What does traction mean in a pitch deck? In other words, what is traction in startup fundraising?
Traction is a very important part of fundraising and startup pitch decks. Perhaps even more critical than your business idea, who you are, and the technology you’ve built.
If you want to get funded or raise another round of financing, then it is vital to know what investor expectations are of traction. As well as where to put it in your pitch deck, and how to show it.
So, what is it? What types of traction can you leverage in your deck? How do you pull it all together to pull in more capital?
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. What Is Traction For Startups?
- 2. Why Is Traction So Important?
- 3. Traction For Startups
- 4. Traction For Investors
- 5. How Do You Show Traction In Your Pitch Deck?
- 6. The Traction Slide
- 7. Focus just on one metric.
- 8. Types Of Traction
- 9. How Much Traction Do Investors Need To See?
- 10. How Else Can You Show Progress In Your Pitch Deck?
- 11. Milestones Achieved
- 12. Awards & Grants
- 13. Licenses & Regulatory Approvals ?
- 14. Clinical Trials
- 15. Patents
- 16. Pre-Orders
- 17. What If You Are Just Starting Out With An Idea?
- 18. Team & Previous Track Record
- 19. Financial Projections
- 20. Tips For Increasing Traffic Ahead Of A New Fundraising Round
- 21. Summary
What Is Traction For Startups?
Broadly speaking, traction is the progress your company has made. It is how far you’ve come, and what you’ve achieved.
Investors want to see what you’ve been able to make happen. As well as what stage you are at in the journey of a new company.
There are a variety of ways to show traction in your pitch deck. Some are more common than others. Though you do have some leeway to control how you present this metric, and how you choose for it to be measured.
At the same time, investors will have specific expectations for traction when it comes to deeming a startup fundable.
Why Is Traction So Important?
Traction is vital. Not only in terms of appealing to and securing investors, but also for your own benefit.
Traction For Startups
Business ideas and even great inventions are worthless without traction. It is too easy to get lost in a maze of rabbit holes, just spinning your wheels. You cannot afford to do that forever. Sooner or later, the money will run out; the bills won’t get paid. Without being able to show traction, then finding any injection of new money from any source is going to be very difficult.
Succeeding as a startup and entrepreneur is all about execution. Being able to keep moving forwards and upwards.
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Without that, you and your team are ultimately going to get discouraged as well. Even if it is not about the money and profit, you want to be having an impact, and see that you are affecting the world and getting engagement in some way.
Traction For Investors
When understanding what does traction mean in a pitch deck, know that traction proves to investors that you know how to, and have the ability to execute.
It is, of course, a great indicator of how fast you may continue to grow. This, in turn, indicates the types of returns that they can hope to achieve, and how much you can multiply their money.
It is also an important factor in de-risking this investment for them. Those that haven’t proven to be able to get or maintain positive traction are a big risk.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
How Do You Show Traction In Your Pitch Deck?
If traction is so important, how do you present it correctly, and well in your pitch deck?
You need to know where this data belongs in your deck, as well as how to show it, what to measure, and how much of it you need in order to hope to get funded.
All of these factors are important to get right. If you fail to bring it all together well, you can still fail to get the responses you hoped for from investors.
The Traction Slide
Your startup’s pitch deck needs a traction slide. It is not complete without one.
Your traction slide should come about halfway through your pitch deck. In a typical 16-slide pitch deck, this will come right between your product and customers’ slides.
This slide should simply be a line graph or bar chart showing your traction.
Focus just on one metric.
If you have hit product market fit, then you will be able to show that ideal hockey stick shape on this slide.
At one glance, in a fraction of a second, investors should be able to see that you are growing swiftly and consistently. So, take the time to learn what does traction mean in a pitch deck.
Types Of Traction
As previously mentioned, there is some leeway that entrepreneurs have when it comes to choosing what they are measuring and displaying in terms of traction.
This allows you to show off what you are doing best. As well as to raise based on relevant milestones you are likely to hit. What is desirable and expected may change by round and the stage your startup is at.
The main types of traction investors will expect you to display include:
- User growth
- Sales volume
At a Seed round, you might get away without any real sales or revenues. Depending on the broader capital markets, by your Series A round, investors may already be looking for startups with strong revenues. Actual profits may not be a big deal or a deal breaker until later. Though there are certainly some investors who prefer traditional companies that are profitable and have passed the break-even point. While others are more concerned with, and prioritize your speed of growth and traction over net profit.
Other ways that you may track your growth and progress may also include:
- Number of locations
- Employee headcount
- Revenues per employee
- Gross or net profit
How Much Traction Do Investors Need To See?
