All VCs pass on the vast majority of deals that we look at, and it’s frequently because the company doesn’t have enough traction yet. In this case, inevitably, the founder of the company is interested to learn “how much traction would I need to raise money?” I rarely answer with a hard number.
I’ve seen pre-revenue companies with enough traction to invest and I’ve seen companies with 5 million in revenue that didn’t have enough traction. The are different types of “traction” – some are scalable and some are not.
What I want to see is something that looks like it will continue to grow and scale consistently for many years to come.
The key here is that I don’t view traction as a hard number. I can’t tell you get 50 customers or get 1M in annual recurring revenue or something like that. But, I’ll know enough traction when I see it.
For me, it’s a combination of a few things:
* How are you getting customers? Is it through a channel that will scale well? Friends and family and existing network don’t scale. Hacking a social graph doesn’t scale. Google and Facebook ads scale reasonably well. Organic scales the best. Sales teams can scale well.
* How are your customers buying? Are they likely to be repeat buyers? Are they just testing you out because it’s the hot new thing? Are they also testing 3 other competitors?
* How much handholding is required? Are you doing things that don’t scale to support customers? That may be fine, as long as it is straightforward how you’ll make them scale in the future.
* How fast are you growing? Has the growth hit an inflection point? Month over month growth is essential, that’s the momentum that I want to see. And I need to believe that the momentum will continue.
* Will the product become better with scale? This is a nice bonus. Some services get better with scale — many marketplace businesses can do a better job of matching supply and demand as they gain more users on both sides. When you see this sort of business, you gain some confidence that the traction will continue.
Brendan Baker has the best post about communicating traction. The only thing I would add to his post is to make sure you demonstrate that your traction is repeatable and scalable.