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Traction

One of our criteria to be able to invest in a company is that the company must have traction. There’s been lots of confusion about traction: what it means and how you can get it without spending lots of money. This post aims to help clear up the situation so that you can focus on getting traction faster, without spending large amounts of money.

Let’s start out simple. What is traction? Traction is numeric, demonstrative evidence that someone wants your product. Traction shows that you are on the right track to being able to prove that the problem you are trying to solve is real and that it’s painful enough that people will pay you to solve it for them and that your solution is the right solution.

We value traction in the following order:

  • Profit
  • Revenue
  • Users
  • Partnerships (real ones, not affiliate programs)
  • Letters of Intent
  • Offline demonstration of model
  • Traffic to a landing page/social media

We require traction because its cheaper, easier and faster to test out your business ideas now than ever before. If you are not willing or able to find some amount of traction for less than $500 of spend, you’re either not trying hard enough, doing it wrong or you are trying to solve a problem that is not painful enough that people are will to pay to solve it. Or your solution is wrong.

From an entrepreneur’s perspective, you always want to get some amount of traction before you invest your time and hard earned money into an idea. It doesn’t make sense to try to invest your time, money and ask for someone else’s time and money if you don’t know if you’re solving a real problem. You should be testing out hypotheses and validating them before taking the plunge and trying to run with an idea.

From an investor perspective, if you’re not able to at least demonstrate some amount of traction, how can we believe that you’ll be able to build a business when you have money?

So how can you do it? How can you prove that the problem is real and painful without spending any money? The easiest way is to validate your problem offline first. If you’re selling a product, sell it offline or via social media. If you’re selling a service, sell your service manually. You can also use vaporware or prototyping services, landing pages or even Google ads to validate traffic. Do something to take you one step closer to validating that the problem you are trying to solve is painful enough that people will pay you to solve it for them.

Stay tuned to our blog for more creative ways you can validate your idea for free or a small amount of money.

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Magma Partners Launch and Press

As part of our launch, we were featured in a number of outlets in Chile and Latin America, most of which were in Spanish. Andes Beat and Pulso Social wrote about us in English.

The Andes Beat article, titled With two confirmed investments, Magma Partners launches the most transparent investment firm in Chile, talked about how we’re trying to bring US best practices, transparency and fair deals for both entrepreneurs and investors into the Chilean entrepreneurial ecosystem. From the article:

Created by multinational serial entrepreneurs, Magma Partners is a new fund based in Santiago that invests in high-potential startups and small businesses

Today at 7:00pm, an event will be held to mark the launch of a new Chilean-US investment fund, Magma Partners. Formed by three partners– two Chileans and one from the United States– the fund is positioned as the most promising and most transparent in Chile’s national investment landscape. Magma Partners will use the best practices of the US’s most successful funds to help solve pain-points for local entrepreneurs such as exceedingly high equity rates, lack of investment transparency, and ambiguous communication.

Transparency is paramount for Magma Partners– those who direct the fund have previously raised LatAm-based capital for their companies and have seen first-hand how the the local process can drag on for months.

The Pulso Social article, titled Magma Partners Launches in Chile With US$5 Million to Invest, highlighted how we’ll operate as a fund. From the article:

With five million dollars to spend, the team behind the fund will utilize their experiences in raising capital to ensure solid practices and policies in their investments. As mentioned, transparency is central to their approach. Sáenz explained in an interview with PulsoSocial that the Magma Partners website clearly displays all of their investment criteria and required documentation so that applicants know what to expect. “Moreover,we offer term sheets that are fair for entrepreneurs and investors,” he explained. “We aren’t trying to take control of companies but instead to help them to be successful. Our fund is 100% private capital from the three founding partners.”

Over 75 entrepreneurs, investors, business people, family and friends attended our launch event in Santiago, Chile. See a picture below from the event.

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Introducing Magma Partners

Today, we’re excited to announce our launch of our new seed stage fund, Magma Partners, the first Chilean-US fund that uses 100% private capital from the founding partners. Our goal is to invest from $25.000 to $75.000 in 6-10 high potential startups and small businesses per year for the next three years, using industry standards and best practices from the most successful funds in the United States.

When most investment groups have the word “partners” in their name, they’re referring to the partners in the fund. We’re not. We’re entrepreneurs just like you. We know what it’s like to raise money, both in Chile and abroad. We want to partner with high potential entrepreneurs to help them create successful businesses.

We’re much more than money. Entrepreneurs who receive an investment from Magma Partners can expect intensive mentorship from our network of experienced entrepreneurs both in Chile and abroad. In addition to high level connections to potential clients and business partners in Chile and abroad; access to our office for at least three months; and help raising a follow-on funding round in Chile or abroad.

Our goal is to help fill a niche in the emerging Chilean entrepreneurial ecosystem to help entrepreneurs succeed.

We’re proud to announce that we’re launching with an already solidified investment in Propiedad Fácil, a real estate portal that connects buyers, sellers and financial institutions in order to streamline the real estate market. Adrian Fisher, Propiedad Fácil’s founder, is from the US but has been living in Latin America for the past seven years. He participated in Start-Up Chile in 2012 and has continued growing his business ever since. We’re excited to help him continue to scale his company.

If you’re a high potential startup or small business in need of funding, please fill out our application form. One of us will respond within 48 hours.

Saludos,

Francisco Sáenz, Nathan Lustig, Diego Philippi

Magma Partners

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