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Startups exist to build products to solve problems.  While revenue is an oft-used yardstick to measure the effectiveness of a solution, analyzing product usage behaviors is the most important direct indicator of how much customers love your product. 

When I am digging into a company, I usually like to deep dive into product usage to investigate three important questions:

a) Does the product actually solve the user’s problem? (especially if the buyer is different from the end user)

(b) Is it a delightful and sticky user experience that the users love?

(c) Does the product drive a tangible, objective business outcome for the customer to justify cost of the product (the ROI)?

After surveying and working with early stage B2B and B2C companies, both successful and unsuccessful, over the past few years, I have distilled product usage measures the best founders use. These are great jumping off points for both B2B and B2C businesses and create a framework to enable entrepreneurs to go deeper into more granular insights about their specific product and customer persona.

The "Aha" Moment - Customer Activation Energy

I think of the "Aha" moment as the moment your product fulfills its value proposition to the customer. When the customer experiences your magical solution that solves the problem they have been struggling with.

Think of the Aha Moment as 💡 + 🤯

Here are some “aha” moments for popular products you might have used.

💻 Zoom: completing your first zoom meeting

🥕 Instacart: first batch of groceries delivered

📹 Twitch: when the streamer responded to my message live on air

🦾 Zapier: setting up a Zap & it runs for the first time automatically

A product is only effective, if users have an aha moment. The best products get their users to the “Aha” moment as soon as possible

So its important to track these two metrics: activation rate ("aha moment”) and time-to-value (“speed to aha moment”)

📈 Activation Rate: what % of signups / users get to their aha moment

This number should be as high as possible. Hard to engage and retain users if they never discover the magic of the product.

Activation Rate Formula: [Number of users who accomplish "Aha" moment milestone in a given period] / [Total number of onboarded users] * 100

🕛 Time to Value (TTV): The time lag between signing up for the product and the "Aha" moment.

This should be as short as possible. The clock starts ticking the minute they sign up. B2B software companies target a 7 day TTV. B2C users are much more fickle and unforgiving. B2C TTV needs to be within minutes or hours after they sign up. It’s all about Speed - I think Keanu would agree…

Notes: For this metric to be an effective signal of activation, it is important to tightly define the aha moment. Appcues has a solid guide on how to think about Aha moment and how to define it. Don't pick overly broad vanity metrics. https://www.appcues.com/blog/aha-moment-guide

Customer Usage

1. Activity

After customers are activated,  I like to dig into activity over time. It can be tempting to set a low bar for your definition of activity. “Users that log into the app” is a weak one. Pick your app’s core actions. For example: Hubspot’s core action might be creating or updating a deal. Then track activity metrics around this core action in discrete time intervals: daily, weekly, and monthly.

DAU: Daily active users are active at least once within a day

WAU: Weekly active users are active at least once within a week

MAU: Monthly active users are active at least once within a month

DAU % = 30 day Rolling Average daily users to take the core action in your app / All registered users * 100

WAU % = 4 Week Rolling Average weekly users to take the core action in your app / All registered users * 100

MAU % = 3 Month Rolling Average monthly users to take the core action in your app / All registered users * 100

Usage metrics done right can be like a swiss army knife. Useful in a variety of ways. Segment customers that use the app daily vs monthly and investigate demographic and psychographic differences. Dive into usage patterns and how they differ between daily users and weekly users. It can also be an important indicator of customer health and can drive upsells - have a customer whose users went from predominantly being monthly active users to daily active users? That’s a great sign that they find your product very valuable and might want to expand usage. 

It’s important to remember that these metrics aren’t one size fits all. Some businesses have naturally episodic usage. People only use Airbnb when they go on vacation every few months. Twitter and Instagram, in comparison, are more likely to have daily usage as users log on to get their daily running count of Elon’s children, learn about the latest crypto token to become insolvent, or simply to shitpost. Context is important.

2. Retention

When I love what I am eating, I eat more (my weighing machine hates this).

When I love what I am playing, I play more

When I love what I am wearing, I wear it more often and for longer

Similarly, the next best to evaluate if users love your product, is to investigate their retention - how long do they continue using the app. The best way to visualize this over time, is through a cohort analysis.

Cohort analysis is a nifty analysis tool to track usage and engagement over time by grouping users into cohorts based on when they first started using your products. When products are sticky, cohort analysis will show users sticking around long after they signed up. When products are a fad or solve a fleeting problem, cohort analysis will show users leaving in the first few weeks or months.

