Tag - venture capital

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Why the Micro-VC Surge Will Drive Innovation Across the US
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The Economics Underlying Chatbot Mania
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Ideas Matter
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Furnageddon: The Full Stack Attack on Home Furnishings
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[Internal Memo] Thoughts on Commerce

Why the Micro-VC Surge Will Drive Innovation Across the US

The following was co-authored by Ezra Galston of Chicago Ventures(@ezramogee) and Samir Kaji (@samirkaji) of First Republic Bank.

Over the last several years much has been made of the opportunity, or perceived lack thereof in technology centers outside of the Bay Area and NYC. From Steve Case’s Rise of The Rest Tour, to Google for Entrepreneurs, to Brad Feld’s Building an Entrepreneurial Ecosystem , the discussion has consistently been overwhelmingly positive.

It’s easy to understand the stance as who wouldn’t want to support entrepreneurship, irrespective of geography? However, it’s hard to discern whether these opinions were borne out of a utopian desire or a sincere belief of true financial viability in markets outside of NYC and the Bay Area.

In Fred Wilson’s widely discussed (and debated) piece “Second and Third Tier Markets and Beyond,” he suggested that the opportunity outside of the Bay Area was significant, citing the successes of USV in New York, Upfront Ventures in LA and Foundry Group in Boulder:

“The truth is you can build a startup in almost any city in the US today. But it is harder. Harder to build the team. Harder to get customers. Harder to get attention. And harder to raise capital. Which is a huge opportunity for VCs who are willing to get on planes or cars and get to these places.

There is a supremacism that exists in the first and second tiers of the startup world. I find it annoying and always have. So waking up in a place like Nashville feels really good to me. It is a reminder that entrepreneurs exist everywhere and that is a wonderful thing.”

In an effort to move past anecdotes however, we wanted to explore one of the components that helps drive and catalyze early entrepreneurial activity in any localized geography — the availability of early stage funding.

Simply put, non-core US tech hubs are reliant on local early stage capital to subsist since seed stage fund sizes often make remote investing impractical (by contrast growth stage investors who manage large funds and have significant resources can easily invest in breakout companies outside their region).

With the hypothesis that quality local seed capital is needed to foster a strong entrepreneurial ecosystem, our analysis is centered on whether the MicroVC surge, has provided (or may provide) a material impact to these “2nd and 3rd” tier US geographies.

Fortunately, there’s good news for entrepreneurs everywhere. Of all of the Micro-VC funds raised since 2010 (this number includes firms currently raising funds), over 40% of Micro-VC’s formed were based outside of the country’s largest tech centers of SF, LA, NYC and Boston, a number we found quite surprising.

In total, those Micro-VC funds raised outside of the four core tech centers since 2010 represent $6.7B in investable capital, the vast majority of which have driven significant investment dollars in their geographies.

More important to note is that the opportunity in these secondary ecosystems is unequivocally noteworthy. Using M&A activity as an evaluation metric, these ecosystems, despite a relative dearth of funding, have performed quite well:

In each year dating back to 2010, the percentage of Micro-VC funds raised outside of SF, LA, NYC and Boston materially lags the volume of M&A activity, on % basis, in those same areas. This suggest that Micro-VC funds located in secondary markets face less competition — and proportionally more opportunity — for strong financial outcomes by betting on that delta. Now, it’s true that these opportunities are a bit geographically dispersed, however it’s clear that certain cities (Seattle, Boulder, Austin, Salt Lake, Chicago) have made great strides in developing great entrepreneurial talent.

This dislocation in M&A proportionality is of course amplified by the concentration of funds in the Bay Area and NYC. Because coastal deals are more competitive due to an oversupply of capital, they boast higher entry prices (valuations) than do deals in secondary or third tier markets — and the effect on a returns basis may also be material. Case in point: according to Angelist, the mean valuation for deals in Silicon Valley since 2010 is $5.1M. That compares to $4.5M in Chicago, $4M in Indianapolis, and $3.7M in Detroit — offering Midwest investors anywhere from a 10–30% discount at entry.

