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Saturday thoughts on market pull. What is it? How is it different from Total Addressable Market (TAM)? And what ideas tend to have strong market pull?

A thread >>

 1) First: "Market pull" != market size.

IMO (and most VCs will disagree!!), market size (TAM) doesn't *really* matter. But market pull DEFINITELY does. For that reason, I've almost never asked a startup about TAM.

Why?
2) First, what is TAM?

TAM is a sizing of how big your market is. A good way to estimate this is - if you can get to all potential buyers and based on how much $$ they are worth to you, how much money can your company make if you took the whole mkt?
3) An example: Say we run an e-commerce site that sells hippo food. TAM in the world:

-1000 zoos have on average 3 hippos = 3000 hippos.
-Each hippo eats $100 worth of food each day
-365 days * $100 * 3000 hippos = $110m per year globally
4) But, we'll come back to this.

Why I don't like TAM - it doesn't take into acct a few things:

A) how hard it is to get customers
B) how much more you can upsell once you have customers
C) how fast the mkt is moving up or down
5) Of these, the challenge in getting customers is the MOST concerning. For example, travel is a HUGE market. Lots of ppl travel. They each spend a lot of money on travel.

But scalably acquiring travelers in most customer acquisition channels is HARD.
6) It costs a lot of money to capture attn. So just because you have a big TAM doesn't mean you can actually get the customers -- even if you are a better product / service.
7) In addition, if you have strong loyalty w/ your customers, you can often upsell beyond your original plan. So, going back to the hippos, if we can get reliable customers buying hippo food, we have the opportunity to sell hippo grooming products / cleaning supplies / etc.
8) It is much easier to sell to an existing mkt than expand to a new mkt in most cases.

AMZN is a great example. Although they are expanding intl, they spend WAY MORE RESOURCES expanding in their home mkt. They sell the US audience everything >> trying to get new customers.
9) The caveat is if you are in a commodity business.

E.g. traditionally, it's been hard for fintech companies to upsell other fintech products. E.g. money is money wherever you get it, so one may have a Chase cc but bank at BofA.
10) Lastly, mkts are accelerating or decelerating faster than ever - due to technology.

Some large businesses / industries are dying quickly.

Others are accelerating quickly.
11) A good example of this is crypto. If you aren't making a bet in crypto because the current mkt size is too small, that's the wrong way to look at it.

Need to look at where it will be in 10 years.
12) Here are some other "small" mkts that will grow:

Sharing economy (eg Uber / Airbnb). Rent >> Own.

Alternative assets. StockX, @Vinovest1 are good examples.

Emerging mkts - Africa doesn't have many unicorns now, but they will have lots in < 10 yrs.
13) You have to see where the mkt is going. Not what it is today. Trajectory matters more than TAM.
14) Let's go back to A) Challenging customer acq. This is the biggest reason to prevent ideas from becoming big. There is just SO MUCH NOISE these days.

In the 1990s, turning your idea into reality required $5m to house your own servers. Few ppl knew web programming.
15) Today, there are SO MANY WEBSITES. Even if you don't have a direct competitor, there is ALWAYS COMPETITION for mindshare.

Tech is a commodity. Marketing is critical:

https://t.co/eecWQfQSA6
16) This brings us to market pull. What is it? Loosely, I define it as how quickly customers adopt your product. It's a velocity measurement. (And very handwavy!)

With re: to startup success, this matters MORE than anything else IMO.

So what does strong mkt pull look like?
17) To map out how to get to $100m / yr in rev by yr 5, your trajectory basically looks something like this:

Yr 1: $1m
Yr 2: $6m
Yr 3: $15m
Yr 4: $40m
Yr 5: $100m

You more than double each yr & have much higher revenue multiple jumps in the beginning. This is hard to do.
18) So how does this happen? A few ways. One way is you just have really strong product-based mkt pull. This can happen w/ strong product features that have virality.

I.e. referral codes. Group interactions as part of the product.
19) For this, think social networks. Think group productivity tools. Think referral codes for consumer products. Etc.

Yes, this is often referred to as "free" cust acq, but marketers still spend time & $ MEASURING & EXPERIMENTING W virality.