It can also be an innovative way to identify if your product is getting better. If it is, newer users will stick around for longer than older users. In fact, older users might be coming back because the product has improved by leaps and bounds.

Retention data is an important indicator of Customer Health. High usage, high retention customers are very healthy and likely present opportunities to upsell. Customers with low usage and low retention might be at risk of churn.

Successful companies proactively track these metrics early in the user’s journey and quickly take measures based on these data trends.

3. Time Share

“Time is our most valuable non-renewable resource” - Albert-László Barabási, Physicist

When I evaluate products, I am always curious about how much time customers spend in the app. It can be a valuable indicator of customer delight - they like using the product so much that they spend more & more time in your app. 

There are caveats to this. I spend hours at the DMV because it takes hours to do what could otherwise be done in minutes. People are slow and insufferable and I never want to go back. If the DMV had a disingenuous CEO, they might point to “time spent in the DMV” as their core metric along with “Yearly Active Users” to convince investors that users love their product even though it's far from the case….

That’s why it's important to evaluate time spent in app in context, alongside NPS scores, active usage, and retention data to ensure that people are spending more time because they like your product, not because its clunky and hard to use.

Success Outcomes

Customers are paying you with time and money to use your product to solve their problem. Naturally, it’s important to objectively track the effectiveness of your solution. It’s important to understand how your customers are evaluating your software - what language do they use, what key metrics do they track and then make sure you track those same metrics too.

For example, products that help increase revenue, are generally going to be evaluated on return on investment (ROI) or a similar metric. Let’s say you sell a sales intelligence tool that helps companies identify new target leads. Your customers might evaluate you on: number of new leads you generate IN ADDITION to the new leads they generally get in a given time period. They might also evaluate the quality of these leads based on new closed ARR generated by your leads. Then, they might take that ARR in conjunction with the cost of your product to evaluate ROI.

If your product costs $100k and generates $1M in new ARR through your leads, the ROI would be 10x, which is very good. If your ROI < 1, your customers are losing money on your product and likely to churn (if they are smart). If you ROI is >3-5x, your customers will be happy and your money printer will likely go brrr…

ROI = New Revenue (or Decrease in Cost) / Cost of the Product * 100

Thoughtful identification and proactive, sophisticated tracking of product metrics creates a solid foundation to understand and scale high potential businesses. While not an exhaustive list of product metrics, these are great standard metrics to begin evaluating effectiveness of your product and capture implicit customer feedback to drive product decisions. Plus, nicely packaged product metrics can drastically boost your fundraising process.

Thanks for reading! If you liked this post, drop a like and share it with one person who might enjoy it!

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In the meantime, let’s chat on Twitter👋

Paraj

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Fundraising is hard. The monotony of cold outreach, the sudden rush when an investor responds, and the adrenaline of pitching your life’s passion on a 13 inch monitor, or if you are lucky, a coffee shop. Constantly pitching your idea, your baby, that you are spending every waking moment obsessing over, only to get email after email with a “no”. And even when the investors respond with a “hell yeah we are super interested…”, its usually followed by “…would love to dig in more…”. It’s only the beginning.

Seasoned and new alike, early stage founders I talk to are most anxious about due diligence. What are they looking for, how do I position myself for success, how do I make it quick? It’s a black box. Every firm has (or claims to have) a different approach to due diligence. In this post, I will pull back the curtain on everything you need to know about early stage venture due diligence — what it is, how to position yourself for success, and what are investors looking for.

PROCESS

Due Diligence is the process through which early stage investors - angels and VCs - evaluate investment opportunities to make an investment decision.

The exact process - items, requests, and length - of diligence depends on a few key things:

a) Stage of the company (pre-seed, seed, Series A, etc) -

Diligence for early stage companies is faster and focused on team strength and size of the market opportunity. At the earliest stages, there is not enough data on company performance for it to take any meaningful diligence time. As companies approach a Series A, a bigger part of diligence is “inward-looking” on company business metrics. As the company matures, diligence is longer and more detailed.

b) Investor Check Size (relative to size of the fund) & Lead / Follow-On Status - 

Typically, lead investors “lead” the diligence process. Smaller, follow-on investors usually get access to the data room, but only get a very limited number of additional requests and access, and have little to no direct control over diligence timing.