There are other ways of interpreting the data. One could argue that Bay Area deals deserve to be higher priced due to a premium in the quality of founding teams. Or that the pure volume of M&A in the Bay Area and Boston de-risk the level of returns variance for any particular fund. Those arguments may be with merit but are also balanced by data released by Pitchbook that show cities such as Chicago, Seattle and Washington D.C effectively comparable on a multiple of returns basis:

It is nearly indisputable that large technology companies are being built and enormous value is being created outside of the coastal venture markets: examples include Grubhub, Groupon, Domo, Qualtrics, ExactTarget and HomeAway. But these markets will require more patience for company maturity, a willingness by fund Limited Partners to accept greater short-term volatility, and conviction that key talent will stay in non-core markets due to a desire of staying local and the avoidance of the high cost of living present in the major US tech centers.

While the rhetoric around non-core markets has been historically positive, it appears that the early stage capital surge through Micro-VC funds may be a major factor in these areas actualizing on their potential.

Extra special thanks to Peter Christman for his tireless work in helping to analyze, aggregate and process the data underlying this article.

The Economics Underlying Chatbot Mania

Over the last several weeks, we’ve reached peak AI/Bot mania. Most of the conversation has centered around Chatbots and the potential emergence of a new platform/distribution layer. If you’ve been mostly ignoring the press, some good reads are:

Tl;dr – the major takeaways are as follows: given that consumers don’t really download apps anymore, brands & retailers have a new access point to end consumers, sitting on top of existing messaging platforms and leveraging chatbots to ensure mass scale. The truth is that the chatbot platform conversation is really just an extension of the one we had about a year ago during the emergence of Magic/Operator and SMS as the new platform, which we discussed in Are We Already Rebundling Mobile. An important extension given that such bots have been democratized and can now be spun up not just by tech companies, but by traditional retailers (on their own or within Messenger) or even by individuals such as you and me.

screen-shot-2016-03-24-at-09-50-46

All @TayTweets joking aside, the more intriguing aspect this time around is that Artifical Intelligence and Machine Learning have improved by leaps and bounds. A few articles that reflect this point are: Why AlphaGo Is Really Such a Big Deal, The Current State of Machine Intelligence, Can Machine Learning Predict a Hit or Miss on Estimated Earnings, and The Humans Hiding Behind the Chatbots

But again, the vast vast majority of analysis has focused on bots living within the worlds we frequent (messaging & SMS) and the platform implications. SO – I wanted to spend a few paragraphs to quantify and explore the effects of these advancements from a unit economic or business perspective. The big ones are twofold in my mind: (1) Properly executed AI can transform certain human capital marketplaces from operating as take-rate businesses and transition them into high gross margin software businesses. (2) Chatbots in their current function as customer service agents can make a material impact on contribution margin & overall EBITDA if they can successfully remove the customer service expense line.

20% Take Rate —-> 90% Gross Margins?!?!?

First, some context. About four months ago, writing in “The Middleman Strikes Back” I suggested:

“It’s clear why a hybrid AI/machine learning model is the holy grail for several verticals – replicating [a high] level of personalized service while minimizing overhead labor costs and maintaining extraordinary software level gross margins.”

But in fact, I was wrong. Dennis Mortenson, founder of X.ai in “The Humans Behind the Chatbots” believes that the hybrid in “hybrid AI /ML” should be minimized even further…to zero:

“The two scheduling e-mail bot companies have divergent plans for expansion. Clara, which is slowly letting people off its waitlist and said it currently serves hundreds of companies, charges $199 per month per user. X.ai, on the other hand, plans to move from limited beta to a public release later this year and wants to charge about $9 per month. Dennis Mortensen, its founder, wrote in an e-mail that “only a machine-powered agent can take on the 10 billion formal meetings that U.S. knowledge workers schedule every year.” Mortensen said the service will start asking e-mail senders to clarify when the computer can’t interpret an message—“Did you mean Monday, April 4?”—instead of having an employee read it and infer. “We want to give the job away for free, or for $9, which you can only do if it’s software,” he said.”

Executing on Dennis’ vision, by removing human labor in the middle, you have effectively transformed a take-rate marketplace into a high margin software business, while managing to provide a similar product. Here are examples of some of the service/agent businesses* that could see their economics transform towards 80-90% gross margins when fully leveraging AI:

The Unit Economics Underpinning the AI

Additionally, the company’s variable costs (ie the cost to provide each incremental production or engagement) will transition from significant (paying humans) to immaterial (software cloud hosting fees) enabling a much lower cost of servicing demand, should these companies choose to lower prices. Doing so could expand the audience for such products tremendously.

While I was initially a big skeptic of X.ai, the combination of a product that increasingly works with minimal human intervention and a product priced to undercut the market tremendously at $9/mo is a proof that this transition from human marketplace to pure software is already underway.

