Stealing Signs - Issue 23
How to Build if It's Time, Mr. Beast, Midwest VC Activity, 3 Ideas on Pricing, The Burn Multiple, & Studio Ghibli Zoom Backgrounds
Support the Startup Community!
I've been on the lookout for ways to support both startups I know and the broader community, and recently one of the co-founders of Branch reached out with an awesome idea. They're an NYC-based startup that typically furnishes high-end offices, but has pivoted to helping people with WFH setups during the lockdown. They’re having a huuuuge sale right now and discounting ergonomic chairs and desks up to 35%! Further, instead of collecting the affiliate revenue, I’m working with Branch to donate 8% of every purchase by Stealing Signs readers to Good Sports, a charity working to provide sporting equipment to underprivileged youth communities across Chicago, Boston, and New York City.
For those who miss your office chair and desk, check out Branch using this link to support a cool startup and a great cause with your purchase! Thank you!
Worth Reading
How to Build If… It’s Time to Build?
Bilal Zuberi, Lux Capital
…there have tended to be fewer acquirors for hardware companies. When major tech companies are not in the mix as acquirors, exit multiples tend to be significantly lower. This should be a reason to bring about regulatory and other changes that enable more smaller companies to IPO so the public can own and support companies that do good for the society, and are seen as important and successful in their work?
This post is one of my favorite responses to Marc Andreessen’s recent call to action, It’s Time To Build, because it’s concise and relatively actionable. Bilal provides an insightful look at the challenges deep/hard tech companies face in venture capital, which, in recent history, has largely focused on software companies. He also suggests how each hurdle might be adjusted, specifically from a VC’s perspective, to support the significant shift in dollars and attention to these companies that Marc seemingly calls for.
Who is Mr. Beast?
Blake Robbins, Ludlow Ventures
It is widely speculated that YouTube’s algorithm prioritizes and rewards videos based on total watch time. This means that videos that are watched all the way through will algorithmically be promoted to others via the “recommended” panel of YouTube.
MrBeast has mastered this. Almost all of his video concepts are centered around watching to the end of the video. One of my favorite YouTube channels, Colin and Samir, has coined this as “Jenga Storytelling.”
Blake Robbins, Partner at Ludlow Ventures and Co-founder of esports team 100Thieves, recently started a Substack newsletter in which he’ll explore some of the most popular content creators on the internet. His first post explores how Jimmy Donaldson, aka Mr. Beast, became the fastest growing YouTube creator, averaging 60k new subscribers per day. It’s a fascinating read and I particularly enjoy Blake’s breakdown of the specific tactics Mr. Beast used to parlay glimpses of early success into a rapidly growing following. These “growth hacking” strategies are especially interesting as consumer appetite for digital content grows and more creators emerge.
YouTube and the massive distribution it affords is no doubt integral to Mr. Beast’s success — it’s his tool to create and distribute content. That said, the need to “hack” YouTube I think reflects the limitations of the platform as a tool for content creators. As more creators emerge and the barriers to digital content creation lower, we’re seeing a trend that could result in thousands, even hundreds of thousands, more full-time content creators, which will likely be accelerated by the COVID-19 crisis: creator tools for the masses. We’ve seen at least 10 of these pitches in the last few of weeks and I anticipate we will see many more in the coming weeks. The new tools seem to be centered around monetization and content discovery, which, unsurprisingly, are key weaknesses of the current platforms for the long-tail of content creators. Long tail content creators, like a small-time guitarist, often have an audience willing to pay for their content, like a 30-min live show, for example, but have few ways to capture value with the current tool set. On the discovery side, YouTube’s algorithms is spectacular in surfacing certain types of content, but the long-tail creators are often left in the dust. How do I discover small time guitarist on YouTube? Tools like Instagram also struggle with discovery and monetization — creators must reach a certain threshold of followers in order to monetize them and new profile discovery is a nightmare.
To sum this up, tools which help the masses create content, distribute content, and monetize their following appear to be part of our future. I’m only just entering this world, so my thoughts and analysis are half-baked no doubt. I am squarely in the exploration phase and am eager learn more from founders and investors who are deep inside this world. Please reach out if you’re building for content creators or investing in these tools!
Three Ideas on Pricing
Michael Dearing, Seed VC and Founder of Harrison Metal
…optional add-ons allows three excellent things to happen. First, your users become participants in prototyping and iterating your product design. You get real-time feedback on what features and functions they want to add to the basic menu. Second, your users’ perceived value of the product goes up; satisfaction and retention should go up with it. Third, when these add-ons are dearer to your users than they are costly to you to provide, you have a large incremental margin opportunity.
This is an excellent overview of product pricing strategy and psychology. It’s especially relevant for startups in the current economic conditions because cash truly is king. COVID-19 has put a major strain on existing business models — sales cycles have lengthened, customer acquisition is more difficult, burn is scrutinized more intensely by investors — it’s critical for startups to shift focus to capital efficiency and cash on hand to survive. Michael suggests that pricing is the primary determinant of whether cash flow is positive or negative, which means it’s likely an effective tool in current conditions.
