I was asked this question today via email so thought I would share my response here.  Many times you think “free” will resolve adoption/traction issues.  Most times, it will not…

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Free users are just that – free. They never expect to pay, have to be acquired in much the same way as paying customers, and they will demand the level of support and experience of paid users. “Maybe” you nail a freemium model and get 3-5% to convert to pay.  Freemium models require big balance sheets ($) to support and big numbers of users to pencil that conversion rate.

I am a bigger fan of getting to revenue – and use that as an indication of traction. Simply dropping or removing the price does not remove the adoption cycle or sales friction to get this into the hands of your target customers.  You will get to a point where you need larger deals so starting at $0 makes that a long climb.  Take your lumps in the sales cycle…

That said, given your stage as a company, you could get a away with a ‘beta’ program. Lets you get early product into the hands of targets, build those relationships, build a fan base, polish your sales and support operations then “launch” a commercial version priced appropriately. You could always grandfather those beta users in some way (first year 50% discount with an annual contract or whatever)

All of the above is my opinion and you should get others. 

I put more weight on 3-5 unaffiliated (not buddy deals) customers that have chosen to take money from their pocket and give it to you vs. a user count.  

If you choose the user path, then get dialed in and optimize around daily active use/users – that will be one of the key metrics a user driven investor will look for – how often is the product used, what is churn/dormancy, what does growth from that user to other users look like. All of that will have to be optimized in the product experience so that you don’t burn all your cash white gloving folks who don’t pay you.