Further, there’s even an even bigger opportunity in play. If Matt Turck’s suggested “data network effects” take hold many of these service marketplaces – few of which are operating in actual winner take all markets – could be replaced by a software layer, leveraging data network effects so strong that those markets actually become winner take all.

$$$ Massive Value Creation in Public Markets

Again, this is mostly a theoretical exercise, but let’s imagine for a moment the value creation consequences of fully automated chatbots successfully managing 100% of a company’s customer service interactions.

Here are a handful of examples of some companies you might be familiar with showing their current enterprise value, approximately how much they spend on human capital customer service and the effective sensitivity in their valuation if they could maintain their current level of customer service via no-cost** chatbots:

The Unit Economics Underpinning the AI2

It’s not clear to me this is the optimal way to assess the economic value of chatbots – I kind of doubt anyone knows yet – but what is clear is that the effect to profitability would be tremendous. Massive. And that’s just by automating customer support alone.

Importantly, and intentionally, this exercise ignores the real, global cost of losing so many service level jobs from the economy. I’m not qualified to assess that cost nor its effect. There are many opinions in the market for what an AI economy might look like; Roy Bahat at Bloomberg Beta recently offered an intriguing one to The Twenty Minute VC – a futuristic marketplace actually placing a premium on any human manufactured products or human assisted services because of its rarity. There are others as well. Much discussion around AI is conjecture, but its economic effects are a very serious business.

* Certain of these companies do not publicize take-rate or offer non take-rate subscription models. In these cases, gross margins have been assessed from public interviews, or estimated based on reported hourly worker wages and expected throughput.

** This assumption is implausible as there would still be some associated costs related to the software itself and managing/customizing the software on a daily basis.

Special thanks to Dan Abelon for his feedback on this piece.

Ideas Matter

The debate amongst venture capitalists over whether to prioritize markets or people in investment decision making is as old as the industry itself.

Fred Wilson, famously authored an oft quoted 2004 blog – Execution Matters, Ideas Don’t – which referenced USV’s failed incubation of FaveMail leading to the following conclusion:

“The lesson i take away from the whole thing is great ideas don’t make great investments – great entrepreneurs do.”

Three years later, Marc Andreessen, co-founder of Andreessen-Horowitz, opined differently in “On product/market fit for startups,” noting:

In a great market — a market with lots of real potential customers — the market pulls product out of the startup.

The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.

The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.

Most recently, University of Chicago Professor Steven Kaplan in his 2009 study “Should Investors Bet On the Jockey or the Horse” in the Journal of Finance concluded:

The results for both of our samples indicate that firms that go public rarely change or make a huge leap from their initial business idea or line of business. This suggests that it is extremely important that a VC picks a good business. At the same time, firms commonly replace their initial managers with new ones and see their founders depart, yet still are able to go public, suggesting that VCs are regularly able to find management replacements or improvements for good businesses.

In spite of Andreessen’s comments, I would say that the working consensus in the early/seed stage venture world for the duration of my tenure has been to bet on special people and let the rest fall into place. That approach was verbalized in my interview with David Hornik on this blog where he outlined his investment approach as “people, people, markets, people.”

But the world is changing. The vast majority of companies I’m referred to are largely derivative ideas of larger tech/startup competitors. Problematically, this is actually fundamentally different than going after large monolithic incumbent corporates in a given space. For whatever reason I think it’s because entrepreneurs are trying to improve processes/better execute on problems rather than re-imagining the reasons those habits/processes even exist.

My sense is that the market is cycling back to the importance of bold, unique, creative ideas – above and beyond the obvious focus on “big markets” or “founder/market fit.” Of course people still matter, just as a large addressable markets have always mattered, but in my estimation there is a subtle yet undeniable shift of interest away from improved processes/products towards ideas that challenge the fundamental assumptions underlying the existence of those processes or products themselves.

In that vein, I was recently asked to prep some talking points for a firm offsite on the state and challenges of investing in consumer tech. I’ve attached those slides here. The theme was very clearly that we are in the “reimagination” stage of venture and my observation is that companies solving pain points but not re-imagining or re-conceptualizing consumer behavior are out of favor with top tier investors.

[Note: It’s always nerve wracking putting detailed thoughts into the market – I’m sure a lot of people disagree with me – but I do appreciate any feedback and counter-examples of places where I’m wrong.]

