It’s no longer good enough — and debatable that it ever was — to be a tech startup with a seemingly novel idea. Not in 2013, as DC based 500 Startups‘ venture partner Paul Singh says, when there’s “more competition than ever.”
Singh was on hand at the Maryland Entrepreneur Expo in November to offer his criticism of the pitches from this year’s crop of Pitch Across Maryland finalists, as well as to deliver the ending keynote. His main message wasn’t dissimilar from one he gave at Federal Hill incubator Betamore last February: startups should spend less time focusing on marketing, and more time gaining “traction” in the marketplace.
Technical.ly Baltimore spoke with Singh before his keynote to ask him what that means. This is an edited version of a longer interview.
TB: What is traction? Isn’t that just a business buzzword for meaning your startup was either first at what it does, or happened to know all the right people?
PS: I would say everybody’s got a different answer, so here’s my answer: it’s small but measurable repeat usage. If you’re building a consumer product, it’s not worth talking to investors until you’ve got a thousand repeat visitors every day. I’m just picking 1,000 off the top of my head, but it’s repeat traffic.
TB: So as an investor yourself, you’re saying you want to see something tangible. Not a pitch deck. Something that proves to you a startup business is selling whatever it is they’re selling.
PS: As an investor, I don’t want to be asking myself: does anybody want to pay for this? The question I want to ask myself is: are there 10,000 of these customers, or are there a million? Because 10,000 is a good lifestyle business, and a million is a lucrative VC exit. Neither of which is bad by the way, they’re just different funding models.
TB: How should startup founders be pitching investors then? Traction first, it seems.
PS: In 2013, nobody should be funding ideas. Founders shouldn’t be pitching on ideas, and investors should never be investing in ideas. … That little bit of traction helps me know if they understand their customer, and that way we can spend 80 percent of our time talking about customer distribution, cost of acquisition — the growth stuff.
TB: What should investors be looking to put their money in?
PS: The business of venture capital is no longer about deal-sourcing, but rather about deal selection. Meaning events like the Startup Maryland bus are around deal-sourcing: let’s see if we can find the next big thing. And that’s cool, it’s necessary.
TB: But it’s not enough? It’s becoming obsolete to try to find a startup doing the Next Big Thing?
PS: The thing that investors don’t articulate very well: we can’t predict who the next Mark Zuckerberg is. We’re not in the business of judging ideas. We’re very bad as an industry to judge ideas. Traction is the thing that helps us. That’s what we should be investing in. … Let’s create an event like [Pitch Across Maryland] for people that have already raised half a million [dollars] and think about how we sort things from least-worst to worst-worst, and invest in the least-worst.
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