The rise of Consumer SaaS and the Bundle Wars

The tech industry is obsessed with the consumer subscription model, or B2C SaaS. Netflix, Amazon Prime, Spotify, Peloton, are just a few examples of services that millions of people in the Western world subscribe to. In fact, 90% of the top grossing apps are subscription based across all categories: education, fitness, dating, music, wellness, personal finance, etc. Many startups are hoping to be the next name on that list.

In this post, I dig into the consumer subscription landscape, and make the case that bundling is upon us, as initiated by Apple, which may place downward pressure on the area.

According to a new report by investment bank GP Bullhound, the Consumer Subscription Software (CSS) market is expected to be worth $150 billion a year by 2022. Covid-19 and lockdowns increased the proliferation of consumer subscription models in daily life as consumers looked for shopping, entertainment, fitness and gaming. These new habits are likely to continue in the medium-to-long term, according to a recent McKinsey survey of consumer sentiment in the US.

Covid-19 US Consumer Survey (source: McKinsey)

Freemium, premium and Apple

The landscape of consumer subscription startups is growing:

Consumer SaaS landscape (Source: GP Bullhound)

Many of the consumer subscription apps adopt a freemium model to lower their CAC. In this model, a basic level is given for free (think Youtube, Spotify or Twitch), but premium features (or the removal of ads) require a paid subscription. This gives the consumer a chance to try the product before they decide to purchase.

When users convert to paid customers on iOS, Apple currently takes a 30% cut from the first subscription and 15% of any renewal. The recent legal battles between Epic Games and Apple on this practice, highlights the tension between the Consumer Subscription apps and the platforms they rely on for distribution. Will more apps rebel against the giants?

More recently, I’ve seen a number of companies skip the free tier altogether. They segment their customers even before a trial, directly to a paid subscription tier. This is now becoming more common in the productivity/work related apps – rather than selling to the enterprise, they rely on individual users putting down their credit card. That’s how Slack got started.

Examples include –

  • Roam Research – the note taking app that recently raised a seed round at $200M valuation
  • Superhuman – the email productivity tool
  • Masterclass – video classes from subject matter experts

You also see it in DTC subscriptions like Hims, self care products for men, or in fitness with Freeletics, which offers personalised training plans.

For these businesses to be successful, focusing on engagement and mitigating churn is more important than top line growth and high spend on user acquisition.

Apple One and the ‘Bundle Wars’

Last week Apple announced Apple One, a new consumer subscription bundle, which includes music, cloud gaming, storage, Apple TV, Apple News, and Apple Fitness (the latter coming officially only in October).

We’re use to speaking about the streaming wars (as previously covered on this blog), but as Evan Shapiro, a veteran media exec, put it on a Linkedin post, Apple One marks the beginning of the ‘Bundle Wars’. As competition for subscribers increases, companies will try to create moats by packaging their offering with multiple services and/or exclusive content.

The subscription bundle simplifies things for the consumer (“one easy subscription”) and is a better deal than subscribing to any two individual services. In addition, it helps Apple take potential market share from other services like Spotify (music) or Disney+ (streaming) or Peloton (fitness).

The next most likely companies to launch subscription bundles are Google and Amazon. They already have individual services for each of the core pieces offered by Apple and the consumer reach to make a dent. The rest, like Disney+ and Spotify, might try to catch up by acquiring or launching their own bundles. Don’t be surprised if you see Disney and Spotify launching games services or Microsoft launching a music service – after all, they nearly acquired Tiktok…

The Bundle Wars – graphic by VC Cafe

Subscription fatigue?

Churn in Consumer SaaS is expected to be higher than traditional Enterprise SaaS models and LTV vs. CAC is a metric to watch. The question is – how many overlapping subscriptions will consumers be willing to pay for over time?

As competition increases, services become commoditised, and while the user interface and features might be different, does it really matter to the consumer if they are listening to the same song on Spotify, Google Music, Apple Music or Amazon Music? perhaps not enough to pay for two subs at the same time.

To win over the competition the large players are building moats in the form of exclusive content such as Spotify’s $100M podcast deal with Joe Rogan (which company employees are now scrutinising), Netflix’s expensive deal with Harry and Megan or Google’s gaming deal with Ubisoft for its cloud gaming platform, Stadia.

No matter which one of the giants wins, new startups face big hurdles to get into the mix. “I’ll try everything once”, the saying goes. But to build a successful B2C SaaS business, startups need to deliver real value to keep consumers to stay engaged and subscribed. If you’re starting a new consumer subscription service in entertainment, gaming, esports or productivity, please don’t hesitate to reach out to us at Remagine Ventures.

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Wix announces new venture arm

Global Corporate Venture-backed funding fell 30% in Q2 2020, reviving the sector’s stigma of ‘tourist capital’ which disappears in the low season. Nevertheless, there are over 2,000 global corporate venture (CVC) firms, which collectively raised $41 billion in 2019 alone, according to Global corporate venturing.

