✍️ WHAT CAUGHT OUR EYES
What it feels like when you've found product-market fit – Lenny Rachitsky
Below you’ll find stories from Consumer companies, revealing the moment they realized they had built something special.
Uber: “We never really had a PMF problem — 0 marketing budget and we were growing like a weed. Word of mouth was uncontrollable, and especially as regulatory heat started it's all anyone could talk about. Marketing was free because the media loved the story.”
Instacart: "PMF happened across a series of moments. We found PMF very early on with people who wanted groceries delivered as soon as possible. This made us feel like we had achieved PMF but it was only with a small sub-segment of customers. The average customer wanted to shop from their favorite grocery store. So, we formed partnerships with top retailers. As a result, customers started to seek us out and word of mouth grew. Initial signs of product-market fit feel a bit like a calm breeze, while true product-market fit feels like a powerful wind at your back, accelerating you forward and compounding over time.”
Nextdoor: "One engineer needed to take the service offline for an hour. We thought no one would notice since we had less than a few hundred users at the time. About 10 minutes after taking the servers offline, I started getting emails/phone calls from concerned users. One user called me in a panic because she needed to contact a neighbor immediately. Another user was worried that the service was suddenly gone. We had clearly built something that mattered in the lives of users. If your users are urgently calling and demanding access to your product, you have clearly built something of real value. That’s product-market fit.”
Netflix: “With apologies to Justice Potter Stewart, I’ve often felt that PMF is not unlike pornography: hard to define, but you know it when you see it. The original idea for Netflix didn’t work. But hundreds of failed experiments later, we finally tested the unlikely combination of No Due Dates, No Late Fees, and Subscription. That ultimately was the thing that ended up working. And boy did it work. Where before we were struggling to get traffic, all of a sudden we couldn’t keep up. Engagement soared, churn went dramatically down. Everything started working! If there was a moment when Netflix stopped being a start-up and became a real company, it was then."
10 Factors To Consider When Evaluating/Building Consumer Subscriptions businesses - Nikhil Basu Trivedi
Must-Have vs. Nice To Have: A fundamental question for any business, but this is particularly important for subscription businesses, given that consumers vote with their feet to either churn or continue their subscriptions every month/quarter/year.
Existing Recurring Behavior vs. New Recurring Behavior: Some categories just lend themselves more naturally to a subscription business than others. Take the grocery category for instance. Most people buy groceries on a regular basis - perhaps multiples times per week: subscription makes a lot of sense there.
Conversion from Free Tier or Trial to Paid Subscriber: Netflix’s conversion rate is best-in-class at an astounding 93%, Amazon Prime Video’s is 73%, and Spotify’s is 46%. The broader the top of the funnel that tries out the service, and the better the conversion rate, the better the subscription business.
Subscription Gross Profit (Annual): There are several top-line factors that matter for a subscription business (pricing, gross profit margins, frequency of subscription). But if we have to boil all of these down to one key metric, it is the annual gross profit value of a subscriber. This key metric puts digital/physical subscriptions, and subscriptions with varying degrees of marginal cost, on a level playing field.
Cohort Retention: Customer retention (% of customers that remain subscribers) & Revenue retention (% of revenue in each cohort). It’s also important to closely watch usage retention (% of customers that continue to use the product over time). Usage retention is a leading indicator of future customer retention.
Payback Period on CAC: The best subscription businesses have very quick payback, perhaps even instant. A payback period of >1 year is challenging for most subscription businesses (even those with strong cohort retention).
TAM for Initial Offering: Does the addressable market for the initial offering support a business that could do over $50M in annual subscription gross profit, and therefore be valued >$1bn?
Attachment and Bundling Potential for Act II, III: Most great subscription companies have a first phase that gets them to tens or hundreds of millions of dollars. But they follow that up with more products and services that lead to secondary and tertiary subscription offerings (Act IIs/Act IIIs). At the early stage, it’s important to consider the vision for Act II, and the potential for subscribers of Act I to attach themselves to Act II once it is launched.
Win-Back Potential: How can the company turn previously churned subscribers into paid subscribers again?