One major factor to consider here is the level of returns that your investors are expecting.
If they are looking for 10x to 100x returns, are you growing fast enough to deliver that?
You may also show that you are on track to get to a certain size within the next six to 18 months to raise another round of funding. Or within their fund’s timeline, so that you qualify to go public on an attractive stock exchange.
The younger your startup the faster investors expect to see you grow. That may be as much as 10% each week to get into the best startup accelerators. It is not uncommon for great startups to keep on growing by 50%, 100%, or more for several years.
Of course, when digging deeper into what does traction mean in a pitch deck, you’ll accept that growth may be moderate for late-stage startups. That’s because you have already absorbed most of the market.
How Else Can You Show Progress In Your Pitch Deck?
What else can you do to show your progress in your pitch deck?
You can back up and augment your key data point on your traction slide with additional points in various places in your pitch deck. As well as your virtual data room, on your website, and through your investor updates.
What specific milestones have you been able to achieve? This may include certain pillars of your business, such as breaking even, hitting a certain level of units sold, or revenues brought in. It may be cities that you’ve expanded to.
Awards & Grants
Has your startup, product, or you received any awards? What about nominations?
You may also submit yourself, or have others submit your name and vote for you to add some of these enhancements to your startup’s resume.
Winning business or coding competitions can also be a great way to add more credibility to your pitch.
If some of these initiatives also come with prize money or grants, that can look good too. Investors like to see that others are willing to bet on you too.
Licenses & Regulatory Approvals
These can be major milestones. Some of these may be necessary for your startup to operate in the business you are in. Others may be indications of expansion. Either geographically, into new vertices, or to own more of the supply and logistics chain.
Show any license you’ve obtained. Such as moving into new states, or even countries. This can show growth, proof of concept, reduce the risk for investors, and show you have an edge over the competition.
In some fields, it is necessary to conduct lengthy clinical trials and tests before getting regulatory approvals. Showing your progress here, can at least indicate to investors that you have been making progress, have been investing in actionable things, and are on your way to making breakthroughs.
Experienced investors can see through all the hype around a lot of supposed IPs. Especially if you haven’t actually filed patent applications yet.
However, if you do have real intellectual property assets that are owned, unique, and potentially valuable, you should show them off.
Be sure to at least understand the difference between vanity items like trademarks and copyrights that are just you showing off, and not establishing real, tangible value that others may wish to, or need to acquire.
Even if you haven’t collected all of the revenues yet, showing that you have pre-orders for your product is a great sign for investors.
Sometimes this is one of the most critical moments for fundraising. You can have your best month in orders, yet need the working capital to be able to deliver on them.
This also happens to be one of the easy ways to drive some traction. Or you may double up on the benefits by running a crowdfunding campaign that can both yield orders, and bring in money, all while boosting your visibility and engagement too.
Considering the significance of accelerated growth for any startup, you’ll need more information on how to get that done. Check out this video I have created on how to get traction for your business. You’re sure to find it helpful.
What If You Are Just Starting Out With An Idea?
Even in the earliest days of a startup, it is great to be able to show some traction. The size of the traction isn’t necessarily as important as the volume of traction.
You may not have $10M in revenues yet. Though if you can show that you are doubling the amount of the few new customers you have each week, that is a great sign. Even if you are going from 5 to 10, to 20, to 40.
Team & Previous Track Record
If this startup is a brand new venture, and still just an idea, you may be able to lean on the resumes of your founding team, advisors, and key department heads.
If you can show that you’ve successfully grown companies in this industry before, or have even started and sold startups in other sectors, investors are going to be much more confident in your ability to succeed and do well with their money.
Without any operating history, you can augment the little traction that you do have with your financial projections and forecasts.
Show an aggressive, yet realistic traction curve that you can achieve once you put this capital in the bank.
These are just projections, but sometimes you need to paint a picture of the possibility for potential investors.
Tips For Increasing Traffic Ahead Of A New Fundraising Round
If you are lacking traction, but need to raise money soon, or just want to maximize what you can raise, and obtain better terms in your next round, what might be some of the things you can do to drive more of it?
You might consider:
- Publishing more content (blogs, articles, podcasts, press releases)
- Adjust your pricing, or try running sales
- Offer freemium options to onboard more customers
- Add a recurring revenue option
- Release your next product or launch an upgrade
Traction is one of the most important factors for startups and their fundraising efforts.
Understand what does traction mean in a pitch deck and what it is that investors are looking for. Also, understand where this data goes in your pitch deck, and how to get more traction, and your fundraising campaigns will be much easier. You may also be able to raise more than you expected and on better terms.
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