Today Wix , the publicly traded website builder from Israel with a market cap of $13.2 Billion, announced today it will be launching Wix Capital, an internal venture arm to invest in global startups. The fund will invest in seed and series A rounds in software startups that accelerate the digital landscape.

Specific areas of focus include software and technology companies that sit at the intersection of online design and development, commerce and business management and AI and automation solutions.

Wix has been investing in startups off the balance sheet for some time. The company said the total volume of investments to date was $5.6 million, and its portfolio companies include:

  • Spike – an email workflow tool
  • Oriente – a consumer fintech app for emerging Asia
  • RestAR – 3D visualisation software for commerce
  • Modalyst – a dropshipping platform

The company’s announcement didn’t include a fund size, so it will likely continue to deploy capital off its balance sheet. Wix Capital will be led by Wix’s CFO, Lior Shemesh who said:

“Launching Wix Capital will help us stay on top of emerging trends in our fields and be a targeted effort of allocating strategic support to companies that are looking at us as an example of a strong growth company”

PR Newswire

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A digital goodie bag

I’ve always been a fan of startup resources lists and had a dedicated page on VC Cafe since the blog’s inception in 2005. While some things change slowly, maintaining the list current proved tricky as time went by.

You may have stumbled on LinkedIn posts enticing people (mainly startup founders) to leave a comment if they would like to get a copy of a document/list/database. The range is wide, from cash flow models to email copy templates, startup decks etc.

To save you from writing that comment, I’ve collected 20 resources here. Hope you find them helpful.

? Sales, Marketing and customer success

?Venture capital

?Online education

? General

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The Creator Economy is rising, but challenges abound

“A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author – in other words, anyone producing works of art – needs to acquire only 1,000 True Fans to make a living”

Kevin Kelly, 1,000 True Fans

At the heart of the creator economy (also dubbed the “Passion Economy” or “Hustle Economy”) is the ability of a creator to monetise attention and fandom. As described by Tim Ferriss in Tools of Titans, to be a successful creator you don’t need millions of dollars, customers, or fans. To make a living (defined as $100K a year), former Wired editor Kevin Kelly suggests, you only need 1,000 true fans that will each buy products from you for $100 a year.

1000 Superfans or 100 True fans?

A “true” fan (or “superfan”) is defined as one who would buy anything you produce – drive a long distance to see you perform, subscribe to your paid newsletter and set up a Google Alert with your name. True fans are assets as they are both s source of direct income and provide word of mouth (that attracts ‘regular’ fans). For superfans to effectively work, this means creating a relationship between the creator and the fans, and now the stars have aligned to make these relationships easier than ever to form and scale.

While some say that its 1,000 true fans needed, others say its much less. In the A16Z blog, Li Jin, one of the most prominent writers on the creator economy, said that creators can make a living with only 100 true fans, by segmenting their audience and offering tailored products and services at varying price points. I highly recommend signing up to her excellent newsletter for interesting takes on the creator economy.

Source: A16Z, 1,000 true fans? try 100

In this post, I wanted to deconstruct the various pieces of the flywheel that drives the Creator Economy, as well as the challenges, and opportunities for startups in this space.

The new Creators

According to Li Jin, we’re in the process of the ‘unbundling of work‘ in which many are moving from companies to independent sole proprietor businesses.

Caitlin Dewey, a reporter at The Buffalo News, called it the Hustle Economy, “an online labor market in which platform-dependent workers create and monetize their own digital products”.

Eric Feng, a former Kleiner Perkins partner, describes the new wave of creators as “DNVCs”, or Digitally Native Vertical Creators (an adaption of DNVBs, also known as direct to consumer brands or DTC):

“A new class of content creators has emerged that is writing, recording, filming, and producing incredibly unique and compelling media and then connecting directly to audiences to showcase and sell their creative products.”

Eric Feng
New media platforms are enabling a new creator type: Digitally Native Vertical Creators, Eric Feng

In the past, if you wanted to learn from the best thinkers in Economics, you’d have to buy a subscription to the Economist or the FT. Today, those thinkers can create content directly (and in some cases exclusively) for their (paying) fans. Creators decouple their non-standardised skills from the aggregator and hope to become themselves a brand.

Gen Z and the 1% rule

In my days as a product manager, the conventional rule for user generated content was the 1% rule. 90% of users are passive readers, 9% might engage in rating/commenting and 1% of users generate content. The 1% rule is now changing with Gen Z. As the first generation born into an established Internet, with a smartphone at hand from a young age, Gen Z’ers place a high value on self expression.