Network Effects: The best consumer subscription businesses leverage network effects to increase the value of the subscription offering, to boost many of the factors listed above, and to provide a moat against the competition (Netflix, Spotify, Stich Fix, Peloton).
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👏 WHERE THE MONEY WENT
🇪🇺 Notable EU early stage Consumer rounds :
Emjoy, a Spain-based audio sexual wellness startup, raises $3M with JME/Nauta - link
Kard, a France-based challenger bank for teenagers, raises $3.5M with Founders Future - link
SISU, an Ireland-based aesthetics clinic, and e-commerce platform, raises $5.5M million with Greycroft/Bullpen - link
Streamloots, a Spain-based startup helping live streamers monetize their audience, raises $5.6M with Bessemer/Samaipata - link
Kbox, a UK-based startup enabling food retailers to optimize underutilized kitchen assets, raises £12M with Balderton - link
🇺🇸 Notable US early-stage Consumer rounds :
Sora, a US-based alternative online high school, raises $2.7M with USV - link
Buzzer, a US-based mobile platform for live sports, raises $4M with Lerer Hippeau/Sapphire Sport - link
Yotta Savings, a US-based maker of prize-linked savings account that rewards customers raises $3.3M with Slow Ventures/FundersClub/Chapter One - link
BookClub, a US-based platform for author-led book clubs, raises $6M with Maveron/GSV - link
daring, a US-based plant-based chicken maker raises $8M with Maveron/GoodFriends -link
Forage, a US-based company partnering with leading companies to create free open-access training courses for candidates, raises $9.3M with Lightspeed - link
Bloomscape, a US-based company that ships live plants straight from greenhouses to customers’ homes, raises $15M with General Catalyst - link
IRL, a US-based event discovery startup, raises $16M with Goodwater/Founders Fund/Floodgate - link
Papa, a US-based company seniors with companions providing assistance with everyday tasks, raises $18M with Comcast/Canaan - link
Bunch, a US-based app that allows its users to play their favorite games with friends over video chat, raises $20M with General Catalyst/EA/Take-Two/Supercell/Ubisoft - link
🔭 Notable later stage Consumer rounds :
Joint Academy, a Sweden-based digital clinic that provides treatment for patients with osteoarthritis/chronic joint pain, raises $33M with Kinnevik - link
Tend, a US-based provider of dental services raises $37M with GV/Tiger Global/Good Friends - link
Outschool, a US-based a platform for homeschooled students to bolster their extracurricular activities, raises $45M with Lightspeed/USV - link
Common, a US-based co-living startup focused on housing for remote workers, raises $50M with Kinnevik/Maveron/8VC/Norwest - link
Petal, a startup that offers a Visa rewards card to people with little to no credit history, raises $55M with Valar/Afore/RiverPark/Great Oaks - link
Willow, a US-based maker of wearable breast pumps, raises $55M with NEA/Meritech - link
GOAT, a US-based sneaker resale platform, raises $100M with D1 Capital Partners - link
Playco, a Japan-based company making a web browser gaming engine for games that are playable on a web link and can run on any platform, raises $100M with Sequoia/Mino Games/Caffeinated/Makers Fund - link
Tonal, a US-based connected home fitness hardware startup, raises $110M with L Catterton/Amazon Alexa Fund - link
Greenlight, a US-based company providing debit cards for kids, raises $215M with Canapi/TTV/Bond/DST/Goodwater - link
Cazoo, a UK-based online used car buying platform, raises $310M with General Catalyst/D1/Fidelity Management/Blackrock - link
Robinhood, a US-based stock trading app, raises $460M with D1/a16z/Sequoia/DST/Ribbit - link
Chime, a US-based neobank providing fee-free financial services, raises $485M with Coatue/Iconiq/Tiger Global - link
Bright Health, a US-based health insurance company, raises $500M with T. Rowe/Tiger Global/NEA/Bessemer - link
Affirm, a US-based fintech consumer company that offers installment loans to consumers at the point of sale raises $500M with GIC/Durable Capital Partners - link
Much 🖤 from Heartcore