The investor’s check size relative to their fund size is another key driver of their diligence expectations. A $30M fund looking to invest $2M in your company is investing ~6.67% of their fund in your company. You will be one of only 15 max portfolio companies in their portfolio. As a result, their diligence expectations will typically be higher than those of a $1B check writing a $2M check (investing 0.2% of fund).

There are six key elements of good early stage diligence: Team, Product, Market, Financials, Legal & Governance, and Customers. Diligence is usually conducted through three, usually concurrent, paths - through data provided by the company in the data room, direct meetings / calls with customers and industry experts, and investors’ own market research using first and third party data. 

Let’s dig into each individual element, identify key data that should be included in the data room, and understand investor goals for diligence and likely additional requests.

TEAM

Startups are hard. Grueling. That’s why the team is one of the first key areas of diligence. Most early stage investors consider it to be the most important criteria (See exhibit A). 

Team diligence begins as soon as you hit "join meeting" on your first zoom pitch call. Investors are looking for founding teams with a strong vision for the market opportunity and product, and the capability to build a team to execute against that vision despite all hurdles and setbacks. Plus, we are looking for signs that the team is coachable and willing to accept help – and is a team that we would enjoy being in the trenches with on a weekly basis.

Here is what successful founders do well:

• Add a detailed team slide in the data room to show the composition of the team and what they have done in the past. This helps demonstrate company pedigree and management’s ability to hire high quality employees.

• They are transparent and honest about their thinking around the market, competition, and business model. This helps us get comfortable with founder thought process and starts to give us insight into their decision making process

• They are remarkable story tellers. The importance of story telling deserves its own blog post, but the best founders craft the narrative with such passion, that they compel you to become believers, quickly. I have even met founders, where at the end of the intro call, I wanted to quit my job and join them in their mission. 

• They are transparent about their shortcomings and challenges. They don’t try to hide them. 

  • Side note here - sharing your biggest hurdles is a great way to do some reverse diligence. The best investors would love to jump in and immediately start helping you overcome these hurdles – independent of their decision to invest. Plus, it gives you a tiny taste of what it would be like to work with this VC for the next 7-10 years. If vibes are off, you can pass on the investor too!

Other Notes:

• Don’t lie or exaggerate about your background, accomplishments, or company progress. 

  • Sadly, this happens

• We are looking for smart, honest, transparent founders. This usually does not mean be “rehearsed” or overly “polished”. Despite what a “pitch meeting” insinuates – you don’t have to “Sell” us on the investment.

• It’s a first date – keep it high level in the first meeting, and only dive in as necessary.

PRODUCT

This next one is obvious. Your product. The thing you are selling. Is it good? Does it work? How well does it work?

The goal of product diligence is to evaluate three key things. First, how does the product solve the problem? Second, how much of it is built? Third, how is it different and 10x better than the existing / old way?

There are three interdependent aspects of complete product diligence. Think of them as expanding concentric circles. The smallest concentric circle is the product itself. Usually this means going through a product demo and getting a test account to play around in the product. This is super useful because we can quickly get smart on how the product works, and on the quality of the engineering team based on our experience with the product. But this alone isn't enough. 

Unless your target users are VCs, even if the product works aka all the buttons work, how do we know the product *WORKS* aka actually solves the problem it set out to solve. For this, we usually rely on customer calls.

The third aspect, the largest concentric circle – is the universe of all other products trying to solve the same problem. Good VCs will test all the other products in the market and compare your product to others to understand points of parity and points of differentiation. 

Successful founders:

• Add a detailed product demo in the data room and give investors a test account to play around in the product

  1. This is another opportunity for reverse diligence – the best VCs are going deep in your product so you will see usage data

• Share a thoughtful product roadmap built around business goals, and not just features.

Other notes:

• Be clear about what is built and live and what is currently “Figma-only”

• It’s okay if your product isn't perfect - don’t try to hide shortcomings. It’s easier to trust a B+ product we can use, touch, feel, and identify shortcomings (because we can fix them), than a product that looks A+ but is vaporware. Basically don’t pull a Theranos. Or Fyre Festival.

FINANCIALS

Financial due diligence can often feel like the most daunting aspect of the diligence process. Fret not, let’s break it into chunks.

Think of financial due diligence as having two discrete phases - backward looking (historical) diligence to evaluate performance and traction, and forward looking (projections) to evaluate growth potential.

