The Shape of Traction (Part II: How Much Traction Do I Need to Raise a Round of Financing?)

A couple weeks ago, my partner Rob penned a blog post about the “shape of traction” which really resonated with a number of folks.  The quick summary is that the shape of a startup’s traction (with time/product-quality on the x axis and traction on the y axis) and isn’t at all a linear path.  Rather, when true product-market fit (PMF) happens, it’s an accelerating curve… and a very steep one at that!  It will become extremely apparent to entrepreneurs (and investors) when it’s happening, so that if you have to ask where you are on the curve, it’s likely a signal that the startup isn’t on the right trajectory.  Go read his post here.

The resulting question which my partners and I often hear in this context (and was asked for in the comments) is then:  “How much traction do I need to raise a round of financing?”  What are the actual numerical metrics which we need to demonstrate?  The idea is that once you know the magic number(s), all a company has to do is work backward to accomplish that target goal.  This rationale sounds rational, but the challenge with this logical goal-centric approach to metrics is that it’s based on the flawed assumption that the absolute scale of a startup is paramount when relative growth is often more important.

In other words, there are three important points about the shape of traction:

  1. Contour of the traction curve matters more than the absolute y-axis metric.
  2. Ability to extrapolate is key.
  3. Traction is graded on a curve, just like in high school.

First, the contour.  To illustrate with a simple example, take Startup A which takes five years to reach $200K in monthly revenue and compare it to Startup B which took one year to reach $100K in monthly revenue.  On absolute terms, Startup A is twice as large.  But Startup B is growing faster and likely that much more attractive for a venture investor at the Series A stage.shapeoftractionThe reason that the above is true is that investors build mental models about the ability of a company to continue with the same level traction moving forward.  And therefore, many questions in evaluating a company are often diligencing if the progress made to date was repeatable, sustainable, and extensible.  The idea is to ensure that there isn’t a natural ceiling approaching because a founder merely used brute force to demonstrate progress, but rather that the market is pulling current product (including all of its flaws) forward.

The last main point is that traction is graded on a curve.  How much was the startup able to accomplish given the resources that the company possessed to date?  At the extreme end, if the company started as a side project and has been starved of attention, then it will be viewed differently than a company which raised a significant (pre-)seed round and hired a senior team to execute.  Again, a VC investor is trying to suss out if the market is inherently pulling the success forward or if the team is merely pushing it.  Eventually, even with a supremely exceptional team, the muscle runs out of energy without tailwinds of the market.

The takeaways for entrepreneurs given the perspective that VC investors have on the shape of traction:

  1. The optimal approach to seeking product-market fit is for startups to initiate (and subsequently stop) a series of related experiments (so learnings from each one inform the next) until you find yourself on one with a very steep curve.  The aim is to find a traction curve which is naturally steep, not push the existing curve upwards.  A straight-line logical approach to won’t yield success as often as an iterative one. shapeoftractionapproach
  2. When positioning the company investors, tell a story about how the market is pulling you in a direction, and the company to date has been able to succeed with relatively little resources… with even more capital, the natural traction will continue.

The easiest to way to convince investors of traction is if you’re actually convinced of it yourself, which probably means you’re actually on the PMF curve.  The right question to be asking then isn’t “How much traction do I need to raise a round?” but rather “how can I quickly iterate faster to find product-market fit?”

David Beisel

David Beisel is a co-founder and Partner at NextView Ventures. He has been focused on early stage Internet startups his entire career, both as an entrepreneur and venture capitalist. As an investor in the digital media space, David was most recently a Vice President at Venrock and previously a Principal at Masthead Venture Partners. Prior to becoming a venture capitalist, David co-founded Sombasa Media, an e-mail marketing company best known for its flagship product BargainDog. Sombasa was successfully acquired by where David served as Vice President of Marketing. David holds an MBA from the Stanford Graduate School of Business and an AB in Economics, magna cum laude and Phi Beta Kappa, from Duke University. He also founded and leads the Boston Innovators Group, an organization which holds quarterly entrepreneur events drawing a thousand attendees.

2 responses to “The Shape of Traction (Part II: How Much Traction Do I Need to Raise a Round of Financing?)”

  1. Ben Wiener says:

    Great post – one typo at end: “The easiest to way to convince investors “

  2. Jordan Thaeler says:

    I think a lot of founders are looking for more absolute terms. What I often say is that by the time you can raise venture, you don’t the money. Typically it’s bootstrapping to $100K MRR, growing 400% YoY. Since it’s organic growth, you’re most assuredly profitable, and banks will give you revolvers on cash. Unless you think you’re going to be a $B company in <5 years, taking VC is setting yourself up for disaster. Eventually engineering founders will get more financially savvy, and VCs will need to start taking risk again.

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