The red flags and magic numbers that investors look for in startup's metrics
andrewchen.co
andrewchen.co
You can also time it so that your ad spend doesn't hit until the next financial period, which makes it look like there is actual growth commensurate with the headcount increase and disproportionate (in a good way) to cash burn. After all, what kind of founder would increase headcount unless it was needed :)
Disclaimer: This works best when pitching a round after you have already got some early investors to help with the sales pitch to the next round of investors.
Sometimes you're after the same money someone with a much stronger pedigree than you is after. Their false metrics are "Stanford" or ~"involved in building a popular but now defunct protocol" that is no better indicator than working on something.
Of course, defrauding investors has a far higher likelihood of getting you into serious legal trouble than defrauding users. And with this one, even if you don't get caught, if it doesn't work out properly you are fucked.
But hey, if it does work, it'll make a great story to tell at your IPO celebration party over a glass of champagne.
You'd be at the very least inviting a lawsuit... that is, if you got caught.
[1]
"Fraud involves misrepresenting facts for the specific purpose of gaining something that may not have been provided without the deception."
Civil fraud is illegal, so if it is not illegal, it is not civil fraud.
It wasn't.
Please learn the meaning of such serious words before you start throwing them around.
At TechLoaf, we experimented with a lot of different, elaborate, shiny landing pages that expounded on how amazing our newsletter was, etc...
And after falling flat on our face for months, we realized that an incredibly simple, borderline-mysterious landing page converted users far more effectively.
About 35% of all visitors to our site end up subscribing.
(For the curious, this is the landing page: https://techloaf.io)
For this use-case, it's probably a good thing.
I started my website to help people, not make a petty few grand in profits or grow an email list.
However, I know this is bad capitalism. I just don't know if I want to restrict access.
OP meant that this "restriction" piques interest instead of merely closing the tab on ten articles you skimmed the headlines of.
No need to charge for the emails or profit from them. But people will give you more attention if your writing is in their inbox.
Have a simple landing page asking for an email address when someone first visits, but provide a way to bypass it if they don't want to give it out.
A simple direct ask up front is more effective than having lots of distractions on a page.
That's exactly what is there. You can click View The Archive, if you don't want to give your email.
They were very similar to the CNN or NY Times home pages, but with less content visible and more (obnoxious) calls to subscribe to the email.
We also experimented with a minimalist landing page similar to the current one, but with screenshots of the email in the background. In hindsight, it was distracting and slightly confusing.
Edit: I take that back. I went to the page after writing this and signed up. Well done.
And agreed, conversion numbers are highly dependent on how thoughtful our targeting is. We generally shoot for almost laughlibly small, but super targeted, outreach. Certainly factors into our unusually high conversion.
About 50% of visitors click either the “preview” or “archive” link
In the early 2000s at Rent.com we found that forcing an email address to get content gave us a great conversion rate, and fit our business model. But over time people came to be less and less willing to hand over email addresses, and more and more convinced that equivalent content was available elsewhere without the prospect of spam. Our conversion rate therefore slowly slid.
A decade later the conversion rate slid so much that Rent.com eventually abandoned its business model.
To do this we needed to present the apartment owner with evidence that we really were the ones to find the renter. Which means that we needed all of the touch points. And we also needed to help renters find an apartment then tell us. (We had data indicating that only half of renters we placed actually came back to us to tell us so that we knew to tell the apartment owner to pay up.)
We needed the email both as a login to track and tie back to that user, and to send people apartment listings and convince them to report their lease to get the $100.
So emails weren't actually the core product. But they were very, very important.
We had a landing page that always won the AB test for over a year, but our lawyer wanted us to change the chart on the top.
We didn't know what to replace it with so I decided to test what will happen for a week if we removed it to better understand the value it provided.
It turned out that removing the chart increased email capture by 20% and we now have a bare bones landing page.
It isn't always the case, but often times less is more.
Investing in MSFT during his reign was a spectacular investment.
A CEO of another company told me he adjusted the accounting to give the metrics that Wall Street was looking for. The stock tanked (the company has since disappeared). Apparently, investors are not so easily fooled.
CEO focused on customers did well:
Gerstner came into IBM and got it turned around in three years. It was miraculous… Gerstner’s insight was he went around and talked to a whole bunch IBM customers...
CEO focused on investment numbers did bad:
>Palmisano failed miserably, and there is no greater example than his 2010 announcement of the company’s 2015 Roadmap, which was centered around a promise of delivering $20/share in profit by 2015
It's also ironic that many failed start-up founders end up on the investment side, I'd love to see more successful people in charge of who gets funded and who does not.
Just to clarify, what exactly do you mean by this? VCs or startups trying to lose money? For what purpose?