The 1% Rule (source: Wikipedia)

A report by JWT Intelligence stated that 56% of respondents use social apps to express themselves creatively :

“Most Gen Zers have a penchant for traditional artistic hobbies such as painting, film, or playing an instrument—but online, these talents take on new forms. Taking cues from a world of online personalities and content, gen Zers are manipulating and altering creative works to generate memes, photo collages, filters, and more. What’s more, they’re harnessing social apps and digital creative tools to visually enhance the way they communicate, whether it’s a casual note to their friends or a message of activism to their broader online community”

JWT Intelligence

Creator Economy vs. the Gig Economy

In the 2010s, companies like Uber, Postmates and Taskrabbit helped popularise the Gig Economy, giving a monetisation platform for ‘standardised skills’ – the gig economy companies aggregated user demand, standardised the offering and took a (significant) cut from the person performing the services.

Creators Platform Dependency

The passion economy is different in the sense that the Creators make the product (normally a digital asset – text, video, images, podcasts, music, game stream), generate their own demand by bringing the audience built over time, and monetises it by leveraging (and relaying on) a number of enabling platforms, some of which you can see in the graphic below. These platforms include tools for composition/authoring, hosting/ delivery, sharing/collaborating and transaction/monetisation. The number of enabling platforms for creators has grown to all media types including music, social, gaming, education, publishing, adult video and so on.

Unbundling Work from Employment, Li Jin

Covid-19, the great accelerant of industries

In the wake of Covid-19, many of the enabling platforms for the creator economy have seen an inflection point at almost exactly the same time. Partly this is because Covid-19 increased media consumption across the board and a lot of the digital products made by creators consist of media products.

New media platforms are enabling a new creator type: Digitally Native Vertical Creators, Eric Feng

On one hand, it’s never been easier to reach a global audience, but on the other, it’s extremely hard to cut through the noise. Take Twitch for example. To be on the top 8% of streamers, you only need to have 5 concurrent viewers. Another way to look at it, is that 92% of streamers had less than 5 viewers over the past 30 days. That’s a huge long tail…

There are still many challenges for creators

  1. Attention spans are getting shorter – not every person that starts a newsletter is Ben Thompson, and not every Twitch streamer is Ninja. Few people have been able to build full “hustle economy” careers. According to Graphtreon, a site visualising Patreon analytics, there are 176,000 creators on Patreon with at least one patron and approximately 9 million individual pledges a month paying out approximately $20 million a month. If you do the quick math, you’d come up with approximately $113 per month per person, which is far from the 1,000 true fans. While the number of creators and pledgers is on the rise, it’s unclear how many creators ‘make a living’ off of Patreon beyond the top 1,000.
Monthly payouts on Patreon. Source: Graphtreon

2. Subscription fatigue – Creators, especially those in the ‘media’ space, are competing on the consumer dollars with aggregators (like Spotfiy for music or WSJ for financial news) who amass a huge catalog and charge a low monthly fee, as well as with publishers, who leverage their brand and use personalisation and segmentation tech to attract and monetise their audience.

Trend to watch: an equivalent to MCNs (Multi Channel Networks) on the early days of YouTube where creators band together to generate economies of scale (and share revenue).

3. It’s not exactly ‘direct’ to consumer – every platform takes its cut from the creator transactions (as they should). There’s always going to be a tension between the creator and the platform. For example: Epic Games’ battle with Apple on sharing 30% of every in app purchase on iOS, or the backlash of musicians like Taylor Swift against Spotify royalties, or vloggers against Youtube.

Trend to watch: free or lower fee creator tools. To get $1 in the bank, creators have to generate $2 (taking into account platform costs, creation costs, promotion, taxes, etc). They might flock to new, open source solution, to reduce platform fees and increase their share.

4. Copyright, or the lack thereof – it’s hard for creators to prevent illegal distribution of their IP. Anyone can download a Tiktok video or copy it, forward a newsletter or share ‘exclusive’ images with friends on Whatsapp. In music for example, the labels would go to great lengths to collect royalties for music in YouTube videos (how much of it actually goes to the artist is a different story), but creators have to fend for themselves.

Trend to watch: digital rights management solutions for creators.

5. Content discovery for the creation economy is still poor – today, the main way to discover new creators remains word of mouth. That’s why every now and then you’d see people asking for podcast or newsletter recommendations. As the creators bulk of high quality content is locked behind a paywall, it’s hard for new fans to stumble upon it.

Trend to watch: Better discovery tools for emerging creators. A Producthunt for newsletters perhaps?


Overall, I’m excited about the rise of the creator economy. As a consumer, I am in awe of the creativity and talent of emerging creators. As a VC, this is an area we’re actively look at Remagine Ventures – If you’re building one of these at the pre-seed stage, I’d love to get in touch. The challenges mentioned above illustrate just how much remains to be done in the creator economy space. From new platforms supporting the creation process, to discovery tools that help creators reach wider audiences, this is an area to watch.

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The 7 Habits of Highly Effective VCs

Chances are, you’ve read or at least heard about the book “The 7 habits of highly effective people“. First published in 1989 and with over 40 million copies sold, It’s one of the bestselling non-fiction books in history. For the 30 year anniversary, the publishers kind me sent me updated copy with fresh insights from Stephen R. Covey’s son, Sean Covey.

