Hi there,
Welcome to the 96th 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!
Incredible consumer products have one thing in common: they convert their users into evangelists - Olivia Moore (Consumer @a16z)
Incredible consumer products have one thing in common - they convert their users into evangelists. Each stage below builds on the other and is progressively harder to achieve.
Users love you and come back to your product.
Users tell their friends about you.
Users tell strangers about you.
The more users you can get to stage 2 and eventually 3, the better off you are.
"Users love you" - this shines through via retention. What type of retention and what "great" looks like differs by biz model. For social, it is interesting to look at bounded daily (ex. D30), while for subscription, looking at M13 renewal is important. Data on this for marketplaces. Breakout companies typically have not just good but "out of this world" retention in the early days. At the seed round, 50% of Snapchat's users were coming back three months after they joined (D90). Many social companies would be excited to see 50% D1!
"Users tell their friends" - for people who don't work at/invest in startups, the "bar" for sharing a new product is high. It's difficult to get perfect attribution here, but look at invites/user, K-factor, and whether CAC declines & organic acq. increases over time.
"Users tell strangers" - if your product has risen to the level that users are seeking out other channels to talk about it, you're likely doing something right. Truly magical products create conversation. Users can't help but share it with others who have similar interests. Streetwear marketplace StockX is a great example of this. Shortly after launch, it became the talk of sneakerhead forums like NikeTalk - winning over initially skeptical sellers who felt they had been ripped off by other platforms. A caveat - there are a few ways to "game" your way into what looks like evangelism, but actually isn't: (a) required friend invites (unless you have no discovery in-app, so it's useless without a friend), (b) referral programs with huge incentives. Users will exploit this + churn fast.
Revisiting Lifetime Value and Customer Acquisition - Rex Woodbury (Partner @Index)
At its simplest, business comes down to straightforward math: spend money to get a new customer (CAC), then generate a certain amount of money from that customer (LTV).
The pressures on CAC are many. Google, Facebook, and Amazon are monopolizing digital ad spend. At the same time, Apple’s ATT changes have dealt a blow to digital advertising (Meta estimates a $10bn hit to its business) and have made advertising more difficult to measure. We have rising CACs and less scalable, measurable acquisition - and it’s all happening in a recessionary market environment.
Exactly 10 years ago, in September 2012, Bill Gurley wrote a seminal piece on LTV. Until recently, the market rewarded growth at all costs. But, as Gurley says, gravity always ensues. This year, dozens of fast-growing but unprofitable tech companies have found their stocks down 80%+.
Early-stage consumer startups oftentimes make mistakes in calculating LTV. Let’s use a dummy example and dummy numbers to keep the math simple:
Spotify costs $10 a month, and let’s say the average subscriber sticks around for three years. That’s $10 x 12 x 3 = $360. A lot of money! Say CAC is $60. The math looks pretty good: $360 / $60 = 6x. A widely-held rule-of-thumb for a good LTV-to-CAC ratio is 3x, so this is looking pretty solid. But this math commits a fatal mistake: it uses revenue as a proxy for LTV (gasp), which is a cardinal sin. Rather, LTV should take into account costs. Say Spotify has to pay out two-thirds of that $360 to record labels, and only gets to keep one-third. That $360 quickly becomes $120. There are other costs associated with running the app, with music streaming, etc. Let’s subtract another $20. Now we’re at $100 from that user, and we’re only at 1.7x LTV-to-CAC.
Another mistake early-stage startups make is overestimating LTV. When Spotify was two years old, how would it know that subscribers will average three years? Often a better gauge in the early days is CAC payback. If Spotify banks $3 in profit per customer each month, CAC payback would be $60 / $3 = 20 months. The best consumer internet companies can pay back CAC immediately, often by incentivizing an annual subscription plan rather than a monthly plan.
One more point on LTV: it’s important to discount future years of $$ from customers. Money today is worth more than money tomorrow, and businesses are spending on CAC today for an LTV payoff tomorrow. Failing to take into account the time value of money can lead to unsustainable economics.
Growing rapidly with strong unit economics is very, very difficult. Sometimes in startups, it makes sense to “land grab” in the early days (particularly in new markets) and to subsidize growth. But land grabs only work if the underlying business model is sound. There’s no place for “voodoo math” when measuring LTV and CAC. Founders need to be razor-sharp on intricacies like the mix of paid and organic, true profit per customer, and payback period. Because again, the music always runs out.
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Which Investments Generate the Greatest Venture Returns: Enterprise or Consumer?
When and how to invest in new acquisition channels - Adam Grenier (Uber, MasterClass)
🇪🇺 Notable European early-stage Consumer rounds
Solvo, a UK-based mobile app making it easier to invest in crypto, raises $3.5M with Index/FJ Labs - link
Kive, a Sweden-based startup enabling creatives to collect and organize visual assets, raises $7M with Heartcore 🖤/Creandum/EQT - link
Smitten, an Iceland-based online dating app, raises $10M with Makers Funds/Possible Ventures - link
Patronus, a Germany-based developer of an app intended to link elderly people with their relatives, raises €27M with Adjacent/Singular - link
Gourmey, a France-based food tech creating sustainable cultivated meat, raises $48M with Early Bird/Partech/P9/Omnes/Heartcore 🖤 - link
🇺🇸 Notable US early-stage Consumer rounds
Fizz, a US-based social app mitigating isolation on college campuses, raises $4.5M with Lightspeed - link
Arpeggi, a US-based blockchain music creation platform, raises $5.1M with a16z - link
Polywork, a US-based social networking platform allowing professionals to collaborate with eachother, raises $28M with Caffeinated/a16z - link
Maven, a US-based developer of an online cohort-based leadership program, raises $25M with a16z/First Round Capital - link
Rippl Care, a US-based mental health company committed to assisting seniors, raises $32M with General Catalyst/ARCH - link
Yellow Card, a US-based app-based cryptocurrency exchange platform, raises $40M with Polychain/Valar - link
🔭 Notable later stage Consumer rounds
Theorycraft Games, a US-based independent game development studio, raises $50M with Makers Fund/a16z/NEA - link
Podimo, a Denmark-based open podcast platform offering a subscription service for creators, raises $59M with 83North/Headline/Heartcore 🖤 - link
Not So Dark, a France-based dark kitchen network, raises $80M with Kharis Capital/Verlinvest - link
Homa, a France-based mobile gaming startup partnering with indie studios so their games get optimized to become hits, raises $100M with Headline/Quadrille - link
Satispay, an Italy-based mobile payment company, raises $320M with Addition/Tencent/Coatue - link
🍭 Notable Consumer Exits
Naver acquires Poshmark for $1.2B. Poshmark is a US-based social commerce marketplace where users can buy and sell new and secondhand products - link
Heartcore Consumer Insights is a weekly newsletter covering notable consumer rounds and exits and top content in the B2C space.
