I have seen this repeatedly from the lawyer side. Founders beat the bushes to raise initial funds with varying degrees of success. But, once they can say, we are adding x number of real customers per month - or, just as good (sometimes even better), we just signed contracts with a, b, and c enterprise customers (even if these are just entry-point contracts for consulting services that will be a precursor to product sales) - the interest level among investors can go quickly off the charts. Investors are always eager to sign on with a winner, especially at an early stage when even a small piece of the company can ultimately acquire great value, and this I think explains why the "traction" point can be a great spur to excitement for them.
That said, I have also seen a number of cases where early customer sign-ups ultimately led to little once the initial excitement faded. Startups targeting the enterprise market are particularly vulnerable to this, where they may get all sorts of customers signing up for trials of a product but then are ultimately unable to convert them into large, paying customers owing to the small and untested nature of the startup involved. In such cases, if traction does not reach a critical level, the early gains may sputter. But this doesn't change the basic point, which is that investors will often want to scramble to sign on once they see the initial signs of such traction (even if it later proves illusory).
This is a nice piece highlighting this important point.
It sucks to be told as someone who hasn't had an exit yet that you have to not only build something but also get real users before angel investors will help you. But it's a message that needs to be beaten into entrepreneurs looking for external funding. (I know I could have used it first time around.)
The entire startup process is about managing risk-
The classic programmer with a sketch on a napkin has a Lot of risk. There may be assumptions that never pan out, and he may never be able to write what he's said he would.
Once there's a prototype, it moves the slider further to the "Less Risk" category. Things are moving, it CAN be written, now the risk lies more in growth and marketing.
Traction solves that problem as well- Now it shows that the code works, the marketing works, and the team really can pull things off. The slider is firmly over on the "Rather safe, as things go" category.
Here's the problem- Entrepreneurs see the slider too.
By the time I'm over in the "Hey, this thing is actually gonna work" category, the need for angels, particularly the micro angels like Gabriel, has diminished.
At that point in the process you're actually making money, and you can look at the slider, see that things look likely to succeed. This is in part, what is responsible for the increasing number of startups bootstrapping. By the time they get a working version, decent marketing, and some traction, they start to realize that they have a good shot at being able to do this on their own, and keep the equity.
You can still get angel investors to help you without traction, including myself. Anyone looking for advice can feel free to email ha@hackerangels.com, and we'll try our best to help.
That's a great idea, it really helps the community, unfortunately for me, I got some casual advices that couldn't really help me, it reads like a copy paste answer, I was trying to figure out what's the best strategy to gain traction for a mobile service targeting mobile devices and I got an answer saying I should create some slides....that email was extremely annoying, but maybe I just set my expectations too high, a reference to your traction vertical blog entry would have done it at the time.
In part, they gain headlights into deal flow at an extremely early stage.
I can vouch for the Hacker Angels' willingness to help just for the sake of it, though. I pinged them when their announcement first hit HN, and while I am sure they were deluged, and my business is "pre-traction", they still took the time to respond in detail to my questions. This type of advice is difficult to get, especially from angels themselves. It's a great service to the community, and personally I don't mind them extracting a little value of out it!