Let’s start with historical diligence. The goal here is for us to evaluate your traction so far on your key business metrics. Usually one main metric is revenue, but depending on your business model could include other metrics as well (ex - for marketplaces, Gross Merchandise Value is another key metric). VCs are looking for consistently high month over month growth. 

The second key aspect is unit economics and sustainability of customer acquisition. Customer Acquisition Cost (CAC), Lifetime Value (LTV), Annual Contract Value (ACV), Cost of Goods Sold (COGS), and Gross Margin (GM) are the usual targets. Understanding these business levers and their historical trajectory is important to creating the critical foundation to build future projections on top.

The third aspect of historical diligence is capital efficiency. Once we understand growth, and business levers, we need to understand how much cash did the business have to burn to achieve that growth. This helps us get an understanding going into the projections, of exactly how much cash the business might need to achieve their projected growth.

Once we understand the historical trajectory, we shift our attention to future projections. Looking through management projections is like peeking into the founder’s brain and how they see their business growing. Usually we like to see 2-3 years of projections through a monthly financial model. One key thing to understand – it's really the numbers for the next 12 months that need to have the highest fidelity. A lot can change to affect revenue 12+ months from now and nobody is expecting 2-3 year projections to be gospel truth.

In this aspect of diligence, successful founders:

• Highlight key assumptions and drivers in future projections

• Differentiate truly recurring revenue (annual contracts), re-occurring revenue (not contracted, but happens regularly predictably), and one-time revenue

• Are transparent about metrics that have underperformed, have a hypothesis for why, and an initial plan to fix

• Share excel versions of these files so we can play around this them (sorry, I had to put this in here - PDFs are a pain to work with)

Other notes:

• Use standard metrics wherever possible. No “community-adjusted EBITDA” please. If there is a key reason for your business to look at a unique metric - highlight it and let's talk about it.

CUSTOMERS

Startups exist to serve their customers. To solve a problem. This is why it is critical to talk to customers as part of diligence.

Remember when we said customers were a key component of product diligence? Let’s talk about it now.

Investors like talking to current customers to understand:

1. Quality: In this context, “quality” implies fit. How well does the customer fit the ideal customer profile? In addition, are these customers SMBs, Mid-market, or Enterprise? If your target customers love the product, but keep going out of business, that’s not great (bigger risk with SMB than Enterprise).

2. Satisfaction: Is the product solving their problem? Is it a nice to have or a must have solution? Will they pay more for this?

3. Usage: Who uses the product? Is usage increasing or decreasing over time?

4. Decision Making Process: How did they evaluate solutions in the market to pick this particular solution? 

In addition to current customers, some VCs also like to talk to churned customers to understand the underlying cause of churn. Some churn is unavoidable (company shut down) and some desirable (non-target ICP customer taking up way too many resources). But understanding any product shortcomings that led to churn helps focus our efforts on how to fix them (and if they are fixable). 

Successful founders:

• Protect customer time and only offer customer calls to the lead investor (and in rare cases a few key non-lead investors that are writing a big check in the round)

• Offer customer calls towards the end of diligence (mostly after term sheet)

• Keep detailed customer case studies - both positive and negative to support their market segmentation and ICP decisions

LEGAL

Despite how boring it can seem, legal and governance due diligence is important to evaluate any future legal risk. As companies scale, documentation around control, voting, and ownership become extremely important so it's critical to scrutinize them often and early.

Corporate & Equity Docs: VCs want to see that a company is actually officially registered as a company and that all key decisions and governance rules have been properly initiated and recorded through legal documents. The most important high level items are incorporation docs, cap table and ownership structure, vesting schedules, and voting provisions.

Intellectual Property: Highlight critical IP that underpins your product and who has ownership of that IP. This is also a critical piece of demonstrating defensibility in some industries where patents and defensible IP can create winners.

Financial: Hold up, we just went through a whole Finance section, why are we talking about finance again? Well, in this case I am talking about legal documents that govern any key financial transactions – including prev. fundraises and any outstanding debt.

Legal diligence usually happens in two phases – first, surface level diligence early in the process to quickly identify any major red flags (and deal breakers), and second, post-term sheet as the funding documents are generated by lawyers.

