Stealing Signs - Issue 20
Seed Stage Ops, Launching During a Pandemic, Fast & Slow Money, Climate Tech, and 5 consecutive Home Runs??
Worth Reading
Team Size, Burn, & Runway at the Seed Stage
Brad Gillespie, IA Ventures
“For true product-market fit, MRR should be coming from the just-right customers all using the product for similar reasons. Be skeptical. If it’s not, don’t increase burn.”
This is great advice for Seed founders on setting a burn cap, a maximum monthly net burn that results in at least 2.5 years of runway. Brad suggests the burn cap is a powerful tool which founders can employ during “bad times,” as he (and PG) calls them. Not only can it extend the life of the company significantly, but it will better position the company for future investment.
Jeffery Katzenberg on Launching Quibi During a Pandemic
Peter White, Deadline
“DEADLINE: Do you see the fact that people are on lockdown as an advantage or a disadvantage? On the one hand, people will have time to watch at home, but on the other hand, the service is designed to be watched on the go.
KATZENBERG: It’s not a disadvantage or an advantage, I just think it’s different. There’s no question that there’s a difference between having in between time traveling to work or standing in line at Starbucks or taking a break from a meeting, but that’s not to say our lives have delivered us a whole different set of in-between moments.”
Super interesting interview with Jeffery Katzenberg, the founder Quibi and ex-Walt Disney Studios Chairman and Dreamworks co-founder. I’m particularly interested in two of Katzenberg’s responses: 1. COIVD-19’s impact on consumers’ “in-between moments,” and 2. the differentiators Quibi has developed: content rights/financial incentives and technology.
In the quote above, Katzenberg states that he does not think the COVID-19 will impact Quibi’s mobile-first content strategy. More specifically, he suggests the lockdowns have not changed consumers’ “in-between moments.” I disagree. I think a significant change in these moments is evident in the significant shift in content consumption — especially content frequently consumed during “in-between moments,” like podcasts.
The last few weeks have seen a significant decline in podcast streaming:
“Last week, during the week, user sessions for the Overcast podcast app were down about 20% from recent normal levels”
Podcast downloads and audience growth have declined significantly as well:
The shifts in content consumption don’t necessarily mean our “in-between moments” have changed, rather that what we’re doing in those moments has changed. However, I think the widespread adoption of remote work suggests these moments have, in fact, changed, mainly because of how it’s changed consumer device usage.
Quibi is betting on is mobile-first content, which makes sense when a phone is the primary personal content consumption device for meaningful chunks of a consumer’s day (commutes, the gym, Starbucks lines, even between meetings). However, this is no longer the case. The widespread adoption of remote work means most people are now hooked to a desktop/laptop computer at all times, especially for those new to it. Instead of many “in-between moments” when a phone is the primary consumption device, the vast majority of “in-between moments” now occur when a desktop/laptop is the primary consumption device. So, life, via forced remote work, has delivered us a new set of “in-between moments” — moments when our primary consumption device is not the phone.
Quibi has established two key differentiators to acquire talent and build a strong content library: a technology platform that enables creators to quickly and easily develop content, and attractive content rights for creators. It seems these two differentiators are specifically designed to give Quibi advantages on the two competitive vectors in the streaming video on-demand (SVOD) world: content volume and content quality.
The technology platform enables creators to bypass traditional production processes that include large budgets, massive teams, and long timelines. Katzenberg doesn’t say too much on this, but I imagine this means Quibi has developed tools to help creators take production into their own hands and get up and running quickly. This differentiator helps Quibi compete with the behemoths in this space on the content library volume vector. Netflix is the strongest player here with a seemingly endless library of shows and movies, and Hulu is probably second in line with virtually every reality show ever and every episode of Bob’s Burgers :).
