How much traction is “enough” to get seed funded? or to get into an accelerator?

I had an interesting conversation yesterday with an entrepreneur who had an initial product that was built over 3 months and they were looking to get “traction”. The product was aimed at prosumers (professional consumers) or small & mid-sized companies. He was looking to raise a seed round of $250K and was wondering how much “traction” will he need to show so he can get funded by a combination of individual angels and possibly a seed fund. He’s in the US, so this framework is valid for both India and US.

Here’s a framework for you to think through the traction for your startup. You need to get traction post your MVP. Your MVP should solve a real problem that a potential customer has.

Having been in 100 presentations over the last 4 weeks alone (our demo day at the Microsoft Accelerator, 50+ pitches for our new batch at the accelerator and 30+ pitches at the 500 startups demo day) I can say some patterns emerge.

This is rule of thumb alone. This is NOT a guarantee of funding. I had a chance to talk to about 50+ seed and venture investors, so I know I am in the ball park, but YMMV.

Take your best case scenario of peak # of customers at 36 months (2 rounds of funding out). If you are a B2B startup that might be 500 customers in 36 months for example or if you are a consumer product, that might be 20 million users in 36 months.

The 36 months is critical. Its 2 rounds of funding. Seed and Series A. Or series A and series B.

The “traction” that’s relevant for your current stage should be in the range of 0.1% to 0.5% of your projected 36 month customer base.

0.5% means you can command the top end of the valuation. 0.1% means you are likely to get a serious look.

To get to an accelerator such as Microsoft or 500, you will need 20% to 50% of that user base to get a serious look.

Some examples:

If you are expecting 10 Million users for your product (best case scenario) for your product in 3 years (36 months) then you better have between 10,000 to 50,000 users when you go to get seed funding. To get into an accelerator you will need to have 2000 to 25,000 users at least.

If you are a B2B startup and you are expecting 5000 paying customers, in 36 months, to get seed funding you need to have 5 to 10 customers for a seed round (more is better) and at least 2-5 customers to get into a seed program.

Please let me know if you think this makes sense (Or not).

Thanks to Pankaj Jain and Dave McClure for helping review this.

14 thoughts on “How much traction is “enough” to get seed funded? or to get into an accelerator?”

  1. How much traction a digital agency needs to get first round of funding (not seed round). Average client pays $500 a month and client retention is 90%. After how many number of clients, we can start approaching investors. Thanks!

    1. Digital agency? Services business? I think the # of people willing to invest will be very few and I think it will be more dependent on revenue NOT # clients.

  2. Mukund,

    Thanks for distilling the essence of fund raising criterion (the key) and sharing with us. Isn’t there a danger of reverse engineering by approaching a seed or angel with the current traction postulating a post-36 month installation base of 200 times the existing value?

    Looks like chicken and egg for me!! Which comes first? The scenario at the end of 3 years or the number at hand!!

    Badri

  3. If this is indeed the metric along which startups are being measured for angel investments, then it is a sad commentary on how funding (and seed specifically) has been “dumbed down”.
    A startup is rarely a miniature company – funding at a seed stage is rarely intended to provide “scale-out capital” where you already have all the ingredients in place and it is just a matter of linearly executing your preset plans. The more likely scenario is that the seed funds are required to fill out your team, experiment with business models, build out your solutions and initiate go-to-market efforts.
    Finally, even assuming that this “tyranny of traction” is a market-driven reality that you cannot argue against, stock customer/user numbers like what you have alluded to might not be the answer because traction is more often a flow variable that needs to factor in velocity/momentum to provide an accurate picture (that is to say there is a difference between adding 500 customers in say three months than in one year)

    1. Sumanth, that’s an excellent point you are making here. I think there is a need to support experimentation in a large way, most of which might fail and the winner will emerge. I think that’s how seed investments happen in the west, where there is far more support for failure, than here in India

  4. We have a B2B SaaS product with xx,xxx monthly active users. We are offering the product for free during the public beta, and plan to charge a monthly subscription upon the full release.

    Do you consider this as meaningful traction?

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