Demonstrating Traction to Investors 101

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Do you have a great business idea that could very well be the next Facebook, Google or Youtube? Or maybe you have already launched your company but things didn’t really turn up as great and as fast as you were hoping.

Regardless of the situation, you probably need (more) funding to ensure that all your work, sweat and tears will eventually become something great.

Despite the fact that funding isn’t always a necessity as early on as so many entrepreneurs think, the best part is that it ensures that everything can be executed not only quicker but also on a larger scale.

But prior to deciding what type of funding you need, you should find out what funding options are out there for you and what kind of information are Angel investors and Venture capital firms looking for before deciding to invest in a business.

So whether you’re a business owner or an aspiring entrepreneur, here are some tips that may help you in your journey to seek for investors.

What exactly is traction? You’ve probably heard a number of people talking about it but no one can explain the whole process in very few words and in layman’s terms.

According to Naval Ravikant, the CEO and a co-founder of AngelList who has invested in companies such as Twitter and Uber, “Traction is quantitative evidence of market demand“.

Traction is a term commonly referred to when talking to potential investors or fundraisers. Despite the fact that traction differs from one business to another, there are some general aspects that will help you determine whether your company has that type of traction that Angel Investors or partners are looking for.

Here are some general features of traction:

  • Profitability
  • Revenue
  • Userbase
  • Engagement
  • Partnerships
  • Customers
  • Traffic

All these aspects can become extremely useful when you are trying to determine whether your company has traction or not. However, given the main function of your business, each one of these aspects can prove more or less important. Moreover, some may prove to be irrelevant for your specific business.

For example, if you were to create a social network, the user base is the most important feature, while profitability falls in the background. While these are the most common indicators of traction, you should also take into account the degree of uniqueness that your company shows. Depending on how unique your business idea actually is, you could have different ways to perceive traction. In addition, your company’s traction should prove that the business model works and that customers accept and want to buy your products or services.

When talking about traction, we should also take into account the momentum. If you are able to demonstrate that your company is showing continuous growth while you’re applying the right type of traction, this can be one hell of an advantage that investors or partners will take into account. On the other hand, if your company is getting traction but the growth rate has started to slow down, you will have a hard time convincing investors to offer you the funding you so desperately need.

So what types of tractions were right for your business? Leave your thoughts and answers in the comment section below.

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