The Startup Financing Traction Ladder

I ran across this great post on the Seattle Tech Startups e-mail list by Shan Sinha.

It’s not uncommon to go into VCs and pitch just on an idea.. but the more traction you have the better. The levels of traction I would think about are (in increasing order):

  1. team: pedigree? top tier schools? previous successful startups? previous failed startups? significantly deep domain knowledge?
  2. product: do you have a product built? is it really unique? Is it well differentiated? Do you have some unique technology being leveraged?
  3. users: do you have users on your product yet?
  4. revenue: do you have paying customers?

If you don’t have a great story for #1, then you should at least be at #2 to go and pitch to a VC. If you don’t have a great story for #1 and #2, you should be at #3. If you don’t have a great story for 1-3, you should be at #4.

If you have a good story for level 1, you can go in and pitch.. and go in with a good chance of getting funding.. but you’ll most likely be giving away a fair amount of equity for it.

Long story short… get as far down the traction ladder as you can before you pitch to VCs.

Great information Shan. Thank you!

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