The Traction Mirage
When Looking More Investable Does Not Mean Being More Investable
By Paul Anthony Claxton, Founder and Managing Partner, Digerati Investments - 8 minute read
Early-stage investors routinely ask founders to produce the traction that investment capital is supposed to help accelerate.
Some caution is justified. A founder still needs to show that a meaningful problem exists, that the proposed solution deserves further development and that the team can execute. Investors are not required to finance an idea just because it was delivered with confidence. The problem begins when investors demand evidence that properly belongs to a later stage such as predictable revenue, mature retention, repeatable distribution and limited execution risk, while still expecting early-stage pricing.
Founders quickly learn to optimize for whatever appears most likely to unlock a check. Pipelines become inflated. Nonbinding letters of intent are displayed as customer validation. Registered users replace active users. Ceremonial partnerships become distribution strategies. A few favorable months are annualized into a much larger revenue story. The company begins to look more investable without becoming materially stronger.
That is the traction mirage.
“Come Back When You Have More Traction”
Almost every early-stage founder has heard some version of the same response:
“This is interesting, but we need to see more traction.”
Sometimes that is legitimate underwriting feedback. The company may not have produced enough evidence to support its assumptions, valuation, financing structure or proposed use of capital. Other times, “more traction” is investor pillow talk, a pleasant phrase used to end the conversation without delivering a direct rejection. The distinction matters because the word traction is nearly useless without a definition.
Does the investor need to see:
more revenue;
better retention;
additional enterprise customers;
completed technical or commercial pilots;
signed contracts rather than nonbinding interest;
regulatory progress;
stronger intellectual property;
improved unit economics; or
evidence of repeatable customer acquisition?
Those are different risks requiring different remedies. Without that specificity, “more traction” is not actionable guidance. It is an escape hatch.
Creating Traction Is Part of Early-Stage Investing
At least part of the purpose of early-stage venture capital is to help companies create and accelerate traction while meaningful uncertainty still exists.
Capital, operating experience, relationships and institutional credibility can help a company finish its product, recruit critical talent, reach customers, establish distribution and convert early evidence into a scalable business. If a company already has predictable revenue, strong retention, proven unit economics, established distribution and limited execution risk, the investor is no longer being compensated for identifying potential particularly early. The investor is paying a higher valuation for evidence someone else waited to see.
That does not mean investors should provide extensive free assistance to every founder who sends them a pitch deck. An active investor may encounter hundreds or thousands of companies and cannot become an unpaid adviser to all of them. There is, however, a meaningful middle ground: structured pre-investment engagement with selected companies that appear promising but are not yet institutionally ready.
Working with founders before investing can reveal coachability, execution speed, transparency and compatibility more effectively than another pitch meeting. It allows both sides to test the relationship, identify material risks and determine whether genuine alignment exists before entering a financial partnership that may be difficult to unwind.
Traction Is Evidence, Not Just Revenue
Revenue is one form of traction, but it is not the only one.
Depending on the company, sector and stage, meaningful traction may include:
active and retained users, including nonpaying users moving toward monetization;
completed technical demonstrations;
successful pilots with a credible path to deployment;
signed customer or distribution agreements;
government contracts or grants;
regulatory milestones and industry certifications;
proprietary datasets or commercially defensible intellectual property;
measurable product-development milestones;
organic demand and community adoption; or
evidence that customers are changing their behavior because the product exists.
A company can create considerable enterprise value before generating substantial revenue. But every metric must answer a more important question:
What does this evidence actually prove?
A user count may prove awareness but not retention. A pilot may prove technical feasibility but not willingness to pay. A patent may support defensibility but say nothing about customer demand. A partnership may create distribution, or it may amount to two logos sharing a press release. The label matters less than the underlying evidence.
Validation or Decoration?
Founders are frequently encouraged to collect anything that makes the company appear more established. The result can be an impressive-looking assortment of signals that prove very little:
registered users who rarely return;
letters of intent containing no commercial commitment;
partnerships that have never produced a customer;
advisers who contribute a photograph and little else;
pilots with no route to paid deployment;
patents with limited commercial relevance; and
press coverage mistaken for market demand.
None of these signals is automatically worthless. Their value depends on the quality of the counterparty, the behavior involved and the outcome produced.
A nonpaying user may represent meaningful traction when that user is active, retained and moving toward monetization. A letter of intent may matter when it identifies real commercial terms, comes from a credible counterparty and contains a realistic path to execution. An adviser becomes valuable by creating access, improving strategy or helping the company accomplish something measurable, not by decorating the team slide. The correct question is not, “Does the company have traction?”
The better questions are:
What evidence exists?
Which assumption does it validate?
Which risk does it reduce?
How durable is it?
What milestone should follow?
More Activity Does Not Necessarily Mean Less Risk
Investors often treat expanding revenue as though it automatically reduces risk. It does not.
