Reading that article, I get the strong impression that A16Z really doesn't much know what the heck they are doing.
Yep, that's probably it.
Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
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Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#82At what level of traction would you recommend entrepreneurs start pitching for a consumer series A?
If an app has, say, one million (non-transactional) users, is that interesting? 100k?
One of the hardest things I found with fundraising was calibrating expectations for each stage. My last startup was enterprise, and there were investors who told us we needed one hundred customers to raise a series A and investors who told us two enthusiastic customers were enough. Nowadays, the expectations for enterprise have gotten clearer, but in consumer there's new ambiguity since you hear people say things like "10m users is the new 1m users."
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#83Always a bit depressing when you are reading an interesting article, from someone well respected, then boom sudden MBA bashing. :/
Scott is a Harvard MBA himself. Me, I'm going to let the MBAs fight it out :-).
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#84I will go on record to say that Rap Genius is the most ridiculous investment ever, and that it will tank with not a dollar in sight within ten years. If this is the type of startup Andreesen Horowitz are backing away from in B2C I would understand, but this is one of the consumer plays they did invest in. And now the message is that they want to invest in solid consumer startups only. Makes no sense to me.
Rap Genius is on fire (in the good way).
Good luck in jail!
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#85At what level of traction would you recommend entrepreneurs start pitching for a consumer series A? If an app has, say, one million (non-transactional) users, is that interesting? 100k? One of the hardest things I found with fundraising was calibrating expectations for each stage. My last startup was enterprise, and there were investors who told us we needed one hundred customers to raise a series A and investors who…
I think it's mostly situational depending on the kind of business.
For the classic, pure, viral, social and/or user-generated content businesses -- that will probably be monetized with advertising -- the generic headline metrics like daily/weekly/monthly active users and engagement/retention rate are important. There are just so many new products that attempt to be the next Facebook/Twitter/Youtube/Pinterest that showing that you are already punching through the noise is pretty important.
For two-sided marketplaces (the next eBay/Etsy/AirBNB/Uber) it's most important to have a real theory about how you're going to get both sides of the flywheel spun up. The traction doesn't need to be gigantic but there needs to be a real plan. We still see too much handwaving in this category -- it is REALLY hard to spin these up from a standard start and most simply languish and die.
For ecommerce and ecommerce-like busineses (the next Fab/Ziluly/OneKingsLane/Zulily), the most important thing is showing a model, with initial proof, of how the cost to acquire customers is less than the lifetime value of those customers. For example, in recent years it has become harder to build these businesses based on Google keyword advertising -- search volume isn't growing very fast, and lots of people are trying to acquire customers in most categories, and so keyword ad rates often get bid up to just past the point of unprofitability (the delta is the amount of excess funding going into businesses in these categories). So creativity on customer acquisition -- and showing that in economic terms -- is key.
I think that a credible team with any of this in reasonable shape from a seed round is not going to have trouble raising an A in this environment. But for those that have already raised an A, it has become really critical to have these factors nailed (whichever are appropriate) to be able to raise a B.
Finally, probably obvious but worth saying -- investors are all over the map on all of this stuff all the time. It's very valuable to be able to prequalify investors for interest and knowledge about particular categories -- and frankly IQ and judgment -- prior to meeting with them. Good advisors and angels can be very helpful with this. This is also why we try to be transparent on these topics (such as with Scott's interview) -- better for us and for entrepreneurs to know how we think before they walk in the door.
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#86Earlier quoted context omitted.
> VC is a game of 1000x returns. That's not true. Today, a lot of funds, particularly larger ones, are placing bigger bets on companies in later rounds, which is arguably a smarter strategy than trying to place lots of small bets earlier in the hopes that you'll get lucky and discover the Facebook or Twitter and have put enough into it to make your big percentage return a big absolute dollar return. Taking Twitter as…
"...placing bigger bets on companies in later rounds, which is arguably a smarter strategy..." Is it necessarily a smarter strategy? To me just seems this is the latest swing of the pendulum up and down the risk/reward curve. If factors change in 5 years, their "smart strategy" could begin to include more emphasis on consumer A's.
It's a smarter strategy at times I would say. For example, when the Fed is intentionally inflating a stock market bubble ala right now. That provides an excellent window to ride the public market to massive valuations completely unsupported by fundamentals (eg LinkedIn, Tesla, Splunk, Twitter, Facebook etc).
It's all fun and games until the stock market crashes again.
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#87At what level of traction would you recommend entrepreneurs start pitching for a consumer series A? If an app has, say, one million (non-transactional) users, is that interesting? 100k? One of the hardest things I found with fundraising was calibrating expectations for each stage. My last startup was enterprise, and there were investors who told us we needed one hundred customers to raise a series A and investors who…
I think it's mostly situational depending on the kind of business. For the classic, pure, viral, social and/or user-generated content businesses -- that will probably be monetized with advertising -- the generic headline metrics like daily/weekly/monthly active users and engagement/retention rate are important. There are just so many new products that attempt to be the next Facebook/Twitter/Youtube/Pinterest that sho…
Why do you consider Uber to have the marketplace problem? If it is as simple as hiring new drivers, isn't it more of a general business scaling problem, similar to hiring more engineer to scale up more features in purely software startup?
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#88This is not something they are choosing - it is a market reality. Its now possible to start a company and essentially get to a B round without taking investment because cloud services make it so inexpensive that founders really don't need VCs any longer.
Cloud services have gotten cheaper but talented hires have gotten more expensive, and the latter is always the largest expense in scaling. And no, you can't scale a company and keep head count ultra tiny, there's just too much to do.
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#89Earlier quoted context omitted.
I think it's mostly situational depending on the kind of business. For the classic, pure, viral, social and/or user-generated content businesses -- that will probably be monetized with advertising -- the generic headline metrics like daily/weekly/monthly active users and engagement/retention rate are important. There are just so many new products that attempt to be the next Facebook/Twitter/Youtube/Pinterest that sho…
Why do you consider Uber to have the marketplace problem? If it is as simple as hiring new drivers, isn't it more of a general business scaling problem, similar to hiring more engineer to scale up more features in purely software startup?
Uber had the marketplace problem when they started but they figured out ways to punch through it, as has Lyft (our investment). Both companies have a range of clever techniques for how they did that. Drivers are not full time employees for either company so it's not as straightforward as just hiring them but money certainly helps in both cases.
Re: Weary of ‘Fruit Fly’ Consumer Startups, Andreessen Horowitz Raises Series A Bar
#90To me this is essentially admitting that Andreesen Horowitz is loosing the ability to identify impactful startups. That is fine, its harder to do at scale, but nothing is different now than 5 years ago. We have lots of people doing experiments, some hit early success, some pivot. Once you get product market fit, you raise that B/C/IPO on the back of the growth you've been able to afford thanks to your raises and reve…
Maybe you're right, but that's not what Scott was saying and that's not what I think. In my own words: consumer startups more and more have this very interesting "lightning in a bottle" effect where sometimes they take off like crazy and sometimes they just don't. I give full credit to the teams that figure out how to get the flywheel spun up, but it is also important to realize just how many highly capable founders…
The comparison of enterprise vs consumer is a very interesting topic. Why the consumer traction is so much more unpredictable?