Securing funds for your startup can be a daunting task. The process of fundraising is a full blown project in itself that can last for months taking the attention of the team away from the product (or at least a couple of the key team members). For those who have raised funds before, we also know it is an emotional rollercoaster that has the power to leave you drained, full of self-doubt and even traumatized in some cases.
Regardless of the difficulty, raising capital is a necessity and for many entrepreneurs, receiving VC investments at a decent valuation is not just a validation of the genius of their enterprise, but also success in itself. Success of the highest degree.
Even though getting VC investment doesn’t guarantee your startup’s success, it goes a long way in putting your startup on the right path.
What then is the master key of fundraising? What do VCs really look for when assessing a startup they want to invest in? One word, TRACTION.
Most VCs don’t care if your product is going to change the world or not, because in all honesty, only a few will. What VCs care about is return on their investments and the clearest indication of whether a startup will succeed or not is if the startup has shown signs of traction without investment.
WHAT DOES TRACTION MEAN?
Traction simply means your startup has reached a point where the decisions and assumptions you’ve made have started making an impact that proves your solution is actually valuable to people. In simple terms, you’ve started making sales.
For a startup seeking early stage investment, it means you have a minimum viable product and early adopters who are paying for and/or using your product. Anything short of this and you’ll be shooting your shot at investors in hope.
Traction doesn’t have to be huge but, it has to be enough to prove that there are people out there who think of your business as the solution to their problems.
While some VCs may sometimes invest in companies that have just an idea out of sheer belief in the idea, the team or just outright arrogance, it is a rare occurrence. At the end of the day, you stand a better chance when the numbers are in your favour.