Customer acq is never free.
20) A second way is being in a greenfield sector or geography at the right time. Crypto is a good example (and combined w/ strong product virality is a killer combo).
21) Some of our "emerging mkt" portfolio companies are able to sign up businesses with street sales -- literally going door to door to get signups. And there is literally no competition so this leads to strong mkt pull.
22) Timing is impt for these ideas.

Harder to find these types of opportunities in the US IMO (but still possible - they just tend to be really "out there" ideas!)

Bill Gross talks about timing here: https://t.co/8K7PIWMis2
23) A third way is via paid ads. Most VCs think this is impossible. It's not - I've seen this happen a few times. But it's rare.

Ad prices only go up over time. So, you must have strong LTV for this to work which usually implies STRONG RETENTION.
24) And, if you are finding CAC too high in Google Ads or FB ads (generally saturated), try using untapped channels.

YouTube ads. Tik Tok. Etc.

Ad channels often require doing what everyone else is NOT doing.
25) A 4th way is expanding via SEO. Remember, you need rev to more than 2x every yr. SEO is one of the few channels where CAC from each link goes DOWN over time. The cost for link builders & writers is a 1 time cost, & hopefully you get many customers over time from that work.
26) However, you must be METHODICAL in measuring how much each link or content is worth to you & can't pay a lot for each. The problem is you won't know how much you can afford to pay until mos or yrs later. So, this is a gamble & will need careful attn to this long feedback loop
27) Since it takes some time to understand, often early stage VCs won't touch SEO driven companies.

I also haven't seen anyone get to $100m/yr by yr 5 as a result of needing time to figure out the feedback loop, but I've seen cos get REALLY CLOSE so it's worth mentioning.
28) So if you want to build a venture business (and there is also nothing wrong if you don't!), I would work backwards -- how are you going to hit these rough #s each yr?

And what are the deliberate cust acq activities you need to do to hit this?
29) In short, for your biz idea:

-Is it in a crowded space (affects CAC)?
-Are there potential upsells to increase LTV later?
-Is there greenfield to run that fits a rising trend?
-Is there enough margin between CAC & LTV?

These are the qs I would ask before starting a co.

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Some gems from @MacConwell of @RarebreedVC in Clubhouse right now:

1) VCs are looking for startups that can get to $100m / yr in rev by yr 7-10.

VCs need this kind of return in order to produce great funds.

2) And so many companies won't get to this level - and that's not a bad thing - but then it means you should be thinking about trying to get going w company revenue since you can't count on VC backing.

3) someone asked about age and fundraising & do accelerators help?

Age doesn't matter. But just make sure no one is taking advantage of you. And as such, accelerators can help sometimes w that guidance.

4) Someone got a rejection because he had a teddy bear in his room (side note: what investor says that?!?)

Mac says he's been there and has heard that saltiness. But you're going to get a lot of nos. And you gain more leverage w more progress and traction. So just keeping going.
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Elizabeth Yin
Elizabeth Yin
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Saturday thoughts on funding: Where it helps. Where it doesn't. And how it affects team, success, and PM fit.

This is just my $0.02 after looking reviewing 30k+ early stage startups personally and having led 350+ investments across 2 VC firms & as an angel.

Let's begin! >>

1) Money is great to have in building a startup (for the least dilution and pain possible) That's true and always will be true. 😆

But just like how money can't buy you happiness, it also can't buy you PM fit.

2) PM fit is the holy grail for software startups. (we're not talking biotech - if you have a cure to cancer, I guarantee you everyone wants it).

But for software startups, it's unclear if ppl want your product at your price pt.

3) If you don't find PM fit, in this day and age, you will be able to get some sales. Maybe even say $1m in sales (or more!) per year, and you can still make a living.

But having sales does not mean that you have a repeatable customer acquisition process that can be sustainable

4) As an aside, that is why we invest at pre-seed & don't care about startup traction, because I don't believe traction at the earliest stages suggest PM fit. Traction only shows that a founder can execute (& that's impt too) but there are other ways to assess execution earlier.
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Elizabeth Yin
Elizabeth Yin
@dunkhippo33
A thread on employee equity in early stage startups -- what are the compensation norms? What every early employee should ask? Some thoughts on whether the structure is fair.

Read on >>

1) First, there are NO NORMS! Hah. I have literally seen everything from giving early employees no equity to giving employee #1s near co-founder level of shares.

But what is more common than not?

