December 9, 2023

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One of the most common questions asked by startup founders is also one of the easiest to answer.

Photo by Andrew Neil on Unsplash

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If I had to list the 10 most common questions startup founders ask me, here’s one that’s definitely near the top:

“How Much Traction Does My Startup Need for Fundraising?”

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It’s a question that, having taught entrepreneurship classes for nearly a decade, immediately reminds me of a question my Duke students ask whenever I assign them any sort of essay homework. His first question is always:

“How many pages should there be?”

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Two questions – “How much traction does my startup need for fundraising?” and “How many pages does my essay need?” are equally flawed. That flaw is a big part of what makes the processes of both essay writing and fundraising so difficult and annoying.

Whenever I hand my students an essay and they ask how many pages it needs, I answer I know they’re going to hate it. I tell them:

“Your essays should be as long as they need to be to convey the information you want to convey, not a word longer or shorter.”

The reason I give that answer is because I want my students to understand the purpose of writing. The objective is not to type an arbitrary number of pages set by their professors. The purpose of writing is to communicate whatever information they want to convey. If it takes them two pages to provide that information… fine. If it looks like 200 pages to them, that’s fine too. What I don’t want is to write more pages or less pages to fit into a randomly specified page number. It would be like me turning this article into a book just for the sake of writing a book. Yes, I am fully capable of preparing 350 pages about this same topic, but do I need to?

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Instead, my goal in writing this article is to answer the question: “How much traction does a startup need for fundraising?”, and I can answer that question in four short words:

This is the wrong question!

The reason this is the wrong question is the same reason that asking my students to count pages is also the wrong question. Asking how much traction a startup needs in order to start fundraising misunderstands the basic purpose of fundraising.

Fundraising is not necessary for every entrepreneurial venture, despite how many entrepreneurs approach it. Instead, fundraising is a tool that entrepreneurs can deploy when they feel that doing so will help them achieve the desired results of their entrepreneurial ventures. Consequently, the purpose of fundraising is:

To help entrepreneurs achieve their entrepreneurial goals.

Yes, I know that’s a vague way of describing the purpose of fundraising, but it’s also the only accurate description. After all, every entrepreneur has a different goal, which means the reason for fundraising is always different.

For example, imagine two entrepreneurs: one entrepreneur’s goal is to start an entrepreneurial venture to fight global warming and the other entrepreneur’s goal is to become rich by spinning off a company for a billion dollars. Putting aside which of those goals may be “right” or “wrong”, “better” or “worse”, “moral” or “immoral”, etcetera, they are two very different goals, and their The differences necessarily affect the way the entrepreneur works. Will approach the issue of fundraising regarding traction. However, in both cases, the most important question is not the question about traction; It’s about entrepreneurial strategy.

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Ultimately, fundraising is a strategy for executing entrepreneurial ventures. Once entrepreneurs decide that fundraising is the right strategy for them, that’s when traction becomes an issue. Specifically, the amount of traction a startup has is what helps convince potential investors that a startup is worth investing in. This does not require fundraising. It’s just one piece of data within a broader narrative designed to compel investors.

I’m pointing this out because other data is also compelling to investors. For example, the quality of a team is going to influence an investor’s decision. So there’s a market dynamic. Heck… if an investor is best friends with the parent of the entrepreneur who is seeking funding, that will influence the investor’s decision as well.

In other words, traction is just one data point in the fundraising process. To be clear, this can be a very compelling data point, but no one can tell entrepreneurs how much traction they need for fundraising because every situation is different. Which is why it’s the wrong question to ask. Entrepreneurs asking someone to tell them how much traction they need for fundraising are almost certainly entrepreneurs fundraising for the wrong purpose. They’re crowdfunding rather than fundraising because they’ve made enough progress with their startup to convince themselves that raising capital is the best way to achieve their entrepreneurial goals, and that fundraising is the way to go. Not a good reason.

Good entrepreneurs don’t worry about how much traction they need to get investors to invest. Good entrepreneurs worry about how much traction they need to convince themselves that they really need to raise capital.

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