CONCLUSION

Finally, VCs are also doing a lot of research on their own. Market research, industry reports, expert calls, and market data number crunching. Founders should feel empowered to ask investors to share this research as part of their decision making process. The most important thing to remember - VCs exist to serve founders so don’t be afraid to own the fundraising process and be proactive. The best venture funds, make diligence feel like a collaborative journey of self discovery. It should not feel like being at a dentist’s office (unless you love dentist visits…I don’t). The process outlined above generally covers how early stage venture firms think about due diligence, though some firms might have their own quirks not covered above. You are the world’s foremost expert on your business, and diligence is the perfect platform to showcase this expertise.

Thanks for reading! I will see you soon 👋

In the meantime, let’s chat on Twitter

Paraj

Network effects provide the biggest defensible moat in the digital world. Not only that, they also account for over 70% of the value creation in tech.

Often overlooked, however, are negative network effects and their impact on users, communities, and products. 

Wait, I thought you just said network effects are great. What are negative network effects?

Negative network effects happen when, as users and product usage increase, the user experience degrades and the value to users decreases. They mainly happen in two key ways: network congestion, and network pollution.

Network Congestion

Just like everyone independently streaming Netflix at home makes your wifi slow and your streaming buffer-y, network congestion is when too many users reduce the core utility of a product, overshadow (and in some cases completely erode) the initial value proposition, and degrade customer experience. 

Network Pollution

This is when too many users leads to an overload of irrelevant or undesired content. LinkedIn is the best example of this. The wider my professional network gets, the more my feed is filled with :poop emoji: like this

These negative network effects are particularly magnified in products focusing on intimacy and community. 

Clubhouse

The early days of Clubhouse were magical. Pop-up audio rooms filled with serendipity and interesting conversations. Audio as a medium (vs. text) felt more personal and got the early users hooked. Much better than a podcast, because everyone could participate, early users were like-minded (tech community), and room sizes were small and manageable. Early network effects were powerful, driven first by the FOMO generated by its invite-only strategy and rave reviews from early users, and then by celebrity sightings in the app.

In the past few months, the floodgates opened. Clubhouse went as high as #14 on the App Store. Right on cue, the negative network effects started kicking in.

Watercooler conversations, but make it 100s of people?

Room sizes immediately ballooned. 10-30 person rooms now have hundreds, even thousands. This has two major effects. First, it prevents users from being able to have any meaningful participation or engagement in the conversation. In that sense, the rooms regress into live podcasts, rather than an active two way conversations. Second, the intimacy is gone. You can’t really make new one on one connections in 200-1000 person rooms where everyone is trying to get a word in. In this case, history kind of repeats itself AND rhymes. This is exactly what happens to all social platforms. They go from social networking (intimacy, connections, conversations, high participation), to social media (low participation, high consumption).

What are you even talking about right now?

The number of rooms has also skyrocketed. But it is harder than ever to find high quality conversations. The feed is polluted with irrelevant conversations. Some weird and inappropriate, some outlandish and crazy, and some straight up disgusting. Antisemitic conversations in particular have found a home on Clubhouse. And now that Tai Lopez is on Clubhouse, scam-preneurs are likely to be the next wave.

It’s not all negative. It has also given rise to creative new content formats like the live performance of Lion King by voice actors for 5000 people. It was phenomenal and extremely creative. Clubhouse is going to create a whole new category of audio first social content. To further embrace their new status as social media, they have also launched a Creators Club. Cool stuff, but the new Clubhouse just hits different, and not in a warm fuzzy way.

Value Leak

As the social “network” morphs into social “media”, the core public networking functionality starts to leak. Sometimes off the platform into other platforms. Often within private messages and groups within the platform. A classic example of this is Twitch. When it started, communities were small and intimate, fostering meaningful connections among the viewers and the streamers. As audience size grew, Twitch’s community value leaked, fueling the rise of Discord. Twitch failed to capture that value. Similarly, for most Twitter accounts, the real value has shifted off the public timeline, and into DMs. So much so, that users are willing to pay just for Twitter DM functionality. 

Are you building a product that captures the value leak from a hot social media platform? Hit me up on Twitter @itsparaj and let’s chat!

7:30AM

I am a night owl so waking up in the morning is tough. Which is why I usually set 15 alarms between 7 and 7:30am. I am always attached to the phone so my first instinct is to quickly scan my email, twitter mentions, and whatsapp messages, usually with just one eye open. I don’t generally like to eat breakfast so my mornings are uncomplicated. Sometimes I make coffee though I am definitely more of a hot chocolate person. The last thing I do before heading out is quickly scanning my to-do list for the day on Todoistand mentally preparing myself for the day ahead.