Revenue can grow while retention deteriorates. Customer numbers can increase while acquisition costs become unsustainable. Pilots can multiply without converting into contracts. Partnership announcements can accumulate without becoming operational.
A company can manufacture impressive short-term traction by offering heavy discounts, accepting low-margin contracts or concentrating revenue among one or two customers. Annualized revenue can make several favorable months look like a durable business. Rapid valuation growth can conceal commoditization, fragile margins, customer concentration or dependence on one temporary distribution channel. More traction is not necessarily more evidence. Sometimes it is just more activity, busy work wearing a blazer.
Investors Should Define the Missing Evidence
If an investor passes because a company lacks sufficient evidence, the investor should be able to identify what is missing.
That might mean:
converting three pilots into paid contracts;
demonstrating six months of measurable retention;
proving willingness to pay at a sustainable price;
completing a regulatory or technical milestone;
reducing customer concentration;
demonstrating repeatable customer acquisition;
reconciling financial assumptions with the proposed use of proceeds; or
proving that demand extends beyond the founder’s personal network.
These are concrete underwriting concerns that a founder can evaluate and potentially address. Specific feedback does not obligate an investor to invest later. It does, however, distinguish a genuine underwriting concern from a lack of conviction disguised as guidance.
“Come back with more traction” sounds constructive while committing the investor to absolutely nothing. That is precisely why it is used so often.
Founders Should Pursue Evidence, Not Applause
Founders should not blindly pursue every metric that might make a pitch deck appear more impressive. Nor should they automatically chase every milestone suggested by an investor.
The founder’s responsibility is to determine which milestones genuinely reduce risk, validate assumptions and strengthen the company’s ability to raise and deploy capital responsibly.
The objective should not be to manufacture momentum for the sake of obtaining someone else’s money. It should be to produce evidence that the business is becoming more defensible, commercially viable and capable of generating an institutional return.
Before adopting a new traction target, founders should ask:
Will this make the business stronger or just make the deck look stronger?
Does it validate demand, retention, pricing, delivery or defensibility?
Is the result repeatable?
Is the milestone economically sustainable?
Does it lead toward the company’s actual strategy?
If the answer is no, the metric may be creating motion without progress.
A Pass Does Not Always Have to Be the End
This frustration is one reason I do not believe every lack of readiness should produce an automatic and permanent rejection.
Through our venture studio, we created structured programs for selected companies that show potential but are not yet ready for institutional investment. The process helps founders identify specific gaps, strengthen their capital strategy and prepare for professional diligence. It also gives our team sustained visibility into how the founders respond to evidence, deadlines, scrutiny and difficult decisions. The work may address capital mechanics, securities-law compliance, capitalization, round structure, control rights, financial assumptions, governance, investment instruments, milestone design, investor positioning, documentation and diligence preparation.
Participation does not guarantee an investment, and the engagement is not payment for capital. Investment remains a separate and discretionary decision based on performance, diligence and alignment with our mandate. The purpose is to replace the empty instruction to “come back with more traction” with a defined process for determining whether the company can become institutionally investable, and whether we are the right parties to move forward together. Even when no investment follows, the company should emerge with clearer evidence, stronger materials and a more credible financing strategy.
Traction Needs a Destination
Traction without a defined path is like a high-performance race car driving aimlessly on a Sunday afternoon. It may have speed, power and excellent grip, but movement without a destination is not progress.
A company can accumulate users, partnerships, letters of intent and revenue. Unless those signals lead toward sustainable growth, defensibility and an institutional return, the company is confusing activity with direction.
The late product-development leader David Hussman captured this problem through Dude’s Law:
Value = Why ÷ How
The “why” represents the importance and clarity of the objective. The “how” represents the complexity, effort and activity required to achieve it. Value improves when execution serves a meaningful purpose; it deteriorates when the activity becomes bloated or disconnected from the objective.
Applied to startups, pursuing traction solely to obtain investment gets the equation backward. Metrics accumulated to satisfy investors can pull a company away from its mission. The receipt of investment starts to look like the achievement itself, rather than a tool for creating something valuable.
Venture capital is supposed to provide resources that help companies create value and succeed. Investment should be a means of building the company, not the objective around which the entire company is built.
Today’s traction can become tomorrow’s failure when it is artificial, expensive or disconnected from a sustainable outcome. More traction is not necessarily the answer.
What matters is a defined and executable path in which every milestone leads somewhere meaningful, the “how” supports the “why,” and capital serves the company instead of the company existing to chase capital. Otherwise, everyone may be staring at traction, but what they are really seeing is a mirage.
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This article is provided for general informational and educational purposes only. It does not constitute investment, legal, tax or financial advice; an offer to sell or a solicitation of an offer to buy any security or interest in any fund; or a recommendation or endorsement of any company, security or investment strategy.
Editorial source note
David Hussman discussed Dude’s Law—Value = Why ÷ How—in a 2017 interview on Test & Code Interview
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