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Traction: the Elixir of Life

At Sand Hill Angels, I have attended hundreds of startup pitches.   What is the key predictor for decisions to invest?  Traction.  But it’s not so simple, as traction can take many forms.


I am constantly surprised about the breadth of investments by the members of Sand Hill Angels.  Our portfolio includes companies building a 3D printed rocket engine (Bagaveev), reprogramming immune cells in our body (Chimera), selling ski lift tickets online (liftopia), and providing better semiconductor inspection tools (Silicon Valley X-Ray).   Each member is expected to bring deal flow to these meetings, and I have tried to meet my obligations in this area, introducing the group to some fantastic (I thought) companies in some fantastic (I thought) new growth areas.   But – I was surprised to find that after a great (I thought) pitch, few investors stepped up to the table. What happened? I think it usually boils down to a lack of traction.

An Oxymoron

Angel investors requiring startups to demonstrate traction? That sounds like an oxymoron. We’re supposed to be the ones that get excited about early stage companies that may not yet have a product, certainly have no customers, and generally are very high-risk endeavors.  That’s why we’re called angels, right?  

Angel: an attendant spirit, especially a benevolent one

If you’re a startup entrepreneur, you may indeed find individual angels like this, usually through an introduction from a mutual connection.  

For angel groups, the bar is set a bit higher – but so are the overall investment amounts.  An individual angel may send you a check for $25,000 or $50,000, while an angel group could supply more than $200,000.    As another benefit, many angel groups (such as Sand Hill Angels) structure their investment as coming from one entity.  That can keep your cap table cleaner, simplifying investor relationship management and avoiding possible future governance issues.    Finally, you can benefit from the vast network of the angel group’s membership - you’ll find that all members, not just those that chose to invest, are willing to help their portfolio companies.

So, while angel groups are not necessarily as “benevolent” as individual angels, there are benefits to recruiting them as investors – as long as you can show some traction.

Earliest Traction: Team

Traction is demonstrated in many different ways.  One of my earliest gauges is the assembled startup team:

  • Does the company consist of one lone-wolf entrepreneur (Danger!) or are there several co-founders with complementary skillsets? 
  • Have all the co-founders committed to working full time on this project or do they still have other jobs on the side (Danger!)?
  • What is the background of the advisor team?  Desirable startups will have a mix of advisors, including field-specific academics from prestigious universities, former Fortune 500 company executives for the targeted industry, and senior operational executives that have expertise in areas that the founding team lacks.
  • What is the background of the initial investors? Is it mostly emotional friend and family money or has a “Silicon Valley” name already lent the startup some credibility?

Hot startups exert a magnetic force in the Silicon Valley, attracting co-founders, employees, advisors, and initial investors. This attractive force is the earliest discernible form of traction for the product idea and the budding new company.

Operational Traction

The next gauge measures the startup’s ability to execute on its planned milestones.  

As I evaluate operational traction, my first step is the pitch deck – it contains vital clues to determine if the founding team is likely to successfully execute on its planned objectives.   For example:

  • I have seen (and rejected) many pitches that aim to sell a product direct-to-consumer with slides that are built with what looks like the default master settings from PowerPoint 2003. Successful consumer startups can demonstrate marketing and branding skills on their founding team.
  • A similar red flag is a non-technical founding team.  If your first task after funding is, “Hire an engineer that will do the work for us,” you will not be doing so with my money.
  • A great demonstrator of operational traction is a prototype that demonstrates one key concept in your invention. Nothing alleviates more investor doubt than a cool demo.  In 2011, the team at Lumo Bodytech demonstrated a circuit board built by a Stanford graduate student wrapped in a plastic pillbox bought at the Container Store. The Android companion app could only show one thing – whether the user was standing or sitting.   But that was enough to raise Seed funding - it created the “wow” moment and showed the potential for connected, wearable devices. By solving the first big technical challenge, the team demonstrated operational traction.
  • Planning is a form of operational traction as well. I’d like to see a slide on your 3 year plan for “world domination”, including operational milestones and financial projections, and I’d like to ask you a few specific questions on it.  We all realize your plan will be wildly optimistic and more than 75% wrong, but a plan is an important tool to assess an entrepreneur’s ability to meet future operational challenges.

By gauging operational traction, investors want to verify one main thing before investing – what are the odds that our money will be used to prove the hypotheses outlined in the pitch deck – or instead squandered on a cool office location, staff parties, tactical initiatives, and whimsical distractions?

Market Traction

Lastly, we get to market traction – what most startup entrepreneurs associate with the word “traction”. All investors would love for you to present a history of product sales and a hockey-stick graph of revenue growth already happening.  But those are not the pitches we see at the Seed level – these pitches instead happen during the Series B fund raising stage at far greater valuations.

But there are some useful Seed stage indications of market traction. For example, what are the usage statistics for your first release, the Minimum Valuable Product (MVP)?  Even with just three months of data and say, 50 users, you can already draw some conclusions on user engagement (time spent using your product) and virality (adoption of the product by the initial user’s friends or colleagues).

Another, often overlooked, source of traction can be one or more engagements with corporates. If you live in the fast-paced startup world, you may feel that you have little time to waste to track down these “dinosaurs” moving slower than a snail’s pace.  Further, after a few pitch sessions that lead nowhere, you might wonder if you are merely the entertainment that is invited to create “innovation theater” for the senior executives that are visiting an innovation outpost from their corporate headquarters in far-away lands.

But there is also plenty of real corporate engagement, with companies willing to pay $25,000 or $50,000 for an initial concept prototype, with additional projects following if all indications stay positive.

An emerging trend is for large corporates to partner and form commercialization accelerators (example: Seamless or Salt Flats).   Unlike traditional accelerators that help you fine tune your investor pitch deck and expand your network, commercialization accelerators focus on traction - startups that graduate from these accelerators will have several commercial projects with $1B companies under their belt – this is the type of demonstrated traction that early stage investors will love. Early engagement with corporates demonstrates market potential and unique IP (Intellectual Property).

Traction – The Elixir of Life

Stanford Business Professor Mark Leslie wraps up his course on Sales Organizations with a summary presentation on “Leadership and The Virtuous Cycle”, the secrets to success he learned growing his startup (Veritas Software) from 12 to 5,500 employees and a revenue of $1.5B in a little over 10 years.  His virtuous cycle starts with sales teams setting realistic goals and beating them, generating more than enough revenue to cover costs, which in turn generates profits that can be reinvested to grow the company.  Profits also drive the stock price, and a company with an ever-increasing valuation becomes a recruiting magnet, adding great people to the company that drive more sales – and the cycle becomes virtuous.

I would posit that this virtuous cycle can be evident even earlier, before sales teams are selling product.  It all starts with the first founder and the idea. The founder’s mental model will determine whether she can attract followers in the form of co-founders, advisors, and early investors. The earliest work products from this team (the pitch deck, operational plan, and prototype) will drive the first capital raise, giving the startup its initial growth spurt.   The now bigger team rolls out its MVP for market testing and attracts a corporate partner for commercial acceleration.    Success at this stage attracts more investment capital, which can further grow the team and finally provide the capability to deliver the actual product vision.  Now, the path to profit is evident and it’s almost time to hire that sales team!

Traction is the elixir of life that fuels and sustains a startup from the earliest stages to becoming a profitable, global company.

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