✌️ Heartcore Consumer Insights
Welcome to the 90th edition of Heartcore Consumer Insights. Curated with 🖤 every two weeks by the Heartcore Team.
If you missed the past newsletters, you can catch up here. Now, let’s dive in!
GMV retention is a cohort-based way of looking at how healthy each side of your marketplace is.
Many companies measure user retention, which shows the frequency with which users return to your product. GMV retention takes this a step further by measuring how much of each cohort’s spend you retain over time.
There are a few reasons why you should care about GMV retention.
It’s an indicator of product-market fit: high GMV retention can reflect that: (1) most of your users retain and continue to transact over time; or (2) only some of your users are retaining, but they’re transacting much more over time. Either of these scenarios is pretty positive when it comes to PMF.
It gives you more “wiggle room” on marketing spend: many investors will calculate LTV vs CAC for both sides of the marketplace. In many cases, they’re looking for a 4x+ ratio. Higher GMV retention means the lifetime value of a user is also higher. This allows you to spend more on marketing to acquire users and keep a healthy ratio.
It can show you how customer health is trending over time: as each new cohort of users is hopefully bigger and spending more in absolute, you might believe that your cohorts are healthy. But if, for example, your M6 GMV retention drops from 75% for older cohorts to 30% for new cohorts, this may be a sign that the value prop for your early adopters isn’t translating to a broader user base.
The best examples of top-tier GMV retention come from marketplaces that have made it to IPO. These companies report GMV retention on an annual basis (the data below shows retention for a cohort’s second year on a marketplace versus their first year)
Private comparables come in somewhat below these numbers. The average private marketplace (general market observation by a16z) retains supply-side GMV closer to 80-95% in the first three months – and then plateaus around 45-50% by M12. The average marketplace retains demande side GMV closer to 60% in the first three months – and then 30% by M12.
With NASDAQ down 21% YTD, many publicly-listed technology companies are trading at steep discounts compared to their valuation highs. We’re also seeing fewer SPACs and IPOs, which are down near 50% quarter-on-quarter.
Tightening money conditions fuelled by strong inflation fears and geopolitical conflicts will most likely impact private financing rounds across all stages with smaller round sizes and lower valuations.
Fresh Q1 2022 data from the U.S. shows what we are likely to expect in Europe in the upcoming months: every stage, from early to late, was hit in Q1, with Series A capital investments decreasing as much as 58% compared to Q4 2021 (note however that Q1 is typically slower than Q4).
Some guidance as you navigate the weeks and months ahead:
Brace yourself: expect raising follow-on rounds to be more challenging in the next few months. This is independent of your business model and, rather, a reflection of the current external market dynamics.
Understand dynamics: this is not just a late-stage problem. Businesses of all stages and valuations are likely to be affected in some manner as investor appetite cools. But it’s not just founders or investors. Expect consumer spending to decrease. Largely as a measure to combat inflation, central banks are raising interest rates. We’re already seeing this with the Federal Reserve in the U.S., which has just announced its biggest interest rate hike since 2000. As a result, the cost of capital, like borrowing costs and other prices, will rise, forcing many consumers to cut their individual spending. As this continues, B2C businesses will be first affected, but B2B may be affected in the midterm.
Assess offers: Consider raising additional capital if a serious opportunity presents itself as a measure to extend your growth. Don’t wait until raising capital is a “must” but rather a choice.
Review budgets: Take a fresh view of your budgets and cost structures - cash is king. Cut nonessential costs and expenditures, and look into renegotiating certain contracts.
Don’t panic: & stay focused! It will always be hard to time markets as an early-stage founder. At the same time, great companies will continue to raise. Act with a prepared mind and focus on what you do best - building strong companies with an outlook on the long run.
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Heartcore Consumer Insights is a weekly newsletter covering notable consumer rounds and exits and top content in the B2C space.