With all that’s been written about the Series A crunch, it’s no secret that series A investing has become more difficult. I would argue that it’s become more difficult because the definition of traction (a key decision factor in Series A investing) has changed dramatically over the past decade. In short, industry conditions have made it much harder to determine if a product is truly getting traction, or will only be a flash in the pan.
Increased Eyeballs: There are countless charts which show how new applications are acquiring millions of users in record time. It could be that today’s consumer startups have a high value prop and a better user acquisition strategy. But the underlying driver is that today’s populations are more plugged-in than ever, creating an easier climate to acquire those millions of users. Charts comparing such user acquisition rates are not apples-to-apples are don’t take into account macro conditions.
Ease of adoption: With increasingly better mobile infrastructure, downloading a new app has become effortless. With several services offering one-click sign-up (Facebook, Twitter, Google+ integration), user registration has become more frictionless as well. This is a double-edge sword – it’s never been easier to both acquire and lose users.
Duplicated Data: In the wake of social network proliferation, personal data is no longer a proprietary asset. A picture taken on mobile can be simultaneously sent/posted/shared to dozens of apps (Twitter, FB / Instagram, Tumblr, to name a few). For all pitch decks showing user data metrics, it’s helpful to keep in mind the Venn Diagram intersection of this user data with existing applications and platforms.
Network Effects as the New Norm: Social as a necessary feature has allowed most app to instantly on-board your entire network when you sign up. Even if you don’t like to use Facebook or Twitter sign-up, most mobile apps will also have access to your phone address book, making it easier to find friends and to invite other contacts to the service.
Which metrics should matter, then?
- Relative traffic: Measured on a relatively basis and keeping in mind that Facebook has 150mm MAU and Youtube gets 1bn unique visits per month.
- Engagement: Today’s consumer startups are not only competing for wallet-share, but for attention-share as well.
- Real business moats: the more things change, the more they stay the same.