Traction is the word every early-stage founder hears when they engage with venture capitalists (VCs). But what exactly does traction mean, and why does it matter so much? In his LinkedIn post (here), David Foreman, Managing Partner at Praetura Ventures, succinctly outlined the “hierarchy of traction,” offering a powerful framework for founders to assess and present their progress when pitching to investors. This article takes inspiration from his insights and expands on them, offering actionable advice for founders aiming to make their pitches more compelling.

At Venture Catalysts, this framework is something we actively use when evaluating ventures for funding and scale viability. Traction isn’t just about showing progress—it’s about proving your business is on a scalable path with strong market validation. By understanding and leveraging the hierarchy of traction, founders can communicate their value proposition effectively and focus investors’ attention where it matters most.

The Hierarchy of Traction

When preparing your pitch, it’s crucial to position yourself as high up this hierarchy as possible. Each level represents a progressively stronger form of validation. Here’s how they stack up:

1. Revenue / Annualised Recurring Revenue (ARR)

ARR is the ultimate proof of traction. If you’re generating consistent, recurring revenue, you’ve proven that customers are willing to pay for your product or service. Highlighting ARR also demonstrates that your business model is scalable and sustainable. For example, emphasise metrics like revenue growth or customer retention to show momentum.

2. Contracted ARR

If you’ve secured contracts for future revenue, even if payments haven’t started, this is still a significant milestone. Contracted ARR shows that customers are committed to your solution and willing to formalise agreements.

3. Paid Proof of Concepts (POCs)

Paid POCs are a strong signal of interest, particularly in B2B and enterprise markets. They indicate that customers are willing to invest resources to test your product, showing a high level of engagement and intent.

4. Unpaid Proof of Concepts

While unpaid POCs don’t have the same weight as paid ones, they still demonstrate customer interest. These engagements often lay the groundwork for future revenue-generating opportunities.

5. Trials

Trials are typically short-term evaluations of your product or service. While they show adoption potential, they lack the commitment of a POC or contract. If trials are part of your traction story, focus on conversion rates or feedback from trial users.

6. Master Service Agreements (MSAs)

MSAs establish a formal relationship with a customer but don’t necessarily guarantee revenue. However, they show that customers trust your company and see long-term potential in working with you.

7. Letters of Intent (LOIs)

LOIs are non-binding agreements that express a customer’s intent to work with you. While they represent early validation, they lack the commitment of contracts or paid engagements.

8. Pipeline Value

Your pipeline reflects potential future deals. While it’s important to track, pipeline value alone is speculative and unlikely to convince investors unless backed by solid conversion data or advanced negotiations.

Positioning Yourself Strategically

To maximise your chances of securing funding, focus your pitch on the highest possible level of traction you’ve achieved. Here’s how to do it effectively:

1. Lead with Your Strongest Metrics

Start with your most compelling data—whether that’s ARR, contracts, or paid POCs. These metrics should form the foundation of your pitch.

2. Strengthen Your Story at Every Level

Even if you’re lower on the hierarchy, take steps to move upward. For instance, convert unpaid POCs into paid ones, or secure LOIs to demonstrate customer interest.

3. Back Up Claims with Data

Investors value transparency and credibility. Provide concrete evidence to support your claims, such as growth rates, customer testimonials, or retention statistics.

4. Avoid Vanity Metrics

Focus on substance, not fluff. While awards and PR might feel significant, they don’t prove your business’s market viability. Keep the spotlight on metrics that truly matter.

5 Practical Ways to Strengthen Your Traction Metrics

Traction doesn’t just happen—it’s built through deliberate strategies and execution. If you find yourself lower on the hierarchy, here are actionable steps to climb higher and make your traction story more compelling:

1. Convert Early Interest Into Revenue

• From LOIs to Contracts: If you have Letters of Intent (LOIs) or informal agreements, focus on converting these into formal contracts or paid engagements. Reach out to potential customers, clarify their objections, and offer tailored solutions to move them towards commitment.
• Trial-to-Contract Strategies: Offer incentives, such as discounted rates or enhanced features, to customers who successfully complete trials. Position these incentives as limited-time opportunities to create urgency.

2. Leverage Customer Success Stories

• Showcase Value: Identify early adopters who have achieved measurable success with your product or service. Develop detailed case studies that quantify the benefits they’ve experienced, such as time saved, cost reductions, or revenue growth.
• Public Testimonials: Request testimonials or endorsements from satisfied customers. A quote from a key decision-maker in a recognised organisation can provide credibility when pitching to VCs.

3. Build a Quality Pipeline

• Focus on Warm Leads: Ensure your pipeline is full of high-quality, engaged prospects rather than just a long list of potential leads. Prioritise leads that have already expressed genuine interest or are further along in their decision-making process.
• Show Conversion Data: If pipeline value is part of your pitch, accompany it with data such as conversion rates or the average time it takes for leads to progress through the sales funnel. This reduces the speculative nature of pipeline discussions.

4. Turn Unpaid Proof of Concepts into Paid Ones

• Reframe Your Offering: For existing unpaid Proof of Concepts (POCs), reposition the next stage as a value-added service. Highlight the benefits of continued testing with advanced features or expanded scope, and charge a fee to reflect the increased value.
• Start Small: Offer a “pilot pricing” model for paid POCs, which gives customers a lower entry point while still proving their willingness to invest in your solution.

5. Strengthen Long-Term Commitments

• Master Service Agreements (MSAs): If you’ve secured MSAs, actively pursue project-based contracts or upsell opportunities under those agreements. MSAs often serve as a door opener—use them to demonstrate incremental progress.
• Retention Metrics: For customers already on board, focus on retention and upselling. Showcase metrics like renewal rates, customer lifetime value (LTV), and expansions in service use to signal growing engagement.

Final Thoughts

David Foreman’s hierarchy of traction provides a clear roadmap for founders to assess and present their progress to investors. By aligning your pitch with this framework, you can focus on the metrics that matter most, build credibility, and ultimately improve your chances of securing funding.

Remember, the goal isn’t just to impress—it’s to convince VCs that your business has real market potential. Whether you’re showcasing ARR, contracts, or even early trials, ensure your story is rooted in evidence and progression. With a strong understanding of traction, you’ll not only capture investor interest but also set the foundation for long-term growth.