What is the role of customer acquisition costs in evaluating startups?

In evaluating startups, customer acquisition costs (CAC) play a critical role in understanding how effectively a company can grow and expand its market presence. When CAC is low relative to the value a customer brings over their lifetime (often referred to as customer lifetime value, or CLV), it indicates that the startup is using its resources efficiently to gain new customers. This efficiency can signal strong market expansion opportunities, as it suggests that the company can scale up its operations and acquire more customers without a proportional increase in costs.

Furthermore, understanding CAC helps investors assess the potential return on investment and the sustainability of the startup's growth strategy. If customer acquisition costs are manageable, it typically points to a favorable market position and the potential for the startup to capture increased market share. Thus, option B emphasizes the strategic importance of customer acquisition costs in predicting how well a startup can expand its reach and capitalize on market opportunities.