2) In the Silicon Valley, if you're hiring your 1st employee, & you've raised NO $$ & are paying very little (e.g $0-$10k / yr or thereabouts), your first employee is basically a co-founder.

And the equity tranche for employee 1 should be closer to a co-founder level.

3) For ex, a friend of mine gave his employee #1 10% (vesting over 4 yrs of course) of the business. This employee was only getting his housing paid for. And this was 10 yrs ago, so it was during the bust.

4) On the flip side, if you have raised some $$ & are paying employee #1 near mkt rate, typically I see around here ppl get 1-5% (w/ vesting).

Caveat - near mkt rate doesn't mean compared to Google or FB salary rates. I mean compared to "normal big cos"
STARTUP
Elizabeth Yin
Elizabeth Yin
@dunkhippo33
Last week, I wrote a thread about generating momentum for startups.

Today's thread is on how emerging fund managers can generate momentum for their fund.

Whatever you do, momentum is so impt to get ppl onboard -- for hiring, for sales, for fundraising.

Read on >>

1) First, why does momentum matter?

Think about it from the "buyer's perspective" -- it is almost ALWAYS better to wait and get more information if you can get the same deal. Right?

More info on a potential investment. More info on a new product. Etc.

2) There are few situations where it's impt to be a first mover.

If you're a product buyer, it could be you have a dire situation at your company that alternatives can't handle.

But if you have a decent alternative (alternative product or alt investment), it's better to wait.

3) That means it's YOUR JOB to create momentum. Whether for fundraising, sales, or hiring.

So with that in mind, how do you generate momentum for fund fundraising?

4) In a prior tweet about generating momentum for startup fundraising, essentially I said to limit your supply (the amnt you are raising) in tranches AND to increase demand by packing in mtgs.

Unfort this doesn't quite work well for funds.
STARTUP , FUNDRAISING
Elizabeth Yin
Elizabeth Yin
@dunkhippo33
Today I want to talk about the legal aspects of startups. How to set up? How to think about legal costs?

Fun!

Read on >>

1) Lawyers are expensive -- oof! A startup lawyer can cost you $300-$1k per HOUR! An associate paralegal may be slightly cheaper. But still pricey.

What do you need from a lawyer?

-company setup costs
-doc creation and review for financing rounds
-exit negotiation

2) For the purpose of this thread, we're just going to focus on setup costs, because this is where I see the most mistakes.

Once you get going, you may quickly realize you need a better lawyer - hah - and that generally helps w/ solving for financing rounds and exits

3) If you want to potentially raise money from VCs, you'll want to set up as a Delaware C Corp. If you don't ever want to raise from VCs, an LLC is fine.

Lots of ppl start out as an LLC because you can get tax benefits if you are not profitable.

4) But to me, if you know you want to raise VC money, it feels a bit penny wise / pound foolish, because you will need to spend $$ to convert your LLC to a Delaware C corp.
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THE MONEY PRINTING GAME:

A pleb's guide to using @Keeper_DAO's hiding game to acquire $Rook below market price and arb it like a pro.

Before reading this thread, please read this one to provide a bit of context:
https://t.co/jLeUJRIjLG

Here we go!

1/


Before we really get into the meat of this... please do understand that the hiding game is currently in alpha. Hardware wallets don't work w/ it yet (they will soon).

Sometimes orders go unfilled (improving every day).

2/

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Limit orders on an amm aren't limit orders in the traditional sense. They are actually arbitrage opportunities for keepers. Keepers are bots that operate in the dark forest of ethereum.

3/

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RIPPLE’S DUE PROCESS CLAIM:
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estoppel. I explained the law protects a party from being harmed by another party's voluntary conduct. That conduct may be ACTIONS, INACTION, SILENCE, or ACQUIESCENCE. Although the SEC never declared XRP a non-security, for EIGHT YEARS it openly traded in unison with #ETH and

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Abhay | Money Wisdom \U0001f4b0
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The Concept Of Economic Moat While Analysing a Company

Economic Moat 101

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In stock market investing, an economic moat is an important concept with none other than Warren Buffet as one of its strongest proponents.

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BEST VALUATION FACTOR

Price to earning below:10

Price to book below:2

5 years ROE:more than 20%

If you follow these points then you won’t overpay & your return would be bigger than anyone

it’s very tough to get any stock now but there were lots of stock last year
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