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2.9 The Definition of Traction
TheFunded.com Advice
Posted by Mr. Smith on 2008-11-03
Tags: Pitching Traction
Traction is the buzzword of fundraising these days. It is required by many, and understood by few. Here is an attempt at defining traction for all parties in the fundraising cycle.
1. The Idea: How strong is the fundamental idea and underlying revenue model" Does it make complete sense, and is it backed up by published industry data"
2. The Team: Have you assembled a group of domain experts that can execute the idea and the model" How seasoned are the experts that you have assembled"
3. The Prototype: Do you have a prototype of your offering that is compelling to the target audience" How polished is the prototype"
4. The Launch: What is the reaction among trade journals and other media outlets regarding your product launch" Is it well covered and well regarded"
5. The Adoption: How many target customers have adopted your offering and is the growth rate substantial" Are you experiencing a high level of customer satisfaction or a concerning level of churn"
6: The Revenue: Have you started to derive revenue from your offering and is that revenue either ahead or behind or model assumptions" What variables have changed from your assumptions"
7. The Profitability: How profitable or near profitable is your model once in operation, and are there untapped revenue opportunities for future revenue growth"
8. The IPO: How long until you can take your company public, assuming two years of fast growth, audited financials, and profitability or near profitability"
Most venture capitalists, for better or for worse, tend to invest in phases 4 and 5. VCs like the potential upside without the too much details from phase 6, though many investments occur at the start of phase 6, before any details can be conclusively determined. Any other thoughts"
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