It’s Easy to Exaggerate Early Traction
Naval: Parker Thompson, aka Startup L Jackson, wrote: “Every investor who comes in after me is a spreadsheet jockey, and every investor who comes in before me is a dart-throwing monkey.”
If you fixate on spreadsheets and traction as an early-stage investor, you’ll annoy good founders. These are craftspeople who love what they do and are trying to build the perfect product for their customer.
If you can put yourself in the shoes of a future customer and appreciate the product, you’re much more likely to recognize and win hot deals.
If you see a company with amazing traction that’s monetizable, has a good founder and is willing to let you do all the spreadsheet analysis you want, ask yourself: “Why am I even getting to see this deal? Why hasn’t a top-tier firm already picked it off at a valuation that’s 10x what I could pay?”
It’s difficult to truly understand metrics
Companies are also getting good at faking and exaggerating traction. At accelerator demo days, companies are trained to present graphs in the best light. They’ll show cumulative graphs rather than incremental ones. They’ll cherry-pick stats. They’ll report explosive growth during an incubator session by selling to their batchmates or doing their sales all at once—these are not sales that are sustainable.
It’s difficult to truly understand their metrics, unless you access their dashboards, know their market and are willing to dig very carefully to separate truth from fiction.
When there’s a hot round and you have no time to decide, that’s when you get taken advantage of with rosy traction stories.