Thursday, April 5, 2012

7 Metrics to demonstrate Traction in a web startup

Of all the seed deals we receive, there is a basic assumption of required traction. At today's web costs, it is fairly inexpensive for an entrepreneur to test his startup's appeal to users. Using social networks and basic viral marketing techniques, he/she can demonstrate initial traction. Each investor can define his own criteria for good traction, however we've summarized our own along the following 7 criteria.

7. Downloads over 6 months with Free version - "Gross Tract"

6. Churn rate or utilization rate from Free Downloads - "Drops"

5. Conversion rate from Free to Subscriber (basic) - "Uptake"

4. Lead time of conversion from Free to Pay - "Drag"

3.  Acquisition Cost per Subscriber - "CPS"

2. Churn rate of paying Subscribers - "Money Drops"

1.  Net contribution margin per Subscriber, post infrastructure costs - "NetCoM"

Basic FF&A money can finance an initial cost of getting traction measured along the above criteria, then it becomes more of a company structuring discussion with an Angel investor: Team, BizPlan, Key Milestones, Cash burn, Building to a Company versus a Project, etc.