8:15AM

I usually reach the office by 8:15. I start every work day with a fixed morning routine. I start with Product Hunt to browse and test cool new products that launch every day. Then I read the top articles on Hacker News. My slack groups are next, I am in four main ones with other investors and friends and I go through my messages and threads. A quick Twitter scan. I end by peeking at the BVP index as my proxy for how the market is doing. I have 3 computer screens so usually a lot of these are happening in parallel. 

8:30AM – 12:00PM

Mornings are for emails, investment memos, portfolio work and strategy ideation. That includes doing market and competitor research for an investment memo, putting together docs and jamming on GTM with a portfolio founder, and some good old fashioned cap table modeling. Sometimes my mornings are spent chatting with my colleagues about a deal we are particularly excited about. Since we invest so early, so much of our decision making process relies on these ad-hoc conversations that help us develop and advance our thinking about each company. Once we start getting really excited about a deal, we put together a one-page investment memo to share with the team. Mostly, it serves as a way to discuss as a broader team to invite questions, comments, and feedback. Then, we go back and forth with founders with questions and dive into the data room. The final step in our process at the seed stage is a final investment memo. Working on deals is the most intellectually fulfilling part of the job for me, which is why I save my mornings for it. It’s fun deep diving into a new industry with a new approach and trying to understand the mechanics and dynamics between all the major players in the space. But it’s also tough trying to balance our imagination and vision for the company’s potential with the company’s present performance in making an investment decision. Get too carried away in either direction and I am sure we will miss some gems. Hey, that is what an anti-portfolio is for!

12:00PM – 6:30PM

Afternoons are for back to back founder meetings. This is my favorite part of being a VC. I like spending my afternoon with audaciously ambitious founders filled with unbridled optimism. I really draw my energy from these meetings. I generally schedule 20-30 minute meetings. They are the perfect duration to quickly share BIP’s philosophy and process, get their background and story, understand the arc of the business and key levers, traction, and fundraising goals and timelines. Conversational is best, I go through the deck on my own before/after the meeting. I also say “how can I help” non ironically in every meeting and actually mean it!

6:30PM – 7PM

As I finish up the meetings, I spend some time reviewing the pipeline, prioritizing deals, assigning action items to each deal and scheduling them on my calendar. For example, an early stage fintech deal that I really like might mean that I have to talk to our partner who is the fintech expert about it, email the team for the data room, and get a call scheduled with their key payment processor vendor. Once it’s done, in a non-pandemic world, I would head out to spend my evenings at startup events and meetups to hangout with founders, investors, and more like minded people. Perfect combo of social fun and work for me. Now, I just head home 😭. Though sometimes I have zoom happy hours and those are pretty fun.

7:30PM – 12:00AM

I like to pack my evenings with my hobbies — basketball, working out, TV, and playing chess. Yes, just like the rest of the world I started playing chess after watching Queen’s Gambit and now I am hooked. I squeeze in dinner somewhere in this window.

12:00AM – 1:30AM (ish)

One last look at emails and action items for the following day. Finally curl into bed with a book. Usually I read 2 books at a time, one fiction and one non fiction. Just finished reading Crossing the Chasm, and currently reading Dune and Understanding Chess Endgames.

Want to follow along everyday? Follow me on Twitter @itsparaj and ask your burning VC questions.

Now, in retrospect, I realize how fortunate I have been to break into venture early, given how opaque the industry can seem, how competitive, and how people from privileged backgrounds only have to hit a free throw to win the game. It can feel daunting, and I want to share my journey on how I built connections, built assets, and got into VC from scratch. The goal is for you to see that you can do it too.

I was the first person from my family to ever travel abroad when I moved to the US to attend Franklin & Marshall College. It was an exciting privilege I couldn’t have afforded without the extreme generosity of the financial aid I received. Once here, I had everything planned out. Major in Business and Computer Science. Get an MBB internship. Graduate into a management consulting career. Until I actually got my first consulting internship and realized within the first week that in fact, I did NOT want to do consulting. But now my entire plan was falling apart and I didn’t know what I wanted to do instead.

