Securing seed money from angel investors and VCs can be extremely difficult and can take far longer than many entrepreneurs might believe. However, failure to raise early funding can potentially be deadly to a startup. Of the startups that fail each year, 29% fail as a result of running out of capital.
What does it take to raise seed funding? While there are many things that can make your startup more attractive to investors, there is one undeniable trait that is possessed by every startup that is able to raise major capital during the seed stage – traction.
What Does Startup Traction Mean?
In general, traction means momentum. For pre-investment startups, it refers to the level of progress you have made on your own, before raising funding. The best measure of traction is profit, followed by revenue. Startups that have already both validated their idea and proven that clients are willing to pay for their solution have a major advantage over those that are still in the concept stage.
However, sales aren’t the only metric that a startup can use to prove traction when raising seed money. For example, when Facebook raised its first $500,000 from Peter Theil, it was not yet earning revenue from its members. However, it was quickly spreading throughout colleges around the country, and it had high retention and a level of stickiness that other startups couldn’t even come close to.
Besides sales, there are several other metrics you can use to prove traction, including:
- User acquisition: Showing that you can successfully acquire customers or users at a low cost can be highly impressive to investors. Although you may not have successfully converted them into clients, just showing that your market wants to use your product can be enough to get an investor interested.
- Usage: It’s not just how many people that are using your product, it’s also about how they are using it. Tech startups, for example, can track user retention, stickiness, average session time, and even screen views per session. These metrics can be used to validate your startup and prove it’s potential.
- Ratings & Reviews: After users use your product, what are they saying about it? Showcasing how your product helped solve the problems of real consumers is another great proof of concept. Case studies, especially, are a good way to showcase why your product or service is necessary to the market.
How much seed money can you raise with the right traction? Our partners at ThinkLions recently put together an awesome infographic that details the amount of seed money that was raised from 15 of today’s fastest-growing startups.