Furnageddon: The Full Stack Attack on Home Furnishings

As digital commerce has evolved over the past decade to penetrate nearly every element of our lives, one category has largely been left in the dust: furniture. But in the past twelve months disruption has accelerated exponentially – with the industry suddenly under a broad based assault from all key angles: manufacturing, delivery, assembly, and discovery.

A few months back, I noted that furniture was one of the remaining massive categories still struggling with finding a mass-market consumer fit online. In it I quoted a conversation I’d had with a well known venture capitalist –

“Similarly, [the investor] noted at the time, furniture – sofas, mattresses, tables, etc – were one of those categories that hadn’t been cracked by e-commerce. The unit economics made delivery expensive. And, like shoes, consumers wanted to try them on. Is it comfortable? Do the colors match up with room palette? What if, he proposed at the time, a furniture company offered the following value prop: We’ll show up at your home, for free, with ten different sofas of varying feels and colors, let you try them all out for free, and then just keep the one you want and send all the rest back for free?”

Under the legacy model, e-commerce furniture sales were simply a digital extension of traditional product purchasing and sampling. Further, the thinking continued, the legacy retailers were actually capable of avoiding disruption because of the complexity in the supply chain and delivery logistics that made it expensive, if not impossible, for startups to compete.

But this is all changing.

Furniture in a Millenial World:

To be fair, it’s still exceedingly early in the disruption cycle – two of the emerging brands, Campaign and Greycork for example, haven’t even begun shipping their product yet – but taking into account the strength of their pre-sales and the growing traction amongst other disrupters its hard to argue against there being a fundamental shift underway:

Slide1

At Chicago Ventures, we’ve categorized the disruption from these new, vertically integrated brands into four categories: Delivery, Assembly, Price, and Design.

  • Delivery: Arguably the most important angle, as evidenced by Casper’s runaway traction, millennial consumers are looking for experiences that provide for both immediate delivery and frictionless ease of return. Traditional retailers have long lead times on larger pieces (8-12 weeks) and they arrive via a 3rd party trucking provider (who disappear shortly thereafter) making it extremely inconvenient to return a product. The new disrupters are getting product to a customer’s door from time to purchase, in under a week and sometimes as little as 24 hours. They are also using novel shipping/packaging methods to enable accessible and low-cost (or free) returns.
  • Price: Typically the most important variable for consumers, it’s also one of the hardest to clearly differentiate in furniture as every retailer offers differences in quality, style, etc. One thing’s for sure: IKEA is the low cost provider in the space and despite the arguably miserable experience, they still move a lot of product. The new disrupters, by building a direct b2c brand are able to discount heavily on price while maintaining similar margins by removing some of the supply chain layers.
  • Assembly: The current status quo is either long lead times wherein items come fully assembled OR shorter windows/in-store pickup (think IKEA) where consumers are responsible for arduous assembly and installation processes (my wife loves doing IKEA assembly but she’s gotta be in the 1%). The new disrupters, focused on building an anxiety-free product, offer large items that can be assembled in minutes without tools. The benefit to the simplicity is that they can also be disassembled in minutes for moving, or for easy packaging to return items.
  • Design: If you’ve been to the big box retailers – from Pottery Barn to Arhaus to Restoration – you know each has its own unique personality. But the new designers believe those pieces aren’t being imagined with a millennial purchaser in mind. The new disrupters are attacking home, apartment and workplace furnishings and trying to reimagine product that stays sensitive to personal devices, new work habits, etc.

For us, we view Delivery and Assembly as the two most intriguing and sustainable angles being attacked. Although our internal consumer surveying has shown that price is ultimately the #1 most important variable for buyers, we fear that given the healthy gross margins in the category (42.9% at Ikea, ~38.3% at Pottery Barn*) and de minimus return rates that incumbent retailers will quickly be able to adapt on price undercutting or free shipping/returns offers.

What appears hardest for legacy retailers to respond to are fundamental re-imaginations of the production line, product design, and supply chain that enable immediate gratification or emerging models of fractional ownership/sharing.

Discovery

Outside of the millenial manufacturers, there’s an equal amount of momentum in the next generation of retail models. Right now, the process for actually purchasing a piece of furniture online is cluttered – as most product exists in an environment of millions of SKUs with minimal effective filters. And while the companies listed in the Pottery Barn graphic above are trying to reimagine the next generation of vertically integrated brands, that doesn’t solve the wider discovery problem for consumers.