VCs trying to lose money on either an individual investment, or else on their entire portfolio. Some reasons why this happens:
- New VC funds engaging in 'logo shopping', where they invest in later staging companies everyone knows about so that they can put the logo on their webpage and establish credibility, even if they know the investment probably isn't going to be profitable at the valuation where they invested.
- VCs are often misaligned with their LPs. E.g. the VCs are taking 2% management fees on a massive fund, and know it will be ten years before anyone knows their returns so they don't have much incentive to try to be good at their job.
- Special situations. E.g. let's say Saudi Arabia is happy to invest in things like Bitcoin mining or Uber even if they think those investments will lose 10% of their value, because the only thing they really care about is hedging their risk of having their bank accounts frozen by the U.S. government.
- Cases where an investor puts money into a startup and takes a board seat with the goal of purposely killing it so that one of their larger portfolio companies can purchase the assets in a fire sale.
- Cases where a VC comes up with some scheme to try to shift LP money from their newest fund into a startup from their previous fund to artificially inflate their returns.
None of these are necessarily common individually, but collectively things like this are common enough to distort valuations across the board and make it so that looking at what other people invest in and at what valuations isn't a great way to make decisions.
edit: Consider also that if you look at the statistics about how the vast majority of VC funds lose money, these all come from before the 10x growth in early staging funds that we've seen over the last 10 years.
As a startup founder you only need to start one of the best 1,000 or so startups of the year to do really well. But as an investor you need to invest in one of the 5 or 10 best startups of the year in order to make a ton of money for your fund. And the best startups often (but not always) have a ton of people trying to get into the deal. So if a startup could get 25 term sheets and only 1 in 25 of those investors are crooked, then the other 24 investors have to then decide whether they're going to gamble that this investment pays off anyway even though it's priced at way over what is economically rational. It's maybe a little more nuanced than that, but that's the basic idea.
How?
Investing in 10 companies where 1 wins seems much easier than building 10 companies where 1 wins.
No you don't! They're no shame in being a generalist, but by definition it makes you NOT a specialist.
Maybe they specialize in repairs as opposed to new construction?
Also, they could have meant "all kinds" as a figure of speech (not "every kind" but "various kinds").
On the other hand, a successful startup founder has seen one story. Let's say they went from founding to exit in 10 years. They know everything there is to know about their company, their market, and their specific journey. A lot of that is execution. Some of it is also luck (timing, uncontrolled variables like competitors screwing up or incumbents moving slowly or whatever.)
That focus is great for the success of a single company, but investing isn't like that. There isn't one story. What worked for Airbnb or Dropbox or Gusto might be what the company in front of you needs to do. It also might be the worst thing for them to focus on.
So having a wide range of experiences to pull from—whether that is working at companies in various industries, advising founders at different stages and/or around different issues (hiring, product strategy, technical architecture, etc.)—and thinking through a wide range of problem might be a better background for investing.
VCs don't dive deep on a single company and devote everything to it. They have to be more flexible. Their "founder/market fit" isn't one market, it's a meta-level above that.
None of this is to discount the experience or expertise or value of successful founders (that would be absurd) but just to say that it may not be the case that the most successful founders would be the best VCs. It may actually be the opposite!
For parallels, the best players in many sports are horrible coaches, owners, general managers, etc. The "smartest" people in academia are rarely the best teachers. They are different skillsets. The important thing is to match the skillset of the individual with the role. "Successful company founder" sounds like it would be close, since that's what you want—more successful company founders—but what you actually need is a bit different.
Getting lucky doesn't teach you much and it's often hard to factor out how much of success was due to luck.
In sports there is a saying: great athletes make terrible coaches. Someone for whom a sport is as natural as breathing doesn't think about it, hasn't had to struggle, never spent months and years and days and nights and weekends and waking and dozing and sleeping and showering and eating and walking obsessing over it.
But the great coaches do. Because so many of them never made it as athletes.
Failure is a different kind of teacher from success.
Instead it’s just a variation of “how many email addresses do they have”
Also, you can hack revenue in the short term by spending $1.20 to get $1.
>1) First, we seek to understand the existing state of customer growth – including growth loops, the quality of acquisition, engagement, churn, and monetization. 2) Then, to identify potential upside based learnings from within the company as well as across benchmarks from across industry.
Cold someone say what a "growth loop" is? And also what "upside based learnings" are?
Also: It feels like I should be paying Reforge to work there.
The incredible depth of the material has helped me personally:
- articulate ideas in a common vocabulary that were difficult to explain prior
- identify loops within my own side projects which has led to explosive growth (even though the material is designed for larger companies)
- understand how to derive important metrics for many different types of companies
- connect with some of the most influential leaders in the growth space