Last year I wrote on VC Cafe about the 7 habits of highly effective people… in startups, and this time I apply the book’s principles to the world of VC.

First and foremost, Covey rejects the advice of most business books on sales, influence or persuasion, because they promote fake behaviour, intended to manipulate the other persons behaviour. I.e. he rejects the notion of ‘pretending’ to care, smiling fakely, etc, to get others to like you. He claims that the 7 habits are natural principles, and advocates for an abundance mindset vs. a scarcity mindset. Meaning that it’s not a zero-sum-game – one person’s success doesn’t reduce another’s.

Let’s dive into the 7 habits of highly effective people and how they can be reflected in the world of venture capital.

Habit #1 – Be proactive

“Take responsibility for your reaction to your experiences, take the initiative to respond positively and improve the situation. Recognize your Circle of Influence and Circle of Concern. Focus your responses and initiates on the center of your influence and constantly work to expand it.”

William McMillan from Frontline Ventures recently shared the importance of speed in venture capital. There are logical business reasons for it. A 2018 study by Creandum ventures found speed, is the third most important factor for entrepreneurs when dealing with VC, but it’s only the 10th on the list for VC

What’s important to founders vs. VCs (Creandum)

But being proactive goes beyond speed. To be an effective VC, proactivity is part of the job description

  • Proactively learn about new trends and markets
  • Proactively network (deafllow, peers, industry partners)
  • Proactively seek opportunities to help

Habit #2 – Begin with the end in mind

“Envision what you want in the future so you can work and plan towards it.”

My interpretation for VC has to do with portfolio construction. This is not merely a decision in the number of deals a fund would do or the percentage reserved for follow ons, but rather visualising where we want to be in X years time and what we have to do to get there.

Starting with the end in mind also comes to play in investment committees. At the time of making an investment VCs often think about what could be the potential outcome for a company and what needs to get accomplished before the next round.

This principle is also about not just acting, but thinking first. VC funding favours rapid growth, but “accelerating” without thinking where it would take the startup can often mean not ending up where you intended.

Habit #3 – First things first

“Organise and execute around priorities”

The decision making quadrant (Source: Wikipedia)

This habit is about separating what’s important, from what’s URGENT. The right thing would be to prioritise what is both urgent and important. My interpretation for the world of VC is effective time management.

We spend too much time on quadrant III and IV: calls, interruptions, busy works, networking events. For something to be deemed ‘important’ it needs to create results – contribute to you mission, or high priority goals. The book recommends delegating what you can (hire well and work with professionals) and don’t wait for important things like planning, relationship building, etc to become a crisis.

Apart from time management, habit #3 is all about personal management. Putting first things first also means allocating time to be with family, or exercise. In a recent interview to the Observer Effect, Marc Andreessen shared how he schedules every minute of his day, including ‘critical’ free time. To do just that, my partner at Remagine Ventures uses and recommends Clockwise.

Habit #4 – Think win win

“Think Win-Win isn’t about being nice, nor is it a quick-fix technique. It is a character-based code for human interaction and collaboration. Win-win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions”

If you have a scarcity mentality, you believe that the majority of the retruns are concentrated in a small number of deals, and so to be a successful VC you must adopt a win/lose mentality. After all, most people have been deeply scripted in the win/lose mentality. There can be fierce competition between venture capital funds – after all, , especially in dense VC concentrated areas like Silicon Valley.

But having a win-win mindset means constantly looking for opportunities to collaborate, and acting with integrity and maturity. This can take many manifestations in VC – from sharing interesting deal flow opportunities between peers to being a reference for a new fund or making introductions to potential investors when you know a GP is raising. The results of this could yield much stronger relationships. Don’t be a short term optimiser.

Habit #5 – Seek first to understand, then to be understood

“Use empathetic listening to genuinely understand a person, which compels them to reciprocate the listening and take an open mind to be influenced by you”

To achieve habit #4 we need to adopt habit #5. Seek to understand by really considering the other side (wether it’s a founder, a VC or board member). We all suffer from cognitive biases, and while awareness is the first step for overcoming these biases, they tend to only get worse with time, as VCs believe they have sharpened their pattern recognition.

The cognitive bias codex (Source: Wikipedia)

This principle is not just about our ability to really listen, but to seek to understand the other side, or what Covey called “Emphatic listening”. I was particularly taken by one example:

A startup was negotiating a contract with a large national institution. The institution flew over their lawyers, negotiator and two presidents of their large banks to create an eight person negotiating team. The startup decided, it’s either a win-win, or no deal. The CEO of the startup sat across the table from the bank’s negotiation team and said: “we would like for you to write the contract the way you want it soo we can understand your needs and concerns. Then we can talk about pricing”

VCs that do this effectively with founders, can make even a pass decision become a positive interaction.

Habit #6 – Synergise!

