Article by Chandran Krishnan – MD & CEO, Campus Angels Network and Principal Advisor, SSN iFound
Two startups walk into a pitch room.
One has customers, recurring revenue, and promising growth. The other has a breakthrough innovation—but no users yet.
Which one gets funded?
In theory, both should.
In reality, early-stage investors often find themselves torn between the certainty of traction and the promise of innovation. The evaluation lens shifts depending on the type of startup, the profile of the investor, and the stage of the market. This article explores how investors weigh these two archetypes: the traction-led ventures and the innovation-led disruptors.
The Case for Traction-Led Startups
These are ventures that ride on clear demand signals. Their products may not be unique, but they work. Customers are buying. Metrics are improving. Revenue is predictable.
Angel investors, especially those with operational backgrounds, tend to gravitate toward these ventures. Traction de-risks the investment. It shows that the founders can execute, the market exists, and the startup is ready to scale.
For traction-led startups, diligence focuses on unit economics, go-to-market repeatability, and founder ability to convert early momentum into growth. Often, the innovation is in execution, not IP.
The Case for Innovation-Led Startups
These are idea-push ventures, typically in deep tech or category creation. There may be no customers yet, but there is a patent, a prototype, or a technology edge. The product is solving a hard problem, often before the market fully realizes it.
Here, investors look for signals beyond revenue: depth of the technology, uniqueness of approach, strength of the team, early validations (POCs, pilots, grants), and clarity of vision.
Innovation-led startups attract investors who understand that value here is created over a longer cycle. These bets are riskier, but potentially outsized in outcome.
What Early-Stage Investors Look For
Regardless of the type of startup, certain fundamentals always matter:
- Is this a meaningful problem worth solving?
- Does the team have the capability and commitment to solve it?
- Are there early signals—market traction, expert validation, or tech readiness—that suggest this has legs?
- Is the solution differentiated and defensible over time?
If it’s a traction-led play, metrics and customer feedback matter more. If it’s innovation-led, the strength of the insight, technology, and team take precedence.
In both cases, ambition must be anchored in realism.
Final Word
Early-stage investing is not just science. It’s judgment. There is room for both types of founders—those who chase demand, and those who create it.
The real trick? Knowing which one you are—and building accordingly.
