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via dpg (472) · I've launched several products. I've worked in Venture Capital. I'm passionate about helping others build successfully. 1823 views · 0 comments

1. Traction

2. Scalable business model

3. Superstars

4. Intellectual property or advanced technological breakthrough

These seem like no brainers, but there are so many hopefuls that think their technology will change the world. The work you put into your product is called sweat equity, and is basically your investment of work into an idea you believe will reward you in some way.

To an investor this sweat equity doesn't count for much in terms of leverage or attraction. But what does, are the four things I mentioned earlier. Let's address each one and explain what they mean.



Let me preface this with these venture capitalists are a business. They are in the business of making money. A lot of these companies will push you to sell or ipo. They need the ability to return a multiple of their limited partners money. Don't get your feelings hurt when they don't invest on your personality alone.

1. Traction

Traction can be dressed up in many different ways. Number of users doesn't mean squat. It might mean that someone picked up your app, created an account, and then tossed it. The real numbers we want are daily active users. This number let's us know how many users are actually using the site.

If your users aren't returning, no matter how many users you have, it's going to be super hard and costly to drive them back to the site for a second look.

Investors investing on traction are constantly looking for an inflection point in your traction graph. They want to invest at the femtosecond before a big bang. This means to them you've found a way to create a feed back loop that can build and sustain an audience. Investors don't typically care how that's done, unless it's super shady.

2. Scalable, repeatable, sustainable business model

This is when you have a product where you have found how to generate adequate recurring users through distribution channels, and have figured out customer lifetime value, cost per acquisition, custom profitability, churn, cohort analysis, etc.

Basically what all of this means is: have you found a formula that when you put in money, you get more money out than what your gross costs are. Preferably (x) =x^(2t).

3. Superstars, unicorns, ninjas, whales

These people can typically be one of several things. They have usually had a previous big win. Either with their own startup or another. This gives them the advantage of having domain expertise, network, and cache to pull some weight in our startup.

For instance if you have someone from Facebook leave to start their own social network, they obviously have some insight that Facebook just never moved on. this might be the next Facebook killer, and to investors who suffer from massive FOMO, they would be all over this deal.

Going through a popular incubator might be another way of proving you're a superstar. It sounds great! Vetted by another person that seems to have invested in some hits, but even these routes are becoming suspect despite where their intentions may lie.

4. Intellectual property or advanced technological breakthrough

You just invented the personal computer! Congratulations! Unfortunately even for those guys, it was a struggle to have others realize what the value prop was. The most expensive thing you will ever do is educated our users on new technologies or new ways of doing things. My only advice is patent what you can and keep pushing at it. If you're using your own product to do amazing things, people tend to follow in line pretty quickly.

Next I'll talk about what happens and what to expect when a term sheet has been offered. Happy hacking. :)

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