6 Key Thoughts Along The Fundraising Journey (No4)
April 26, 2012 Leave a comment
Validation & Traction – Two Crucial Words When Looking For Investment
“Too Many Businesses Want To Jump From Being A Minnow To A Whale”
I’m currently seeing a lot of businesses with really great business proposals looking for investment but lacking vital demonstrations of key proof points; in essence they are concept stage or pre-development propositions that ask the investors to take a huge leap of faith. In times of boom, these proof point generally matter less as investors scramble and clamour to sign up all ‘n’ sundry in the hope of not missing out. However, in these times of austerity, reaching these proof points is vital in gaining investor interest. I like to equate these proof points in terms of two proof points; the first being validation and the second traction. It’s not enough to have the best theoretical money making idea, a fabulously detailed business plan, a full set of detailed financial statements and a team of all-star internationals ready and waiting in the wings. It will always be the business that has achieved these proof points who will gain investor attention, over those that have a great business plan and fantastic team but are still on the starting blocks. Achieving proof points can significantly de-risk the opportunity for the investor and significantly increase the possibility of a deal being struck. The first proof point, ‘validation’ is about proving that there is a market, to show that there is potentially a paying sizeable audience, client base or consumer volume that seems to be interested in buying your product or service. Engaging a little bit with that audience and getting early feedback helps your investor see that real people or real customers believe in your offering also. This can be done by getting trial registrations, downloads, client letters/emails expressing tangible interest. You can’t do this by quoting top-level ‘size-of-the-international-market’ statistics. Identifying the addressable market is the starting point of validating your offering. The next proof point is the big one – traction. In essence, this is about giving your investor an early and mini demonstration that real people will pay for what ever it is that you are offering. This Techcrunch article entitled “Why traction is so important” really digs down a little more into the subject and is really worth a read. http://eu.techcrunch.com/2011/01/06/guest-post-the-importance-of-traction
This one is also excellent: http://www.forbes.com/sites/caroltice/2012/11/02/what-really-makes-venture-capitalists-invest-in-your-startup/
And a late addition: http://techcrunch.com/2013/01/06/iterations-traction-capital/
I’d be really interested to hear other views on what validation and traction look like from your perspective.