Quibi also grants creators the right to re-release their content on another platform after just two years, and after seven years, grants them full control of it. This is a unique structure of content rights and financial incentives, and will likely enable Quibi to compete on content quality from the jump. It’s evident in their signing of many of the biggest celebs and writers pre-launch, but it’s probably an effective talent acquisition tool over time, too. Disney is undoubtedly the king of this competitive vector, as their library is unrivaled and stockpiled with universally attractive titles. HBO is likely next in line, with some of the most popular original TV series of all time, like Game of Thrones, The Sopranos, and Curb Your Enthusiasm. The generous content rights Quibi offers may even result in higher quality content on average than other services over time, as creators may feel motivated to do their best work given the potential to monetize it beyond Quibi’s platform.
What’s Your Perpetual Growth Machine?
Dan Hockenmaier, Basis One
“In the payments processing space, Square brought a self-serve product coupled to a marketing-driven machine to a fight where everyone else brought a manual setup product and a sales-driven machine. As a result, Square had both higher leverage (more efficient use of the initial asset) and higher velocity (shorter time from outreach to revenue). This opened up the SMB market to them in an unparalleled way, while incumbents were not efficient enough to target customers with lower LTVs.”
In this post, Dan breaks down the four key types of perpetual growth machines for startups: 1. Sales & Marketing Machines, 2. User Machines, 3. Content Machines, and 4. Physical Space Machines.
In my experience, none of these machines are really working at the seed stage. User machines and content machines are the only two which may be working, but only on a very small scale. Dan makes an interesting point about referral programs, too — that they function more as sales & marketing machines than user machines because the company is really just paying the user instead of an ad network, and still need cash to payout the referrals. It’s a good point, but I think these programs certainly rely on they key component of a well-oiled user machine — virality. An effective referral program, while still paying users, depends on users sharing the product with many others, or as Dan notes, the product is relevant to a high % of the population. It also relies on users wanting to share the product, or, again, as Dan notes, the product makes users look good or gets better when more people use it. Obviously, true vitality means these things happen on a massive scale, but these core dynamics still drive a good referral program no matter the scale.
Fast & Slow Money in VC During a Financial Crisis
Tribe Capital
“We are in it for the long run, and will do whatever it takes to help our portfolio, LPs and partners make it through whatever might come. Some other investors will do this too, by being what we call “Slow” money: persevering through tough times alongside their portfolio companies and coming out on the other side, no matter what. Naturally, others are “Fast Money,” coming in quickly, but also retreating when the going gets tough, often because they participated in VC for transactional or opportunistic reasons, or if their capital base was at elevated risk.”
Extremely interesting analysis of how VC investors weathered the 2008 financial crisis and great advice for founders about choosing investors in turbulent times. Their analysis of active investors from 2003-2018 produced three very helpful insights:
The financial crisis produced an overall decline in early stage fund retention: For every 10 funds that would remain active after 5 years in normal times, 8 managed to do so in tough times.
The shock affected smaller funds and funds whose core strategy lies outside SeriesA/B/C (which we call “Transactional VCs”) -- this “Fast Money” Transactional VC group was hit particularly hard, with 1/3 such investors who would have stayed in the game during good times churning through the crisis.
The prolific “Slow Money” Large VCs weathered the storm disproportionately well, showing no signs of yielding through tough times.
This analysis is obviously highly relevant now in the thick of the COVID-19 crisis. In addition to the crisis, fundraising for micro-funds, < $100M in AUM, has quadrupled in the past decade, and 268 of these funds closed in 2018 alone. Further, there were 147 active nano VC funds, <$25M in AUM, in 2018, more than double the 2013 count. In short, there are many, many more small, early stage funds now than in the last financial crisis. If Tribe Capital’s analysis is at all indicative of how the current crisis might impact the VC landscape, many of these funds may not recover.
The Tribe Capital team has produced some awesome crisis-related research and they consistently offer unique insights and helpful advice for founders. They would be at the top of my investor list if I were a founder. I’d probably start by Twitter DM’ing Arjun :).
