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LC032: What is traction?


launchpeer - July 10, 2018 - 0 comments

Today’s question:

Today’s question comes from Colin. I’ve been working on a mobile app that is out soon. I started with an MVP to gain traction because I’ve heard it helps with funding. However, I don’t even know where to look for funding. How can I find people who would invest to make the full version of our product and give us some runway?

Jake’s answer:

To be able to launch at the right time is a luxury. Most of the time you have to build a product and launch when it’s ready. Even if you have things planned out, you have to be prepared for things to potentially go bad in the beginning. Frame your startup success around what you and your team are doing each day to move the needle forward. You can’t control the external factors that may impact your business, so setup meaningful metrics that focus on what your team is doing to keep moving the startup forward.

There are two ways to measure traction: 1) external metrics: how many customers do we have, what are our sales and revenue for the month, etc. 2) team traction: are you doing the things you should be doing everyday to build the business you want to build. Are you reaching out to investors, building pitch decks, etc?

Gaining Traction + Investors

There are many ways that investors measure traction. Some look at how many customers you have, some look at MMR, etc. Basically, investors want to see that you are on the upward swing. If the ball is moving forward – you’ve built the MVP, you are attending events, you’re gaining customers, etc. That’s what investors want to see and that’s when you should start seeking funding.

If you haven’t seen it, you should check out the show Silicon Valley on HBO. There’s a scene where they talk about investors wanting to invest based on potential because it can be worth more than actual customers when you’re just starting out. If you’re going to raise money, do it when you’re on an upward trajectory, not when you need the money. Many times you won’t be able to get the money when you need it because when you need it the bank will see it as too much of a risk.

Too many people complicate raising money. Venture capitalists are just like banks. They are more likely to provide funding when you don’t need the money than when you need it to stay afloat.

Startup founders who’ve raised money in the past have a better chance of raising money again for another startup. Think of venture capital of how you thought about calculus in high school: I don’t know how the numbers work, but I know when this number is next to this number it makes sense.

With $300,000 for a seed round you’ll be able to get a lot done and continue to gain traction and prove out your startup concept.

Too many people complicate raising money. Venture capitalists are just like banks. They are more likely to provide funding when you don't need the money than when you need it to stay afloat. Click To Tweet

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