How To Pitch Traction To Venture Investors Like A Boss!
Traction is one of the most important elements to nail when pitching investors. The problem is, most startups do a poor job talking about it. In this Dreamit Dose, Managing Partner Steve Barsh highlights pro tips and traction insights across all early stages of the startup lifecycle. From pre-revenue early traction to post-revenue momentum, this Dose will teach you the ins and outs of presenting traction to investors. Click below to jump to a section.
What metrics should I highlight on my traction slide?
Make sure you’re talking about the right traction that’s relevant to your startup. The traction proof points you’ll need to highlight vary depending on your company’s stage and type. Remember, “Investors like to see trend lines, not points.” Talk about traction over time, not just at an instance in time. Scroll to see traction metrics for your stage using the charts below.
Note, we include both B2C and B2B traction metrics above. Some of these metrics are only applicable to certain business models.
During your pitch, you don’t have to wait until the traction slide itself to start talking traction. Pro founders drip or layer in bits of traction throughout their pitch to keep investors engaged.
When should I present my traction slide during the pitch?
Your traction slide should come about three-quarters of the way through your deck. You should have already covered the problem, solution, TAM, and competition before presenting your traction slide. Now it’s time to show evidence - your traction slide brings it all together.
How do I drip in traction throughout my pitch?
First off, let’s define what we mean by “Drip.” You don’t need to wait to do a big reveal of your traction. Instead, drip bits of traction throughout your pitch to give investors an early indication that things are working.
Now, where and how should you drip? Here are some suggested ways to drip based on common slides that come before your traction slide. Note: You can over-drip and spoil your main traction reveal later - Be sure to use this sparingly.
Problem Slide: # of customers who validated they have the problem
Solution Slide: How many customers have moved forward?
Competition Slide: How frequently are you winning?
Go-to-Market Strategy Slide: Are you making progress with your initial customer segment?
5 pro tips on how to frame traction to investors
Pro Tip #1: Awards are icing only
Realize, there’s a ranking of traction that investors really care about. Top of mind to investors are metrics like profitability and revenue growth. Way at the bottom of an investor’s credibility checklist are items like the pitch competitions or the “best places to work” awards you’ve won. Founders defer to these lesser traction stats when they can’t produce more validated or meaningful metrics - this is very transparent to seasoned investors.
When assessing a startup’s traction, the quality of your revenue matters just as much if not more than the quantity. On paper, two startups that each did $1M in revenue this past year can actually have very different traction profiles based on the nature of their revenue. Investors can boost or discredit your traction given revenue stream characteristics like defensibility, operating margin, switching costs, partnership dependencies, and much more. For a great list of these revenue stream characteristics, read Bill Gurley’s “Not All Revenue Is Created Equal.”
Pro Tip #2: Be clear about ad spend
Another variable that impacts the quality of revenue is marketing spend. If getting traction relies heavily on burning marketing dollars, investors could be inclined to slightly discount your value. The opposite is true of organic demand, which is an important sign of true product-market fit. Organic demand is favorable for a number of reasons since it’s less of an externality, carries a lower Cost of Customer Acquisition (CAC), and generally enables startups to operate from a better cash flow position. Founders sometimes artificially inflate their traction metrics by pumping in sales/marketing dollars to drive near-term outcomes. If this sounds like you, be sure to be transparent about it. Trustworthiness is one of the most common reasons investors pass on a team - they bet on the jockey, not the horse. So don’t try to slip this under the rug and call your demand organic if it’s not.
Pro Tip #3: Don’t commingle customers and leads
If your startup is post-revenue B2B, your traction slide will likely include a logo wall. When investors see these great marquee logos on that slide, their assumption is that these are all paying customers. This is another area in your pitch where being clear, transparent, and trustworthy counts. It’s fine to highlight the late-stage leads you’re pursuing, just be clear that these are prospects and not customers. It’s better to show a customer pipeline than to commingle a handful of paying customers mixed in with companies that you are only “talking to.”
Pro Tip #4: Focus on traction for one product
If your pitch is focused on one particular product, don’t inflate your validation by mixing in traction from other products. When hearing founders pitch, it can sometimes take a while before investors truly understand what you’re bringing to market. Once an investor of what and who you are, the next likely line of questioning centers around the derisking and validation work you’ve done to prove that your bet is the right bet. So don’t commingle the traction profiles of multiple products - Make this analysis clean and simple for investors by keeping your traction siloed. When regulated healthtech startups design trials for clinical validation, they often use inclusion and exclusion criteria to avoid confounding the results. In this context, the traction from other products is likened to exclusion criteria; data points that should be removed to keep a pure and consistent conclusion when highlighting traction.
Pro Tip #5: Segment recurring vs. one-time revenue
Investors value predictability. They want to see sustainable growth and cash flow from consistent revenue streams. When an investor tries to determine the future value of your startup going forward, the predictability of historic data and outcomes matter. Business models solely dependent on unit sales or one-time revenue are naturally less predictable than recurring revenue SaaS models. Shifting from one model to another is an entirely different discussion but what matters here is that you call a spade a spade. Don’t dress up one-time revenue to make it look like a recurring annual agreement. In addition, if your business model requires up-front implementation costs, that’s fine as long as you distinguish it as non-recurring revenue. Tangentially-related here, some startups begin life heavy on consultation and service revenue - don’t commingle this either or present it as revenue tied to the actual product you’re bringing to market.
Watch the full Dreamit Dose on traction below. All past shows here.
By Elliot Levy, Healthtech Associate at Dreamit Ventures
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