Traction is by far the most important signal for startup investors. That may seem obvious. But when I started out, I was more excited about investing in breakthrough technology. I often overlooked a company’s traction when I made my investment decision.
But really, there’s nothing more important than progress. How much have the founders done so far? If they haven’t done anything and are waiting to close their first round of funding, that’s an instant no from me.
I like to see founders that do a lot with a little. They either invest their own money, time or both and get things going immediately. Those are the type of founders you want to back.
I also want to see ongoing progress in the startups I invest in. Naturally, the best form of traction is usually revenue. But there are other metrics that are good indicators of success too. For social media startups, for example, you can track active users. Whatever the key metric for the business is, make sure the companies you invest in have made serious progress towards it.
Of course, it’s OK to invest in a business without much traction occasionally. Sometimes you have to take long shots on opportunities with massive potential. But even if they don’t have much revenue yet, there’s always a way to judge how much progress has been made. Look at the software they’re building. Ask to see their internal dashboards and reporting. Focus on the product and how much work they’ve put into it.
I’d say that 90% of my best investments all had serious traction when I invested — like FabFitFun, Deel, Eaze, Cabify, Shipbob, Cleartax, Truepill. Even Density.io, which I invested in very early, had made a lot of progress with its tech. It didn’t have much revenue, but if you looked at the demo videos it was clear that this was a serious product. And Density.io’s early customers all had major potential to grow in size (which they did).
So as you evaluate startup opportunities moving forward, avoid the mistakes I made and make sure to focus on traction. It’s possibly the most important characteristic for a startup investor to judge before deciding to invest in a company.
The post Focus on Traction When Investing in Startups appeared first on Early Investing.
Register at Binance