Given my interests in tech and business, I was curious about startups and Silicon Valley, but I lived across the country near Philly. But hey, the internet is the great equalizer. I would spend my entire day on AngelList and Product Hunt. I probably went through every single company on AL and I would email every cool new product that launched on PH asking how I could help. Any time a company looked interesting, I would spend a few hours doing research on them and their competitors and then wrote a one page summary on my findings along with 3 product and marketing ideas. After over 500 cold emails, I got some bounce backs (didn’t guess the right email) and some thanks but no thanks (I am sure my recommendations weren’t actually that revolutionary, I was 19). 

But most importantly, I got 5-10 personal, responses from CEOs which turned into 5 zoom calls and eventually 2 summer internship offers. I broke into tech! Ended up spending one summer in SV and since I couldn’t afford to live near the office on an intern’s salary, was living in the East Bay commuting 2.5 hours each way to get to work and back. 

I loved every moment of it. Looking back, it was a transformative experience, both being in the valley at a high growth startup and learning from a great founding team (👀 JetInsight and RoomStory), but also gave me a taste of life in VC — discovering great companies, engaging and building relationships with great founders, and helping them! Then, I was helping as an intern. Now, as an investor.

Back on campus as a junior, hyper-energized after my experience in the valley, I was determined to bring that same energy, serendipity, and innovation to F&M. First, I thought the best way was for me to start a company on campus myself, so I started a peer-to-peer storage marketplace called SimplyStow (RIP). While I learned a lot about the ins and outs of building and shipping products and acquiring customers, I also realized that the better way to leave a more long lasting impact on the ecosystem would be to encourage and support other students to be entrepreneurial as well. So I started a pitch contest and workshop series on campus to encourage students to take risks, go through the design thinking process and come out of the sessions with a startup MVP. As I went about designing the program, my professors connected me with several F&M alumni who were either running their own startups, were angel investors, or venture capitalists. After talking to 4-5 VCs, it clicked for me — I want to spend my time finding ambitious entrepreneurs and helping them start and grow companies. Quickly, it seemed, I had gone from “What is VC”, to “holy s*** this is exactly what I want to do, and have been trying to do at F&M”. 

I raised a small amount of money (<$5k) from alumni and academic departments to offer as prize money for the pitch contest and led its full scale launch on campus. Got a lukewarm, yet encouraging response. I found my tribe of entrepreneurial students, albeit small. 5 teams registered to go through the workshops and pitch. Six weeks later, they pitched to an audience of 50 students and a panel of professors, angels, and startup founders. It was a success, at a small level. 

To build on this success, I went back to VC alumni I had spoken to and started volunteering my time to help them. I spent my free time researching companies that fit their thesis and started taking first calls with founders, taking notes, and building a rolodex of companies in Airtable which I would share with them every week. 

Halfway through my senior year, while deep in job application mode, I got my offer to join the APM program at Google. It was a phenomenal opportunity, one that I am eternally grateful for, but I was determined to work in venture. So I sent Larry and Don, VCs I was in contact with, a proposal. I even wrote my own job description myself.

Fortunately, they took a massive bet on me and accepted my proposal and I started working at Candela Partners, first in school, and then, after college, in San Francisco.

Fast forward to today, now I am in Atlanta, focusing on seed investments at BIP Capital. Looking back at my journey, could not have done it without the constant support of my advisors, mentors, friends, and parents (even though my parents still don’t fully understand what I do for work). I am genuinely deeply passionate about helping early stage entrepreneurs and grateful that I have had the opportunity to do so and so I want to spend my spare time paying it forward!

After seeing my journey and those of my friends in venture, I would breakdown the playbook like this:

• Have a deep passion for entrepreneurship and helping founders — this is a people business and a service business. Go above and beyond for people.

• Write on the internet — I didn’t leverage this as well, but it is the easiest way to show how you think about industries and startups and a great way to fake it till you make it. Prove you can think like a VC by writing about it online.

• Take Initiative,Build an asset — Create something valuable. This could be a blog, a community, or even an event series in your city. Something on the internet or in person that is helpful to founders or investors and attracts them to it. I built a community of founders on Discord.

• Become a super connector — Three types of networks are vital for VC. Depending on what stage you want to focus on: founders, other investors (same stage, upstream, or downstream), and talent/advisors/high profile customers. Build genuine relationships and make connections where you see fit. It will go a long way.

• Be active on Twitter — This is where all the smart founders and investors are hanging out.