Midwest VC Activity During COVID-19
Jonathan Ellis, Sandalphon Capital
Your ability to raise VC funding near-term is going to be heavily driven by how viable your business model and go-to-market strategy currently is, as well as how well you demonstrate capital efficiency and an ability to grow during the current market conditions.
Jonathan surveyed 68 early-stage Midwest venture investors to better understand current fundraising prospects and changes to investor behavior. The results are extremely helpful in understanding COVID-19’s impact on early-stage investing in the midwest and, somewhat surprisingly, reflect a positive sentiment among investors. Below are a few highlights from the study:
28% are operating “business as usual”
54% are taking meetings with intent to invest near-term
34% say their investment timing is not being affected by COVID-19
Most respondents are expecting a 20–30% average valuation decline in 2020 versus 2019
Just 6% cite “working from home” issues e.g. they can’t meet team in-person
There is strong preference for “clean”/“up rounds” (or at least “flat” rounds), which in the context of all other responses and market conditions suggests firms are going to be very selective
It appears the midwest VC ecosystem has changed course only slightly — many firms are actively investing or at least intend to make investments in the near term. This is great news for startups. I’m curious to learn more about why these firms haven’t changed their approach significantly in response to COVID-19. One reason may be, as Jonathan alludes to, that their portfolios are (often) smaller than coastal VC’s, which means they have more bandwidth to evaluate new investments even as they shift focus to portfolio companies. As I’m writing this, Jeremey Liew, Partner at LightSpeed VP, tweeted about how COVID-19 has significantly shifted his time allocation:
Arjun Sethi, Co-Founder of Tribe Capital, also weighed in:
Later in this thread, Jonathan follows up with a good distillation of current investor behavior:
The Burn Multiple
David Sacks, Co-Founder of Craft Ventures
Too many startups report their growth without contextualizing it as a function of investment. If extraordinary investment (3x burn or more) is required to deliver that growth, it’s an indicator that product-market fit isn’t quite what it appears to be or there’s some other problem in the business.
Great post here on startup burn as a multiple of revenue growth on an annual basis. In other words, how much does it cost to generate each incremental dollar of ARR (annual recurring revenue). The beauty of burn multiple metric (Net Burn / Net New ARR) as David says, is that it’s a catch-all metric — many business problems, like gross margin, churn, sales efficiency, and even founder leadership, will manifest themselves in the burn multiple.
<stuff> Weekly
LOL Weekly: Watch Out for Those Analytics
lolololol
Funding Weekly: Form
The goggles give swimmers real-time visual feedback, with metrics like split times, distance, stroke rate, pace per 100, and calories displayed directly in the swimmer’s line of sight.
Form raised $12M from large family offices in Denmark and the UK, and SVB.
My ultimate dream is for the Apple Watch to hold a copy of my body in digital form. Monitoring not just my health, but highly customized performance monitoring across all activities. Maybe they’d sync with Form’s goggles. How cool are these…
Baseball Weekly: 3-Year Normalizing Process
Peter Gammons, The Athletic
…most general managers realize that between today and 2023, the development underbody of MLB will face a considerable restructuring.
An interesting look at the long term effects of COVID-19 on Major League Baseball. The underbelly of Major League Baseball — Minor League Baseball, college baseball, college summer leagues, high school baseball — is at risk, which means the MLB of the future could look very different than what we’re used to. How will the shakeup in talent pipelines impact MLB clubs in 2, 3, and 4 years? Are their prized prospects less likely to pan out? Will high school players see their opportunities vanish in favor of college players with more experience, more performance data to evaluate? It appears COVID-19’s impact on the minor leagues and college baseball will alter the game more than the pause on Major League Baseball itself.
Art Weekly: Studio Ghibli Zoom Backgrounds
Studio Ghibli, a Japanese animation studio, released video backgrounds from some of their most popular films. Studio Ghibli produced two of my favorite films ever, Spirited Away and Howl’s Moving Castle. The background below is from Spirited Away.
Spirited Away tells the story of Chihiro Ogino (Hiiragi), a 10-year-old girl who, while moving to a new neighbourhood, enters the world of Kami (spirits) of Japanese Shinto folklore.[7] After her parents are turned into pigs by the witch Yubaba (Natsuki), Chihiro takes a job working in Yubaba's bathhouse to find a way to free herself and her parents and return to the human world.
P.S. I recently learned that the little grey heart underneath the title of this newsletter actually means something! Apparently, this is a component of Substack’s newsletter rankings — I’m not quite sure how the “heart” impacts it, but, if you enjoy Stealing Signs and feel like clicking the heart, I’d be very grateful for your help in earning me some internet points