Using early-stage traction metrics in equity fundraising

Business traction is often misunderstood by founders considering early-stage equity fundraising. Traction is defined as the progress and momentum of a start-up.

For many investors the current economic climate has brought into sharp focus the importance of traction in decision-making. It’s not just about demonstrating developed products or services, product-market fit or a clear execution strategy.

Traction is the most positive evidence a founder can promote that they can execute on their vision and a critical element of any pitch presentation.

Early-stage investors want to know two things, do customers want your product, and can you take the product to market? Traction is critical to answering both questions. Founders should recognise that fundraising efforts can be negatively impacted not by insufficient traction, but by insufficient discussion and visibility of traction in investor presentations.

In early-stage fundraising traction is more important than long-term vision and financial forecast. Use traction metrics to differentiate your pitch deck. Identify the key KPI’s to track progress but don’t lose sight that these KPI’s are rarely perfect. The KPI’s important to any pitch to investors include engagement (churn, pageviews), growth (users, transactions, revenue) and scalability (cost per customer acquisition, lifetime customer value, customer profitability).

It is important to differentiate between actual and forecast KPIs.

Inclusion of traction metrics demonstrate an ability to track progress and display transparency.

Focus on key KPI’s is valuable in determining future strategy. Investors value teams that experiment to improve product-market fit even though data may be unfavourable.

In summary, early-stage investors focus on opportunities where founders are clear and transparent about traction.