How VCs Judge Your Startup's Traction
May 31, 2018

When you're pitching your startup to investors, you'll probably get questions about traction. Traction measures the momentum of your product or service, and there are several metrics investors use to assess this.

Quake invests in startups, not small businesses, and yes, there’s a difference. Startups have scalable products or services, a large potential market, and significant opportunities for growth (for example, the classic “hockey stick” graph). According to partners at Next View Ventures, traction is not inherently linear. Rather, once true product-market fit occurs, traction should significantly accelerate. This is something that Quake looks for, in different ways depending on the stage of your business.

For revenue-generating businesses, some examples of metrics are sales and revenue, units sold, revenue growth, and margins. For example, Quake would love to see growing MRR and ARR (monthly and annual recurring revenue). However, there is no perfect number. Rather, we look to see that revenues are coming from your business model, because ultimately that is proof of product-market fit.

For pre-revenue businesses, metrics may include the number of users or clients of your product or service, the number of engaged users (for example, an app may have 50,000 downloads but only 10 users per day, which isn’t great). Ideally, the number of engaged users should be close to the number of total users. We like seeing high retention and low churn. Retention is defined as the number of users or subscribers who continue using your product or service while churn is the number of users or subscribers who stop using your product or service after a certain time period.

Quake generally accepts startups that already have a product or are in the stages of refining it. However, metrics for pre-product businesses can include partnerships and other relationships, letters of intent, pre-orders, crowdfunding campaigns, early angel investments or reputable mentors or advisors, user interviews and focus groups, the size of the market (Total Addressable Market or TAM) and the percentage of the market your startup can capture. Other metrics may include website, blog, or social media traffic, and big breakthroughs and growth metrics that show momentum.

As a VC firm, Quake cares about your product, but we care more about what your customers think about your product. Traction is a reflection of this. Some examples of our portfolio companies that have impressive traction are Babierge and Informu. Babierge is operational and generating revenue in hundreds of markets across the United States and around the world, and Informu raised $100,000 with its Kickstarter in a matter of weeks.

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