How Much Traction Do You Need to Secure Startup Funding?
When you begin the journey of raising funds for your startup, one common feedback you will likely hear from investors is that you need more traction. But what does "more traction" actually mean?
Understanding Traction
Traction is not about the number of new subscribers, website views, or free trials you have garnered. While these metrics are important, they are not the true measure of traction. In the eyes of investors, traction is synonymous with revenue. When an investor tells you that you need more traction, they mean you need to generate more revenue to attract their investment.
Responding to Feedback About Traction
Every investor has their own criteria for how much traction they need to see before they invest. If one investor tells you that you need more traction, take note but do not immediately alter your strategy. However, if multiple investors echo the same sentiment, it is time to reassess your fundraising strategy.
For example, if you are aiming to raise INR 5 Cr from angel investors but only have INR 5 Lakh in monthly revenue, and investors are passing because of insufficient traction, consider raising a smaller round instead.
Strategies to Increase Traction
Patience and Persistence: Traction takes time. Sometimes, there is not much you can do to accelerate revenue growth except to continue what you are doing and be patient.
Direct Sales Effort: As a CEO, you are your company's best salesperson. Even if you have never handled sales before, customers often want to interact with the CEO. Get out there and sell your product or service.
Boost Advertising: If your product is sold online and you are seeing a positive return on your advertising investment, consider increasing your advertising budget to boost revenue.
Reduce Sales Friction: Make it as easy as possible for customers to do business with you. Identify and eliminate any obstacles in your sales process that cause potential customers to drop out of your sales funnel.
Raising Funds Without Sufficient Traction
If you find yourself needing more time to build traction, consider these options to extend your runway:
Cost Reduction: Lowering salaries can provide the additional time needed to achieve your fundraising goals.
Vendor Negotiations: Negotiate with your suppliers to delay payments. This can free up cash flow in the short term.
Staff Reductions: Although difficult, layoffs are a common step to reduce expenses during fundraising rounds.
Advance Payments: Encourage customers to pay upfront by offering discounts or additional services. This can provide the necessary capital to extend your runway.
Adapting to the Fundraising Environment
The traction required for fundraising can vary widely depending on your industry and the current investment climate. During tougher economic times, investors typically expect more traction before committing funds. It is crucial to recognize these external factors and adapt your strategy accordingly.
Remember, the investors hold the purse strings and set the rules. The quicker you understand and adapt to the requirements of the fundraising environment, the better positioned your startup will be for success.