Raising a pre-seed but investors keep asking for traction?

@naomigoez

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Why it worked

The video addresses a common pain point for startup founders: the difficulty of securing pre-seed funding without demonstrable traction. By breaking down the concept of traction into a hierarchy and offering actionable advice, the creator provides valuable insights that resonate with the target audience. The creator's personal experience as a pre-seed investor adds credibility and relatability.

Summary

This video discusses the concept of "traction" for pre-seed startups seeking investment. The speaker, Naomi, explains that traction isn't always synonymous with revenue and outlines a hierarchy of traction, from paid customers to waitlists. She emphasizes that while the barrier to entry for building products is lower, investor expectations for early-stage companies are higher. The video also touches on the challenges of fundraising in crowded markets and the importance of differentiation.

Structure

1Introduction to the problem of investors asking for traction
2Defining traction and its hierarchy
3The changing landscape of early-stage fundraising
4Strategies for demonstrating traction and differentiation
5The reality of fundraising for most founders

On-screen text

PRE SEED FOUNDER AND YOU KEEP SEED V NEED TO SHOW TRACTION BEFORE THEY CAN MAKE AN INVESTMENT, I'M NAOMI. I'M A PRE SEED NEW YORK CITY, SEEING THIS DEBATE ONLINE ON WHETHER TRUE PRE SEED INVESTING ACTUALLY MEANS PRE TRACTION. PRE ANYTHING, THEN THE NUANCE HERE TALK ABOUT. OH, PREREQUISITE TO GETTING PREREQUISITE TO GETTING LIKE MANY OTHER THINGS, INFURIATINGLY, IT DEPENDS. BEFORE I DIVE INTO CONTEXT, I'M GONNA PREFACE THIS IS A NON EXHAUSTIVE LIST OF MY INITIAL REACTIONS IN THAT EVERY DEAL IS DIFFERENT. FIRSTLY, THE WORD SYNONYMOUS WITH REVENUE. DID A DIFFERENT VIDEO ABOUT THIS, OPINION, THERE'S ACTUALLY A HIERARCHY OF TRACTION. YOUR PAID CUSTOMERS. AT THE VERY LETTERS OF INTENT AND WAITLIST, AND SOMEWHERE IN YOUR PAID UNPAID PILOTS, P.O.C.'S, DESIGN PARTNERS, AND SAYS THEY NEED TO SEE TRACTION. AVC. IS SEARCHING FOR ABLE TO GET IN FRONT OF CUSTOMERS, VALIDATE THE PAIN POINT, VALIDATE THE WILLINGNESS TO PAY, AND DEMONSTRATE THAT WHAT YOU'RE BUILDING IS RESONATE. DOES NOT NECESSARILY NEED TO SEE SECOND ELEMENT OF IS THAT IT'S NEVER BEEN EASIER EARLY VERSION OF AND TO GET CUSTOMERS AND SELL TO THEM. THE BARRIER TO STARTING A COMPANY, BUILDING SOMETHING FROM FRONT OF PERSPECTIVE CUSTOMERS AND THEREFORE, EXPECTATIONS OF WHAT SHOULD AND COULD EARLY STAGES ARE NOW HIGHER. TON OF EXAMPLES WITH SUPER EARLY STAGE COMPANIES GETTING TO REAL REVENUE MY GO TO PIECES OF ADVICE THAT YOU SHOULD CAN WITHOUT V.C. FUNDING BEFORE YOU GO OUT AND RAISE. ONE THAT FOUNDERS HATE TO HEAR, REALITY, AND THAT'S THAT IF YOU'RE BUILDING IN A REALLY, REALLY CROWDED MARKET, YOU WILL NEED CONSIDER THE DYNAMICS A LOT OF THE SAME PROBLEM, IT'S LIKELY THAT THE BARRIER TO ENTRY IS LOW. OF PEOPLE WHO HAVE EXPERIENCED THIS PROBLEM AND HAVE SOME EXPERTISE. MEANS THAT FIND ANOTHER WAY TO DIFFERENTIATE. DO THAT IS DEMONSTRATE TO YOUR PERSPECTIVE INVESTORS WINS AGAINST OTHER PRODUCTS, REALLY, REALLY STICKY. SO EVEN THOUGH YOUR CUSTOMERS HAVE ACCESS TO A DOZEN OTHER SOLUTIONS, TO ADDRESS THE YES, WE'VE ALL SEEN THE HEADLINES OF FOUNDERS WITH RAISING MONSTER ROUND. THOSE PROFILES TEND TO BE SECOND TIME. REALLY PROVEN FOUNDERS. PEOPLE COME FROM REALLY SPECIFIC LABS OR HIGH PROFILE COMPANY. THESE HEADLINES MAKE IT SEEM LIKE COMMON PLACE THAN BUT MOST FOUNDERS WILL NOT AND DO NOT RAISE LIKE THAT PRE SEED. I HOPE THIS WAS HELPFUL.

Original caption

There are outliers, nuances, and different considerations with every deal… but here are some high level thoughts on pre seed stage traction #venturecapital #preseed #earlystage #fundraising #startup

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Transcript

If you're a pre-seed founder and you keep hearing from pre-seed VCs that you need to show traction before they can make an investment, I'm Naomi. I'm a pre-seed self-investor based in New York City, and I keep seeing this debate online on whether true pre-seed investing actually means pre-traction. Pre-anything. Then the nuance here, I'm here to talk about. Oh, is traction the prerequisite to getting like many other things, infuriatingly, it depends. Before I dive into context, I'm gonna preface this by saying this is a non-exhaustive list of my initial reactions in that every deal is different. Firstly, the word traction is not synonymous with revenue. I did a different video about this, but in my opinion, there's actually a hierarchy of traction. At the very top, we have your paid customers. At the very bottom, we have letters of intent and waitlist, and somewhere in between, you have your paid unpaid pilots, POCs, design partners, and so forth. Says they need to see traction. A VC is searching for proof that you're able to get in front of customers, validate the pain point, validate the willingness to pay, and demonstrate that what you're building is resonate. This does not necessarily mean that they need to see second element of play is that it's never been easier to build an early version of the product and to get customers and sell to them. This means that the barrier to starting a company, building something from scratch, getting in front of perspective customers and getting in front of perspective customers and therefore, expectations of what should and could be true at early stages are now higher. We're seeing a ton of examples with super early stage companies getting to real revenue really quickly. My go-to pieces of advice for founders is actually that you should do as much as you possibly can without VC funding before you go out and raise. Third piece is one that founders hate to hear, reality, and that's that if you're building in a really, really crowded market, you will need to show traction. Consider the dynamics here. If there are a lot of people who have experienced this problem and have some expertise. Means that you need to find another way to differentiate. One way to do that is demonstrate to your perspective investors that your product wins against other products, really, really sticky. So even though your customers have access to a dozen other solutions, they choose to address the yes, we've all seen the headlines of founders with raising monster rounds. Raising monster round. Those profiles tend to be second time. Really proven founders. People come from really specific labs or high profile company. These headlines make it seem like it's more common place than but most founders will not and do not raise like that. Pre-seed. I hope this was helpful.