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Traction is an elusive term thrown around by every VC when discussing interesting ventures to invest in. As an entrepreneur looking for funds finding investors is really about understanding which investors you should be talking to and what you need to have to show them. Using lean startup principles build out your idea with more efficiency, less waste and better results. Understand what investors want to invest in, and prioritize your efforts. Update Aug 21 2014 for the TechFoundry Accelerator program
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FOUR TRACTION POINTS THAT INTEREST INVESTORS
MILESTONES OF FUNDING NEW VENTURES
By Kelly Schwedlandkellys@elevateventures.com
Prepared for Tech Foundry Accelerator Fall 2014
FOUR TRACTION POINTS
1. Idea2. Product3. Business model4. Expansion
A STARTUP IS A TEMPORARY ORGANIZATION DESIGNED TO SEARCH
FOR A REPEATABLE AND SCALABLE BUSINESS MODEL
INVESTMENT READINESS LEVEL
Mkt Size/Competitive analysis
Complete first-pass canvas
Problem/Solution Validation
Low Fidelity MVP Experiments
Validate Product/Market fit
Validate right side of canvas
Prototype High-Fidelity MVP
Validate left-side of canvas
Validate metrics that matter
Friends and Family
Angel investors
Venture Capital
None
$1B+ Market? Scalable Solution? Recurring Revenue?Past Successes? Full team? (Hipster, Hacker, Hustler)Traction?
Investment Interest Level
DREW HOUSTON, CEO DROPBOX
DEVELOPING YOUR IDEA
How do I get funding at this stage?
Do it yourself (and learn.)
SWEAT EQUITY
DEVELOPING YOUR IDEA
Nothing beats a good conversation.
GET OUT AND TALK TO POTENTIAL CUSTOMERS
DEVELOPING YOUR IDEALean Startup Principle:
Examples: Lean Startup Challenges, Startup Weekends, Launchrock, Mock ups, WIX, Code Training, Hackathons, etc.
USE FREE/CHEAP RESOURCES AND TEST
DEVELOPING YOUR IDEAGoal:
VALIDATE ASSUMPTIONS -FIND POTENTIAL CUSTOMERS
DEVELOPING YOUR IDEA
What does traction look like?
Examples: 100 – 1000 possible users/emails, 10-15 potential customers, 2-3 letters of intent, 1 enterprise client MOU
COMMITMENTS
CREATING YOUR PRODUCT
How do I fund my prototype?
Get creative. Leverage your network. Reach out to friends, family, customers, Kickstarter, Indiegogo, and similar sources.
Tell your story. Make a little go a long way.
ASK THOSE YOU KNOW
CREATING YOUR PRODUCTEssentials Actions:
BUILD A TEAMInclude a hipster, a hacker and a hustler;
In other words, every good team needs a designer, a developer and a business person.
CREATING YOUR PRODUCT
Lean Startup Principle:
• Build an MVP of MVP (Minimum Viable Product of Most Valuable Piece)
• Use API’s and other existing resources when possible
VALIDATED LEARNING
CREATING YOUR PRODUCT
GOAL:
• Paying customers• Product usage
VALIDATE PRODUCTREAL CUSTOMERS
CREATING YOUR PRODUCT
What does traction look like?
Examples: 10,000 downloads, 1000 daily active users, 100+ paying customers, 1 paying enterprise client with 100+ seats ($3K - $5K/month), etc.
PROOF OF VALUE TO CUSTOMERS
PERFECTING YOUR BUSINESS MODEL
How do I fund this thing?
ANGELSPrepare your 10 point pitch and share your traction with angel investors, networks, funds, Angel.co, etc.
You Need to Get Here!Product/Market Fit: LTV/3 >= CAC
You Are Here
You’ve only just begun
PERFECTING YOUR BUSINESS MODEL
PERFECTING YOUR BUSINESS MODELEssentials Actions:
Acquisition Activation Retention Referral Revenue.CONVERSION METRICS
PERFECTING YOUR BUSINESS MODEL
Lean Startup Principle:
Measure progress and prioritize work.
INNOVATION ACCOUTING
PERFECTING YOUR BUSINESS MODELGOAL:
This equals successful monetization
REPLICABLE / SCALABLEBUSINESS MODEL
PERFECTING YOUR BUSINESS MODEL
What does traction look like?
*cost of acquisition is less than 3x lifetime value; $1 in, $3 out
• Enterprise: 1000 seats @ $10/seat/mo., • Big Enterprise: 2 pilot contracts and some $• Social: 100,000 downloads/signups• Marketplace: $50,000 revenue/mo. • E-Commerce: $50,000 revenue/mo.
CAC < 3X LTV
EXPANSION OF YOUR PRODUCT
How do I fund this thing?
CASHFLOW? ORVENTURE CAPITAL?
Meet with a dozen venture capital firms to find fit and funding for growth.
EXPANSION OF YOUR PRODUCT
Essentials actions:
Execution to metrics, revenue, profits,team growth, key frustration process improvement and acquire niche companies.
CONSISTENT GROWTH
EXPANSION OF YOUR PRODUCT
Lean Startup:
Build, measure and learn
BML
EXPANSION OF YOUR PRODUCT
GOAL:
What does the door look like: Buyout or IPO?
INVESTOR EXIT
EXPANSION OF YOUR PRODUCT
What does traction look like?
Consistently driving customer acquisition and revenue as expected. Finding new avenues for revenue growth.
ONGOING ROLLOUT
EXPANSION OF YOUR PRODUCTNext steps:
Meet with investment bankers and M&A specialists
PREPARE TO PITCH
QUESTIONS?
START HERE. GO FURTHER.
WWW.ELEVATEVENTURES.COM
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