The Breeze: Climate Solutions and Digital Acceleration
Tommy Leep, JetStream
“When they are broken out by sub-sector of investment, we see that venture investors have also moved away from investing in new hardware- or science-based solutions in recent years; this capital is now primarily flowing to software or business-model solutions… However, society will likely need new hardware and new science-based innovation solutions to effectively combat climate change. Solutions such as negative-emissions technologies or carbon-negative cement will require the financial nurturing of nascent hardware and science technologies. This reality makes an acute funding gap particularly menacing.”
Tommy recently started a newsletter on climate tech investing — he’s only 4 issues in, but it’s one of the most interesting resources I’ve found on this topic. He also invests in climate tech startups at his syndicate, JetStream. Issue 3 of his newsletter, written on March 20th, includes a great post about a key similarity between the COVID-19 crisis and the climate crisis: a multidisciplinary response — software, hardware, biotech, chemistry, physics, and more.
Tommy also suggests that the digital services which which are thriving as a result of COVID-19 — Zoom, Notion, Slack, Twitch, and Pillpack to name a few — will play an increasingly significant role in our lives through the climate crisis. He doesn’t dive to deep into this thought in the post, so I’m interested to hear more from him about the direct impacts these tools may have on our efforts to solve the climate crisis.
Lastly, this issue includes a great chart showing climate solutions by innovation stage:
<stuff> Weekly
LOL Weekly: Seed Investing During COVID-19
lololol
Funding Weekly: Air Doctor
“By combining a global network of medical professionals with a digital platform, Air Doctor is able to lower costs for insurance companies, and offer value-added solutions for credit card companies and mobile operators. On the supply end, it also claims to increase physicians’ income and digital presence, while providing “the highest level of healthcare” for international travellers in their native languages.”
Air Doctor raised a $7.8M series A from Kamet Ventures and the Phoenix Insurance Company. Such a practical solution and is always something I’ve wondered about while traveling, especially internationally. I particularly like their positioning as a value-add service for travel agents and insurance companies. This platform is an interesting example of a two-sided marketplace, too. Patient transaction frequency is obviously quite low, but the value they gain from the platform is quite high. Physician transaction frequency is likely much higher than patients’, but I wonder if the marginal costs of serving more patients with increased complexities (language barrier, for example) is too high for many physicians to join, which would impact the “high quality care” value proposition for patients. A sizable Series A round means they likely have a good grasp on marketplace liquidity, though!
Baseball Weekly: Trevor Bauer’s Strategy Session
Max Kepler, the Minnesota Twins RF, homered off of Trevor Bauer in 5 consecutive at-bats 2019, include 3 HR’s in one game. In this brilliant episode of Bauer’s personal video series, Breaking Point, he breaks down each at-bat against Kepler, picking apart flaws and strengths of his swing, his rationale for specific pitches, and how, over time, the pitch sequence and selection in each at-bat led to Kepler’s success against him. It’s seriously an incredible video — extremely detailed insights from Bauer and a rare peek behind the curtain of a major league pitcher’s in-game strategy.
On a different note, Trevor Bauer is crushing the content game. His YouTube channel is a mix of vlogs, pitching tips, in-game analysis, and training videos, and has 23k+ subscribers. He also co-founded a digital media company, Watch Momentum, which produces behind the scenes MLB videos, barber shop-type conversations with MLB players, and baseball documentaries. His commitment to story-telling and unique content is unmatched, and I think it’s an incredibly sharp professional strategy.
Art Weekly: EXPANDED HOLIDAY
Brian Donnelly a.k.a. KAWS
“The project, a collaboration between the artist and the digital art platform Acute Art, featured 12 augmented-reality versions of KAWS’s “Companions” floating above 11 cities across the globe, viewable only through Acute Art’s app…
“We’ve always talked about dematerialized aspects of art, since the birth of conceptual art,” Birnbaum said. “And AR really is an extreme example of this, where you can do global things that are not material but still visually overwhelming, or at least visible…”
“You can become your own curator and place this little object in your kitchen, in your mother’s living room, your girlfriend’s bathroom. You can share it with friends, send it as a post—it’s become this incredibly visible thing…”
“The [KAWS] exhibition is like a massive, monumental art world Pokémon Go,”
