Why Traction is King

Traction is King

Traction is how investors who don’t know a space get comfortable enough to invest.

In Early Stage VC there is a ton of risk and if you’re not an expert in a space then traction is the best way to know if an idea is any good. The market has spoken.

If a VC or Angel is an expert in a sector then they can get comfortable without that traction.

Last night I was discussing this with another investor who pointed out that even when you’re an expert you may not be able to pick winners in a crowded market, so in that case traction is important even for an investor who knows the space. An example of this is when there were dozens of photo applications; it wasn’t until Instagram started to pull away from the pack that investors knew who to put serious money behind.

Ultimately this means that having traction will get you a higher valuation since it brings more investors to the table, which creates competition, and that drives up your valuation.

1 comment

  1. Real traction, where a product or service is clearly becoming a repetitive habit for a growing number of people, seems like a terrific indicator.

    Other metrics, like your app being downloaded a million times, can SEEMlike traction when in fact they aren’t.

    In fact, it’s probably a very negative indicator if you’ve gotten tons of people to try something, but they’re not that interested in coming back again and again.

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