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.
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).