Combine the strengths of people through positive teamwork, so as to achieve goals that no one could have done alone.

In the book, Covey refers to synergy as effective team work. To me, “Synergy” sounds a bit like MBA jargon.

Venture capital funds (especially the smaller ones) often have small teams, so my VC takeaway here is on the work of VCs with their portfolio companies.

When I true synergetic relationship exists between the founder and the partner, it’s truly a story of 1+1=3. This is where a lot of the ‘added value’ that VCs bring (or claim to bring) comes into account. For me it’s about obsessing myself with the company and its market. Reading and sharing relevant news with the founder, digging deep on the product and thinking what introductions I can make this week to help the founder progress. It’s a magical moment if there’s a willing recipient on the other side.

Habit #7 – Sharpen the Saw; balanced self renewal

“The Upward Spiral model consists of three parts: learn, commit, do.”

When I was at Google, I took a course called “Search inside yourself” (you can also read the book by Chade Meng Tan). This principle, very much reminded me of that course. We have a number of sources of energy:

  • Mental – reading, writing, planning
  • Physical – exercise, nutrition, sleep, stress management
  • Spiritual – prayer, meditation
  • Emotional/ Social – service, empathy, intrinsic security

These sources of energy can be filled and depleted. To stay in balance, we need to engage in some personal TLC. This means working on your phone addiction, but for me it also means keeping the curiosity and passion that drove you to enter VC fresh. Never stop learning.

***

The impact of Covid-19 on Global Venture and the Case for Israel

A new report on global venture capital investment volume shows that H1 2020 investments in startups reached $129 billion (this includes all stages as well as CVC activity). It’s a 6.5% decline from H1 2019 ($138 billion), but the impact on VC funding is less than originally projected. It appears that VCs got comfortable doing deals over Zoom.

Source: Crunchbase

On a regional basis H1 2020 VC investment activity shows varied impact:

“VC investors did not shy away from either first or
follow-on investments, bringing the number of VC deals to a record in Q2/2020″

Israel tech fundning report Q2 2020, IVC

What might explain the record breaking deal activity in Israel?

It’s unclear whether Israel managed to buck a global downward trend, or wether the investment volume was driven by overly optimistic investors and high levels of dry powder in the market. Let’s examine some of the pros and cons of the current state of the Israeli tech sector

Israel’s record breaking Q2 2020 (Source)

Pros

  • Innovation never stopped in Israel – several sectors are seeing increased activity as a result of Covid-19 including health, enterprise software for remote work, cyber security, e-commerce etc. Israel attracts over 25% of global investment in cyber for example and health investments in Israel rose to 70 in the past six months.
  • More talent is getting into the tech sector – a new report by IATI and KamaTech showed that the number of Haredi (Jewish Orthodox) employed in the tech sector grew by 52% in the period between 2014 and 2018. The total number of Haredi tech employees reached 9,700 in 2018 representing approximately 3% of the tech labor force. 71% of those (6,900) were women. Talent crunch is one of the biggest pain points for Israeli startup, and while more work needs to take place to grow the inclusiveness and diversity of the sector, this is a positive trend.
  • Foreign investments remained strong in Q2 2020, reaching 52% of the total investment volume
Foreign investments in Israeli startups (Source: IVC Q2 2020 report)

Cons

  • Slowdown in exits – Despite an increase in the average exit value from $98M in H1 2019 to $112M in H1 2020, the number of exits in H1 2020 dropped significantly both in number (by 32% from 76 to 52) and in value (by 22% down to $5.82 billion from $7.47 billion in H1 2019) compared to H1/2019. Projections are for additional slow down in exits in H2 2020 as the expectation is that only cash rich corporate will be able to afford to acquire companies in times of uncertainty.
Israel exits report H1 2020 (Source IVC)
  • Covid-19 fallout – it’s too early to predict the economic impact of Covid-19 on the tech industry and wider economy as a whole. Given Israel has a small local market, startups aim to go global from day one, and many target the American market. As consumer confidence and enterprise spending slow down in the US, it has a lagging effect on Israeli startups. Many large tech companies froze hiring and conducted layoffs, including Amdocs, which plans to let go 1,000 employees, or Intel CEO’s recent cryptic announcement about outsourcing manufacturing. Much of their recovery depends on the US market and potentially on government support.

So far the Israeli tech sector has been resilient, and as a seed investor I’m optimistic about the Israeli market’s potential to not only survive in this crisis, but thrive. “It’s time to build“, said Marc Andreessen in April, and perhaps more than ever, we’re going to need tech and innovation to overcome tomorrow’s challenges.

Is the Lean Startup concept of MVP dead?

“After the crash, venture capital was scarce to non-existent. (Most of the funds that started in the late part of the boom would be underwater). Angel investment, which was small to start with, disappeared, and most corporate VCs shut down. VC’s were no longer insisting that startups spend faster, and “swing for the fences”. In fact, they were screaming at them to dramatically reduce their burn rates. It was a nuclear winter for startup capital.”