The problem for consumers is that the increase in SKUs across all furniture categories has made shopping on the aggregators an utter nightmare. Comparing from vendor to vendor is also a time-consuming, high-friction experience. These are the reason that according to Greg Bettenlli the only signifcant growth driver at Wayfair is Joss & Main, their ultra-curated flash sales site.

Thus, the furniture category appears to be mirroring the quintessential e-commerce curve that I detailed earlier this year:

“Th[e] same catalog of infinite SKUs caused real pain for all but the most specific of product searches. This pain led to the birth of discovery- and push-curation focused platforms. On a macro level, the [present] move towards connection makes a lot of sense. Consumers are overwhelmed by email, social, and retargeted marketing, while at the same time flocking to platforms such as Uber and HotelTonight, whose focus is on constraining choice and cognitive noise.”

Print

For example, we’ve witnesses this process play out in the fashion industry – first with discovery focused platforms (Gilt, Fab, Wish, RueLaLa) and now personalization experiences (TrunkClub, Stitchfix, Wantable). The following chart illustrates how the same dynamic is now emerging in the furniture world as well:

Slide1

And yet in spite of the increasing focus on the sector, only about $20bn of the $160bn U.S. market for furniture and home accessories is being transacted online:

usfurniturehomefurnishings

Put together, the category represents a tremendous opportunity for venture investors: demonstrable consumer pain points, broken processes and experience, and a market size well over a hundred billion dollars. Few of the companies noted have material traction or brand equity – but it’s the early innings; it’s one of the most exciting categories to watch in consumer internet and is poised for outsized growth.

At Chicago Ventures, we’re definitely looking for entrepreneurs focused on reimagining the furniture space. If you’re one of them, please reach out!

 

* This is blended and includes results from Williams-Sonoma and a number of other properties. As PB sales have increased, GM has contracted, implying their GM on their PB business is probably closer to 35% than 40%.

[Internal Memo] Thoughts on Commerce

A couple of weeks ago, after an active conversation around one of our investments, I threw together the below e-mail to my team here at Chicago Ventures. I’ve never done this before but I thought it would be interesting to put it out there on the blog. It’s important to note that my team definitely did not agree with everything I wrote which is fine (the most pushback I got was around “digital marketing is dead.”) I wrote it quickly and mostly shooting from the hip, but I think that’s reflective of a lot of offhand internal dialogue within venture firms.

I think both for founders looking to pitch investors and junior investors at firms, it’s important to ask the right questions to understand their internal fund biases and thoughts. One of the reasons I write notes like this – even if it’s a pain to read/respond to all my tl;dr stuff – is so that if any partner at our firm meets an entrepreneur touching on one of the bullets below, they’ll quickly reference our note & know where we stand.

—-

Hi All,

Monday’s conversation around [portco] made me realize that it’s been a while since I’ve typed out some of my thinking around commerce & I thought it would be helpful to have a set of principles we’re thinking abt when looking at these businesses. I’ve broken this into three sections, each builds on the other.

I think it’s impt to have this conversation. Especially with [venture partner] attached to our fund, our deal flow & knowledge should enable us to punch beyond our weight class here. But we want to make smart bets.

Part 1: Paid Digital Marketing is a Dead End.

Google/FB are just a dead end. Every retailer just hits a wall on these channels. Zulily hit a wall at scale. Wayfair hit a wall at scale. But with increased competition in every vector, the wall is happening a lot earlier now. Traditional, brainless digital marketing is an expensive dead end = as we know, distribution is so so key. Two primers are:

– My article on VB: Moving Beyond Spam where I outline “Connected” commerce & the content commerce playbook.

– Josh Hannah’s article on Pando: That’s a Nice $40M Biz You Have There

Part 2: Next Gen Commerce Companies Will Boast Unprecedented Leverage

A little under a month ago, an under the radar subscription cosmetics co called Ipsy raised $100M at a $900M valuation. Whatever, it’s 2015, crazy times, right? Except that Ipsy had only raised $3M to date. And had built from a $300k/mo run rate to $13M/mo RECURRING run rate in <3 years.

How the hell did they do that? Fortune profiles it here.

The answer: They leveraged Youtube & influencer networks better than anyone in the history of e-commerce.

I reached out to one of their backers. Here’s what that person told me –

“a few very clear cut things, and this is not a fluffy bubble valuation this is very real based on revenue.

