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Showing Traction To InvestorsPreparing Startups for a Brighter Future

March 14, 2014Janice FraserJason Fraser

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Martin Zwilling

http://www.alleywatch.com/2013/06/10-keys-to-startup-traction-that-investors-look-for/

@StartupPro

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10 things that demonstrate traction1. Documented business/product plan (Business Model

Canvas)

2. Some completed milestones

3. A well-rounded team

4. Qualified Advisors

5. Minimum product released and validating

6. Real Customers/Real Revenue

7. Registered IP

8. Letters of Intent or endorsements

9. Personal investment

10. Be a dedicated expert in your field (Know your stuff!)

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Brendan Baker

http://www.quora.com/Brendan-Baker/Posts/Startups-How-to-Communicate-Traction-to-Investors

@brendanbaker

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Traction = Strong Forward Momentum

demonstrated by

“quantified evidence of market demand for your product”

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8 things you can do to improve your traction story

& 2 things you should never do

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Each of these tips is about framing your story

If, when you frame your story properly it’s still not convincing,

then you have more work to do on the product.

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Tip 1: Compress your X-Axis

Company founding (Aug 2010)

Today

Some

Lots

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This looks slow.

Company founding (Aug 2010)

Today

Some

Lots

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Check that your start dateis accurate.

You want to demonstrate that growth happened quickly.

Did you start in 2010 and now you have 5000 users? (125 users/month)

Or did you start the company in 2010, but open to the public in late 2012 and now you have 5000 users? (333 users/month)

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The blue line shows growth from Launch.

Company founding (Aug 2010)

Today

Public Beta Launch(Dec 2012)

Today

Some

Lots

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That’s a lot more impressive.

Some

Lots

Public Beta Launch(Dec 2012)

Today

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Tip #2: Choose your X-Axis

You can use all kinds of numbers for the X-Axis, to show traction:

TimeProduct IterationsMarket ReleasesSales Cycles (academic terms, etc.)Etc.

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Iterations instead of time

1st release

Some

Lots

2nd release 3rd release

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Tip #3: Reduce Expectations

Provide proper context for your numbers:

Are you in a closed beta?

Have you generated lots of interest with no investment?

If numbers are low now, what compelling evidence do you have that they’ll go up quickly?

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Public Beta Launch(Dec 2012)

Today

Some

Lots

Tip #4: Choose your Y-Axis

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Public Beta Launch(Dec 2012)

Today

Some

Lots

Revenue

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Public Beta Launch(Dec 2012)

Today

Some

Lots

Profit

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Public Beta Launch(Dec 2012)

Today

Some

Lots

Engagement

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- Profitability- Revenue- Active users- Registered users- Engagement- Partnerships/clients- Traffic- Low CAC/High Lifetime Value (my own addition)

Y-Axis options, in order of persuasiveness:

Choose the one that shows your growth.

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Tip #5: Use Absolute and Growth numbers

Absolute: We have X (number) now.

Growth: We grew Y% per time period.

An absolute number with no (or a low) growth number is dead.

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We have 5000 now.

The growth rate is ______% per _______.

This tells a story and lets your investor imagine the future.

18 month

(absolute)

(growth)

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Tip #6: For b2b, tell a story of a customer

(NOT how much they love your product or how it changed their business.)

How much has usage grown? What’s the future potential?

(using numbers)

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Tip #7: Benchmark against a known competitor

This can put growth into perspective.

(Choose comparisons carefully.)

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Tip #8: Annotate a graphEasy way to demonstrate growth

Combine with tips 1 and 2 with this to create powerful graphs.

Annotation serves to compress the X-Axis by providing reference points.

Annotation allows you to keep the X-Axis as time, while still breaking it up into meaningful segments.

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0

250

500

750

1000

August September October November

Private Beta (web only)

Android& iOS

Web Launch

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Do Not:

Do not use testimonials.

Do not use press mentions.

Investors don’t care what people say about you.

NO ONE cares what the press says about you.

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Instead:

Name major clients.

Use statements of support from major industry groups.

Big name clients provide validation.

Gartner, Consumer Reports, etc.

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- Profitability- Revenue- Active users- Registered users- Engagement- Partnerships/clients- Traffic- Low CAC/High Lifetime Value

Which of your numbers are most likely to tell an effective growth story?

Prompt:

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- Profitability- Revenue- Active users- Registered users- Engagement- Partnerships/clients- Traffic- Low CAC/High Lifetime Value

Where could you get those numbers?

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Homework:

Use the Baker tips to improve your traction slide.

Use the Zwilling checklist to identify what else you need.

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Zwilling’s Checklist for Showing TractionDocumented business/product plan (Business Model Canvas)

Some completed milestones

A well-rounded team

Qualified Advisors

Minimum product released and validating

Real Customers/Real Revenue

Registered IP

Letters of Intent or endorsements

Personal investment

Be a dedicated expert in your field (Know your stuff!)

© 2014 Luxr Incorporated www.luxr.co

Baker’s Checklist for Showing TractionCompress your X-Axis

Choose your X-Axis (carefully).

Reduce expectations (by setting appropriate context).

Choose your Y-Axis.

Use Absolute and Growth numbers.

Tell a story of a customer (for B2B).

Benchmark against a known competitor.

Annotate a graph.

DO NOT use testimonials.

DO NOT use press mentions.