Steve Blank, “Is the lean startup dead?”

The Lean Startup movement started out of necessity. In a capital scarce environment following the Dot Com crash, startups needed to do more with less and survive long enough to generate revenue. Most principles of Lean Startup remain true, as described by Steve Blank in The Lean Startup Changes Everything:

  • Business Plans are dead: Startups a series of hypothesis that need to be tested. Ditch the business plan and when assumptions are proven wrong, pivot
  • Customer Development: Build a product your customers want (vs. what you think they might need) by talking to customers and testing every aspect of the product features, pricing, etc. Start by focusing on the users who’s need you solve the most, they will be your early adopters.
  • Agile Development: launch an MVP early and iterate quickly. Every startup has limited time to find product-market fit before running out of cash and speed is an important element in survival.

Maximum Viable Product

An MVP was supposed to be launched as early as possible. “If you’re not embarrassed by the first version of your product, you’ve launched too late”, was Reid Hoffman’s advice.

But when it comes to launching a Minimum Viable Product (MVP) these days, as incremental and iterative prototypes, things have changed significantly:

  • Capital abundance: There’s never been more seed capital in the market. Startups that had to be cash constrained before can afford to raise capital in a number of ways and acquire resources pre-launch
  • Improved infrastructure:
    • Better tools – The rise of no-code and improved cloud infrastructure across every aspect of software development, marketing and design, make possible to launch prototypes much quicker, reducing the barriers to entry for competitors
    • Better targeting – Advances in adtech, the proliferation of social media and lookalike tech make it easier to target users
  • Bigger markets / higher stakes:
    • B2C – Nearly everyone on the planet is connected to the Internet via smartphones increasing the potential audience for technology massively
    • B2B – ‘Digital transformation’ is accelerating Enterprise adoption of tech. Single users can test enterprise software using a credit card.

In 2020, there is no second chance to make a first impression. With a growing number of new startups, first mover advantage quickly fades away. Brand loyalty is low, as it takes time to build a brand, and creating emotional attachment to a product is especially if the product is half baked.

The MVP needs to be more viable than minimal. It may not need all the bells and whistles, but it needs to look good, feel good (UI/UX) and do what it promises on the tin. If you can afford to make an MVP look and feel great, even at the expense of time to market or cost, why compromise?

Cash (alone) isn’t king

Capital resources alone don’t do the trick. In 2018, Quibi (back then called NewTV), raised $750 million in seed capital pre-launch (the service went on to raise an additional $1 billion ahead of the product launch in March 2020). Quibi didn’t stop to test the hypothesis with a lean startup approach. Well capitalised, Quibi could afford to hire the best talent, outspend the competition and launch a ‘Maximum Viable Product’ worthy of having the potential to beat Netflix, Amazon Prime Video and a number of other streaming wars competitors (NBC’s Peacock, Hulu, HBO Max, Disney+ and Youtube). The jury is still out on Quibi, and one has to keep in mind that producing quality content is expensive and takes time, but money alone didn’t drive adoption. To be fair, it’s also highly unlikely that a minimum viable product approach would have worked here either. It had to be good enough to begin with.

How Covid-19 changed things

It’s hard to predict the true shape of the recovery. Some might claim that the world economy saw its shortest recession in March, and others claim we’ll experience a “W” shape recovery with peaks and throughs or a long U shape recovery. In the endless survey results published, results often contradict, but one stat that got stuck in my mind is a survey of Fortune 500 CEO by Forbes, where the large majority expected things to go back to pre-Covid-19 levels only in Q1 2022.

With the risk of sounding too conservative, what matters for startups now, as venture capital becomes less available and consumer spending tightens, is adaptation and survival. If things aren’t going the way you planned, consider what hypothesis needs changes. I was reminded recently that in the jungle it’s not the strongest that survive, but those who adapt the best.

In conclusion, I believe most of the Lean Startup isn’t fully dead. The core principles remain true, but I’d argue that the standards for the MVP have gone up. The fundamentals (unit economics/ margins, CAC>LTV, the importance of retention) are more important now. Growth is necessary, but so is efficiency in spending and reducing churn. In addition, startups need to take more things in consideration when going to market with a new product. Perhaps the next thing that needs to be born out of necessity is ‘Lean Marketing’, but that’s for another story.

How can startups engage with Google?

If you’re a startup founder, you’re probably looking at Google in some way, maybe in terms of partnership or acquisition, but maybe some level of suspicion and fear. Will they compete with me? what if they decide to enter my niche? What will they announce in the next Google I/O keynote? The same might be true for your view of Amazon, Apple, Facebook, etc.

For many CEOs, competition with the tech giants an existential concern. But having Google (or the other FAANGs) in your corner, can also be a great asset. A relationship with Google can take many forms, which I will detail in this post as a guide for founders exploring their relationship with big tech.

