Early Stage Funding · Investments

How do you define traction?

Edvin Stokic Investor Relations at Pristine Advisers NYC

September 16th, 2016

I get a lot of investors in the Bay area talking about the importance of traction. However, not many of them go into details of what traction really means for an early stage venture. How would you define it in a clear way that we can all understand?

Rob G

September 16th, 2016

sales ($$) or volume of users + rate of user growth. 

Muamer Avdic

September 16th, 2016

Traction is demand for your product/service.  If you can show that there is demand + sales then you have traction that most investors will understand!  And of course, the higher the demand/sales, the higher the validity of your traction.  A lot of this will also depend on the type of company that you're dealing with since a company like facebook showed traction with the sheer amount of users/time spent on site by users to validate their traction and go on to raise investment money w little to no revenue. 

Best of luck!:)

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

September 16th, 2016

Traction is sales. The ability to demonstrate that customers will pluck down their cash to buy what you are selling.

Rod Abbamonte Co Founder at STARTREK / @startupHunter / @startupWay / @CoFounderFound / @GOcapital / @startupClub / @lastminute

September 17th, 2016

Usability and monetisation.  

Brendon Whateley Founder at Kugadi

September 17th, 2016

The bigger issue for investors is showing progress towards de-risking the business model. Traction is one of the most compelling examples of how much you have reduced the risks to the investor by showing that people are prepared to use or pay for what you are making.

In simple terms, traction, more or less in order that I'd find them to be compelling evidence in absence of other data:
  1. Number of Free Beta users.
  2. Number Paying Beta users.
  3. Number Paying customers.
  4. Total Revenue.
  5. Growth rate trend in the number of free customers.
  6. Growth rate trend in the number of paying customers.
  7. Growth rate trend in total revenues.
Of course, in isolation growth is not enough. My business selling $20 bills for $10 had phenomenal growth, but for some reason no investors would bite, given my unit economics...

Anonymous

September 17th, 2016

Getting sales at a discounted price per widget, getting mass PR for widget, getting hype, multiple rounds of funding, all of it is bullshit if the week after that the profit margin per widget and the amount of widgets sold doesn't pay the bills. Projections are also bullshit. Remember that a large amount of these investors, although they like the startup scene, started out themselves making door to door sales with beepers ( they still use the old school thought process of profit per piece method in the back of their minds, as they should; it is why they have this wealth to begin with).

Rod Abbamonte Co Founder at STARTREK / @startupHunter / @startupWay / @CoFounderFound / @GOcapital / @startupClub / @lastminute

September 18th, 2016

Take audience and transform in users.