When reaching out to investors with compelling pitch decks, entrepreneurs include several benefits that make their company attractive and worth investing in. You’ll leverage assets like a highly-talented founding team, patents and Intellectual Property (IP), and a workable product prototype that is already selling in the market. One of the most critical factors that can make or break your fundraising efforts is startup traction. Investors are keen on funding dynamic disruptor companies that fill unusual niches or openings in the existing industry that other businesses have failed to identify. Read ahead to know more about how traction influences your startup’s funding success.
What Exactly is Traction?
In a nutshell, startup traction is the progress it is making and the momentum it is gaining in the field. There are different ways to measure a company’s traction. But, if your objective is to attract funding, here’s how you’ll factor it into your pitch deck.
(MVP + Customers) Proven Marketing Machine = Traction
This equation indicates three critical facets, with the first being a Minimum Viable Product (MVP). Investors want to see that entrepreneurs don’t just have an interesting concept for a product, but also have a ready prototype that serves a specific problem that customers face. The product needn’t have exceptional features, and investors understand that you’ll continue to innovate and improve down the line in response to customer feedback.
The next factor is marketability. Even if you can’t demonstrate significant sales and revenues, results from beta trials work to convince investors that the product will sell. You can add customer reviews to the pitch deck where users talk about the product’s value and how it helped them with a better quality of life or savings in terms of money and time.
Finally, you have a Proven Marketing Machine or successful marketing and advertising strategy. Your pitch deck will reveal how you intend to grow your customer base, attract more interest in the product, and expand to bigger markets on the state and national levels.
Revenues and Profits
Showing revenues in the pitch deck is the best way to indicate that the startup has adequate traction. Revenues mean the company has cash flow for consistent growth and can expand, pay utilities, buy inventory, and make payroll. Revenues show that with funding, the startup has the potential for future profitability, and can ensure robust returns when the investors are ready to exit. Profits are another critical aspect of traction since they demonstrate that the business model is successful and well-received in the market.
Extensive Customer Base
Building a list of customers that are interested in the company’s products and services is a hard-won task. But, if the startup successfully gets customers to sign up and provide their contact information, that’s a great way to indicate traction. That’s because any person showing interest in a product or company will likely place orders at some time. Measuring customer engagement and adding the metrics to the pitch deck is a great way to impress potential investors on the startup’s viability.
Partners, Clients, and Other Investors
Reputable partnerships with a track record of successful projects and enterprise clients with hundreds if not thousands of sub-users also point to the startup’s traction and future growth potential. You could also impress investors with information about other organizations that have funded the startup in its pre-seed stages, like well-known startup accelerators or incubator programs. Data like this convince investors that the project is worth their time and money.
Entrepreneurs looking for funding for their startups must focus on demonstrating that the business has great traction and potential for future growth and success. They can be assured of backing from investors.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star, Barbara Corcoran and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab, which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding, where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since its inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.