and experience, but Startups don’t always have the luxury of making these investments when they’d like. The future state only matters if you have enough cash to get there.
12/12: TL;DR: Spending time understanding a Startup’s COM3 profile allows Founders and Investors to anchor critical decisions and frame investment tradeoffs. Every business I work with constantly goes through the COM3 drill but hopefully they’ve found it useful!