In the past I’ve covered the rise of corporate venture capital and the growing number of Fortune 500 companies who are actively launching CVC arms or investing in startups/funds. But investing is only part of the picture. Companies like Facebook, Amazon, Google, Microsoft and Apple have a number of ways to engage startups, ranging from not-for-profit mentorship to lucrative commercial relationships and partnerships.

In this post, I’ll try to organise the various startup engagement and outreach programs at Google. I believe I am qualified to talk about this as I spent ~6 years at Google in strategic partnerships (commerce), as head of Campus London (Google’s first physical startup hub), Head of Google for Entrepreneurs Europe (now called Google for Startups) and eventually general partner for Google Ventures.

How can startups engage Google (credit: VC Cafe)

Funding, M&A, Commercial, Support

There are four general buckets for engaging with a corporate like Google:

Funding – this consists of cash investment for equity

  • GV (formerly Google Ventures) – Started in 2009, GV is Alphabet’s venture capital fund, focused primarily on early stage in diverse fields: from life sciences and healthcare to robotics and entereprise tech. Notable portfolio companies include Uber, Slack, Jet.com, FlatIron Health, Kobalt Music Group and many others.
  • CapitalG (formerly Google Capital) – Started in 2013, CapitalG is Alpahbet’s growth stage venture fund backed by Google (larger ticket size). Typically invest in series C and above, notable portfolio companies include Stripe, Lyft, Robinhood, UI Path, Snap, Duolingo and many more household names.
  • Gradient Ventures – an early stage fund backed by Alphabet, investing exclusively in AI first companies.
  • Google Assistant – relatively unknown, Google has put together a team dedicated to investing in early stage startups that are moving the voice and assistance ecosystem forward. The website lists a handful of portfolio companies.
  • Google Corporate Development – Google may sometimes invest in a company from the balance sheet

M&A – Acquisitions

This most likely involves a combination of an operational team (cloud, enterprise, commerce, etc) and the corporate development team, led by Don Harrison.

Notable acquisitions include Youtube and Nest, or more recently smart glasses manufacturer North or wearable tracker FitBit (under review).

Commercial – a data/tech/commercial partnership or client relationship

This is where it starts getting a bit more complicated. There are multiple arms at Googlee that might do commercial deals with startups and it would be ambitious to try to list them all. So I’ll focus on the main partnerships buckets and app stores.

Partnerships/ Commercial

Many of the partnerships I’ve experienced during my time at Google had to do with strategic content partnerships:

  • Commerce – partnerships with online retailers around google shopping, google wallet, etc.
  • Books/publishing/news – partnerships with publishers of all sizes
  • Geo/Maps – partnerships around locations, public transport, traffic, etc.
  • Search /Assistant – search partnerships are more of a ‘catch all’ bucket and can range from social content (like tweets) to stocks information etc. Anything you’d expect to see called out in a search results page or an activation of Google home.
  • Marketing partnerships – Google curates agencies or companies who pass exams to become certified partners or resellers of Google marketing products.

Another big commercial area is Google Cloud for startups. In addition to the many services offered by Google Cloud directly (App Engine, Compute Engine, Cloud Storage, Kubernetes, etc), startups targeting developers can list their extensions in the Google Cloud Marketplace, Firebase extensions and the G Suite marketplace.

Support

In this category there is a range of programs design to support founders and startups. New programs are launched on a regular basis, so it’s hard to create a definitive list.

The newly created Google for Startups, formerly known as Google for Entrepreneurs, is the umbrella organisation that coordinates the various startup support activities.

Google for Startups is Google’s initiative to help startups thrive across every corner of the world. We bring the best of Google’s products, connections, and best practices to enable startups to build something better.