(1) Few markets naturally support the QVC-on-youtube model, but cosmetics is one of them. CAC is low and LTV very high because Michelle Phan has a built-in and very engaged following.  Compare to Birchbox which has to rely on more traditional digital advertising channels.

(2) Ipsy’s CEO Marcelo is a content savant and didn’t just rely on Michelle’s clout, but also was able to create new cosmetics celebrities for various demographics and styles.  True talent in the team gained additional reach and consistency.

(3) The company was able to leverage negative working capital since they get paid up front.  This enables very fast growth fueled by internal cash flow, and clearer inventory planning.

(4) Ancillary revenues for Birchbox include upselling to full-size items, shifting into men’s products, etc.  Ipsy can flash sale, white label at 70% margins, etc. so has more attractive future potential as well.”

Imo, as the markets correct themselves, we need to be looking for opportunities with extraordinary operating leverage. Growth stage investors have seen the payback on late stage commerce rounds and the returns are flat because customer acquisition is high friction at that scale. When Birchbox has raised $75M and Ipsy $3M to get to the same run rate, the smart money will race to the higher leverage model.

Part 3: How We Identify Next Gen High Growth, Minimal Cash Businesses 

Here’s the checklist I’m using to identify these businesses. This is a work in progress & hopefully is always a living, breathing checklist that ebbs & flows with the times. I don’t know that our investments need to check every box, but it’s our rubric to judge against:

  1. Hacking New Platforms – Airbnb’s “hack” of Craigslist is fairly well known at this point & it’s what enabled them to build their early supply side liquidity. Ever since then, for the past 5 years, everyone has focused on similar Craigslist hacks. I don’t mind that, but CL is a lot diff now than it used to be. Youtube is also played out at this pt. We should be looking for companies that are hacking less targeted platforms. One of the things I like about [portco] is that they’re effectively hacking eBay enabling them to acquire customers for less than 1/5th the cost of their competitors. Other platforms I’m actively looking at to rip customers from are Nextdoor, Thumbtack, Airbnb/Homeaway, Massdrop, Alibaba, Kickstarter, etc etc. The platforms we want to look for must have (a) Transactional focus & (b) Some private messaging or e-mail scraping function. As the messengers (Line, Kik, Whatsapp, Messenger) also build out transactions these may develop into great opps for ripping customers.
  2. Negative Working Capital – I think this is more impt than 24 months ago as it’s a hedge both against capital markets tightening & drawn out fundraising processes. Of course it needs to be utilized with caution, but it can be an immense source of leverage.
  3. Scale Buster: This is one of those intangibles that is sort of hard to define. Brian has it at TrunkClub with his stylist model driving growth. The problem is: traditional customer acquisition is counterintuitive in that it actually gets MORE expensive with scale & you buy WORSE customers with lower LTVs. So how do you build a creative growth model that can predictably manufacture growth (like a marketing spend) without defaulting to traditional marketing channels. Honestly, I don’t know what this will look like. Maybe it’s some sort of brilliant referral model. Or some smart play on social selling. I don’t know, but this is one where we need to keep our eyes and ears open.
  4. Content Savvy – The more we see, the more I realize that a deep understanding of content marketing needs to be in the DNA of a team & not just bought. Even [portco] is really starting to hum because they’ve nailed a really good Facebook video content strategy that is really scaling. Here’s why we like it: (a) Very low cost because salaried (b) Scales without friction beyond traditional paid marketing spend. (c) Is shared heavily – a far more authentic play on social networks than traditional ad spend.
  5. Influencers – In the past 2 months, I have probably seen half a dozen businesses do $50k in GMV in Month 1 out of the gate. HOW? Just leveraging a core team member with established distribution/network. W/O this built in distribution, a startup can burn through $500k-1M+ EASY just trying to hit that $100k GMV month mark. We do NOT want to pay for that infrastructure & growth. We need it to be built in, especially if so many others have that advantage. My benchmark would be $20k+ in Month 1. [Edit: This can also come through a good PR strategy.]
  6. Margins – We need to be hawkish on gross margins. Greg Bettenelli at Upfront recommends 40% and I’m fine with that number. I think we should be comfortable at 20% with a clear path to 40%, with the understanding that we lose some capital leverage (but not a ton at the early stage). We also want the business to have an opportunity down the line to build a private label brand that can create blended margins in excess of 50%.

Feel free to add more, thanks.

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