Traction… something what every startups hopes to get and what every investor is looking for. When you are a startup looking to raise funds, is traction truly the most important thing*? What else do you for successful negotiations with VCs?
At one of the meet ups I came across David Binetti (an amazing speaker, a successful entrepreneur and Lean advocate who is mostly famous for “Votizen – A place to campaign for the candidates and causes you believe in”), who shared his opinion on this and made an interesting point: Leverage is the new traction.
Why? A couple of reasons.
First of all, let’s define leverage. Leverage is an ability to determine the cost and the terms of the deals. Leverage is determined with necessity, desire, competition, and time. Let’s look into each of the components.
- Necessity is how badly you need an investor. The higher your necessity is, the less your leverage is.
- Desire is how much they want you. VCs fall in love with the shiny objects, so what can make you shine brighter than myriads of other startup stars? 1. your anchor investor (in one of the previous posts I have already mentioned how important it is to choose your first investor wisely tip for startups: build a relationship with your investor long before you will have to ask for money. 2. buzz. Social media, traditional PR, your name has to sound familiar 3. team. A lot can said here, but what you should really keep in mind is two things: show that you have unique assets and tech expertise 4. finally, yes, traction. It does matter, at this point mostly for the show.
- Competition. You need to know the market, you need to know the competitors. Most markets are very close-knit, so missed opportunities are very painful. Know your stuff.
- Time. Time is crucial, and it’s rarely on your side. Time works against the desire. If you are on a clock to get an investment, try to extend the clock.
We often hear that time is money. It also works in reverse: money is time. In this case, time is the number of iterations you have to work, improve and test your product. If you increase funding, you increase the number of these iterations. Whatever you do, try to speedup the cycle and build a sustainable business model.
Of course, experience and sales skills help a lot in closing a deal with the VCs, but necessity, desire, competition and time is truly what defines your leverage. And leverage is what helps you shift the balance and get as much power, money and time you need.
Check out our recent posts for startups:
- Be Careful With Lean
- Build A Relationship With Your Investor Long Before You Will Have To Ask For Money
- PIIPE: Five-Step Recipe For Startup Success
July 31, 2013