Google for startups homepage
  • Google Campus – Google launched a number of Campuses, physical hubs for startups, offering a combination of workspace, community, startup support programs and events. There are currently 7 owned and operated Google Campuses in London, Tel Aviv, Madrid, Warsaw, Seoul, Tokyo, Sao Paulo as well as a number of partner tech hubs in Numa in Paris, Factory in Berlin, Epicenter in Stockholm, TQ in Amsterdam, Dogpatch Labs in Dublin, etc. They offer free trainings, mentorship from Googlers, workshops (on fundraising, hiring, internationalisation, etc), a diverse range of events and international exchange programs between the hubs.
    • Startup Cafe – each Campus offers a cafe for registered members (free) where founders get fast wifi and access to the Campus community and events.
    • Google for Startups Residency – a 12-week cohort program focused around diversity (women founders, black founders etc), where successful applicants relocate to Campus for a 3 month program focused on leveraging Google products (i.e. Google Cloud or Google Compute). Each startup is assigned a Google mentor to help the startups focus on a key business challenge (i.e. how do we improve retention) and Google helps the startups with best practices (i.e. OKR setting, best practices for hiring, etc).
    • Diversity is a key value at Google for startups – Applications are now open until August 2nd 2020 for a Women Founders immersion programme as well as a Black founders immersion programme.
    • Google for startups accelerator – this is an extension of the startup residency program, targeting growth stage startups (post seed). Applications for various programs in Europe and Israel are open. The Accelerator programs are now fully remote and open to 10-12 startups per batch.
    • Google Launchpad start – a one week pre-incubation program for early stage startups focused on subjects including product strategy, UX and UI, technology, marketing, business development and presentation skills. This program is mainly led by the Developer Relations team. Successful applicants receive credits to work on Google platforms as well as workshops and mentorship support. Regional Google for startups accelerators (Africa, Brazil, India, etc..) are open.
    • Helpful content – is another area of support at scale. Examples include:
  • Google Cloud for Startups – is targeted at developers and offers a combination of free credits to get started as well as dedicated developer relations support, free digital workshops, certificate courses, etc. Think of it as the equivalent of AWS.
  • Google Sand Hill Program – this program went through significant changes in recent years and now works closely with a select number of venture capital funds portfolio companies on how to best integrate with Google tools and products.
  • Start on Android – is a suite of tools aimed at mobile app developers. Perks include early access to pre-launch features on the platform, UI/UX review by Google Play developer relations team and free credits on Cloud, Firebase, etc. Startups can also extend their mobile apps to interact with the Google Assistant.

Some of various support programs aren’t specific to startups, but can also be leveraged by founders. Examples include:

  • Google Digital Academy – best practices for running Google Ads campaigns, analytics, Udacity courses, developer programs, machine learning crash course, youtube best practices and much more. Open for all.
  • The Digital Garage – choose your course, learn at your own pace and get a certificate in a number of free online courses around data, digital marketing and general business skills. Pre Covid-19 some of the courses were also available in physical locations. Primarily aimed at small businesses (vs. tech startups).
  • Youtube creator spaces – state of the art physical studios for Youtube creators in London, Berlin, LA, New York, Paris, Rio and Tokyo. Primarily aimed at streamers and Youtube ‘influencers’.

Most of the support programs offered by Google are free and there’s a wold of content out there.

In the next post in this series, I’ll dive deeper into the startup support at Amazon, Facebook, Microsoft and Snap.

Israeli startup landscape maps (updated July 2020)

I love startup landscapes. It’s been a while since I posted the first Israeli startup landscape collection (August 2018) and second batch (Nov 2019) of Israeli startup maps. In this post I’ll aggregate a collection of recent Israeli startup landscapes across Artificial Intelligence, retail tech, sports tech, Fintech, health (specifically relating to Covid-19), wellness tech and others.

Covid-19 Israeli tech landscape

Israeli startups and scientists are working hard on finding a vaccine and better diagnostics for Covid-19. Here are some of the companies tackling the pandemic directly and indirectly.

Source: Startup Nation Central

Israeli Artificial Intelligence startup landscape

According to recent analysis by Cardumen Ventures, there are 1,042 active AI companies in Israel as of June 2020, with over 150 new AI startups created in 2019.

Source: Cardumen Capital

Israeli deep tech startup landscape

Israel’s growing deep tech landscape includes over 150 Semiconductors; Quantum Computing; Sensors; Space 2.0; Robotics; Networking & Wireless; Advanced Materials & Nanotechnology; Next Gen Healthcare; AI Platforms; IoT and AR/VR.

Source: Grove Ventures

Israeli wellness tech startup landscape

Health startups raised over $4.4 billion globally in Q2 2020, and wellness tech is a growing part of it. Wellness is a category that mixes several verticals within. In wellness tech you can expect to find mind and body fitness (some overlap with sports tech), personal care, healthy eating/nutrition (some overlap with digital health), senior/age tech, corporate wellness, wearable devices (some overlap with IOT), etc.

Source: Welltech

Retail tech startup landscape

Israeli= Retail-Tech companies have raised a total of $243M through 15 deals in 2020 so far, despite the year’s eventfulness.

Source: Retail Innovation Club/ Coresight Research

Israeli martime tech startup landscape

There are now over 100 Israeli startups either dedicated to, or otherwise having a strong use case at the Maritime sector. An increate of 50% from last year.

Source: The Dock Innovation

Till next time…

Israeli Venture Capital funding in Q2 2020 is higher than the previous year despite Covid-19

A new report by IVC shows funding volume of Israeli startups in H1 2020 is higher than the previous year, despite the pandemic.

– Israeli startups raised a total of $2.455 billion in Q2 2020, higher than the equivalent period in 2019 ($2.2 billion)
– In H1 2019, Israeli startups raised $3.763 Billion, compared to $5.199 billion in H1 2020
– $900M in April, $360M in May, $500M in June
– April-May 2020 numbers compensated for the large decrease in early-stage investments during February – March 2020

Read the new preliminary Q2 2020 report by IVC: https://bit.ly/2NRSI0D