Evidence-of-Traction
Make it Hyper-Real for your Early Stage Investors
I have been an angel investor and advisor for about 3 years now having invested in startups in India across different sectors. Some of my investments are pretty early stage- Pre-product prototype, Pre- product-market fit, MVP no customers, MVP with POC customers, MVP with 2–3 early customers, etc.
Early stage investing is an art. It is a low data, high intuition scenario.
There is no equivalent or even remotely similar product in the market. Hell the market might not even exist and might need to be created.
Most seed stage institutional investors also shy away from it. Many funds call themselves seed stage but like to look at some level of maturity in product and customer traction together to different degrees.
Founders are always confounded by what seed stage investors want? The criteria is never clear — Team, Space, MVP, Momentum/Traction/Paid Pilots/ Revenue/ Product validation, etc. ?
Founders are used to hearing…
“Get me 3 paying customers”
“Get me at-least 10,000 users…
“Show me successful case study of adoption….”
“What momentum do you have…?”
And many of the above become moving targets. I have known founders that go back to investors few months after the first meeting to be given yet another milestone to cross and traction to prove. Investors themselves seem to be confused as to what they want! What founders hate is ambiguity since they already have enough of that. A definitive No is better than a maybe Yes or show me more.
It is a pretty tough phase of a founder’s life. They are a startup and they are making things happen in a Zero-to-One journey while investors are expecting them to already have gotten to One! A startup can get to One only if they have the necessary funding in the Zero-to-One journey. So it seems like a chicken and egg problem.
To add to this, many angels are getting increasingly sophisticated and seem to have criteria equal to institutional investors.
Getting early stage/pre-seed/angel funding is getting increasingly difficult and can take many months to find a lead-angel that is willing to bet on you beyond friends and family.
So for founders the question is— “What does it take to get early stage funding, even relatively small amounts”.
There are no right answers to this and the part of it is the constant refinement and evolutionary process of rejection, validation and demonstration of evidence that is necessary.
But how does one break this check and egg situation.
Early stage investing is about helping startups get from Zero to One. Not to expect One already in place. That is where the promise of 100X returns lies- when you invest in the Zero to One phase- not in the 1 to n phase.
Towards this I have found the “Evidence-of-Traction” concept especially useful when I am talking with founders.
First, there are some pre-requisites like assessment of the space, potential market size, competence and background of the founders, their idea, differentiation, and how they plan to make it into a real product, market and business model, along with scalability, possible monetization options etc.
But more importantly early stage investing is all about gaining confidence. Investors need to gain confidence on the team, market, product, prospective customer, etc. and feel that they are betting on the right person. Smart Trust is a big part of it. Smart trust is different blind trust. It is the willingness to trust while constantly verifying.
The best way founders can gain smart trust from their potential early stage/angel investors is by making it hyper-real.
Make every aspect of what has been done and what is being done real across the various dimensions
- Product concept and MVP development iterations
- Validation discussions with customers and other SMEs
- Ongoing customer discovery and development conversations
- User research
- Any LOI with prospective customers
- Early sales/revenue discussions
I especially ask this of the founders I work with. For example if a founder tells me they are having proof-of-concept related calls with a customer, I ask them to see if they can make me part of the calls and meetings so I can listen in and understand- more importantly verify. If they are developing a new product feature and iterating on it, I ask them to actively demonstrate this to me along with the team who is working on it so I can understand the nuances of their product development. If they can send me recorded interviews and notes from customer/user interviews and conversations then it tells me that they are diligent in their product-market fit discovery and customer development work.
The above aspects are what I call “Evidence-of-Traction”.
These are leading indicators of the traction they can get as they move along. Just like achieving good sales requires a solid sales pipeline, evidence-of-traction is a necessary precursor of getting to traction and momentum across the product, GTM, customer and business model dimensions.
If founders can make this real for early stage investors and investors proactively focus on and ask for this then the stalemate can be broken and faster definitive progress can be made either way.