• Fake VC Portfolio (optional) — I didn’t do this, but Turner Novak hit a homerun with this. To really prove you can be a VC, show you can spot and pick companies early with conviction. Maintain a public fake portfolio and track its success over time and use that to build your track record as an investor.

I know it’s a VC meme – “how can I be helpful”, but most junior VCs I know got in exactly that way, by going above and beyond with founders, investors, and their own personal projects. Plus luck. Hopefully, my journey gives you a rough playbook for how to think about the paths into venture capital. There are a lot more resources now than when I started, and I have linked some of my favorite ones below.

Resources

• GenZ VC Slack Group (started by the 👑 Meagan @ LH — also a must-follow on the bird app)

• Bunch of Founders Slack Group

• Accelerated Newsletter & Slack Group

• GoingVC Newsletter & Job Portal

• VC Resources by Paige Doherty

• NVCA for standard documentation and news

• Term Sheet and Strictly VC to discover companies that just got funded

• GenZ Scouts program

Interested in VC? Looking for someone to bounce ideas off? DM me on Twitter @itsparaj

The internet has given rise to the “Creative Class”. They are the 50 million people online who consider themselves creators. The kids who, instead of dreaming of becoming a doctor or an engineer, aspire for Youtube or Tiktok success. Platforms like Twitch, Substack, and Patreon have unleashed this, previously untapped, talent and passion. Not only is it personally fulfilling, but also financially lucrative. The top Twitch streamer pulls in a cool $5.4M per year, the top writer on Substack makes more than $1.2M per year from subscriptions, and an 8 year old youtuber makes over $25M per year from his unboxing videos.

But while 3.8 million people stream on Twitch, only a few manage to earn a living through it. The rest either work multiple part time jobs to be able to support their passion full time, or never make the jump to pursue their creations seriously. There exists a significant gap between being a creator on the internet, and being a full-time creator. This gap is massive. So massive, it’s a chasm, and every creator’s dream is to cross this chasm. 

Creator Economics 101

Before we dive into the chasm, let’s take a moment to understand the underlying economics of creation. In the past, content was bundled and distributed by large corporations. Want to watch high quality funny video content? Buy bundled cable. Want to read incisive political analysis? Subscribe to the NYTimes. Now, individual political thinkers and video creators can create and directly distribute their content to their fans, build their individual brand independent from that of an aggregator, and monetize their passion. There are four key business models powering this new-age media entrepreneurship:

• The Direct Subscription Model – fans have to pay a monthly subscription to access content behind a paywall. Fans don’t pay a one time fee for a particular piece of content (like $3.99 for a movie from Blockbuster). Instead, it’s a monthly digital subscription to ongoing access to the complete library of existing and new content (like Netflix). Platforms like OnlyFans and Patreon have enabled this monetization method. It works well for any audience size and requires marketing effort to attract new fans and convince them to purchase a paid subscription, usually through teaser content. A creator charging $9.99 per month, needs 200 fans to make $2000 per month.

• The Freemium Model – creators’ core content is free, but they upsell their hardcore fans to paid, premium content. It’s 2020 and we have no shortage of high quality content at our fingertips. Since the opportunity cost of attention is so high, most creators prefer this model. Hiding content behind a paywall stunts growth, preventing potential fans from discovering content. So make it available for free, and convince them to upgrade to a paid subscription for status perks and exclusive content. Twitch and Patreon lead the charge here. Streamers’ content is free to watch on Twitch, but subscribers get status perks such as exclusive emojis. You might think “no way perks are compelling enough to convert free fans into paid”, but successful streamers average $5000 per month in subscriptions alone. Others, like Crime Junkie, a top true crime podcast, release exclusive episodes for their subscribers, in addition to their regular free podcasts. Since only a small number of free fans convert to paid, volume is key. The goal is to get in front of as many viewers as possible. The same creator charging $9.99 per month now needs 4000 fans to make $2000 per month (assuming 5% convert to paid). While the number seems much larger and daunting, remember, it’s always easier to build a community with free content than asking people to pay upfront to join a community.

• Creator Commerce – selling merch as an extension of their brand. This one is most effective for streamers who have built up a medium-sized audience that is free, subscription, or freemium. Here, creators sell alternative items to their fans. Merch, meet and greet tickets, books, branded products etc. This monetization channel is independent of both content and platform. David Dobrik sells Clickbait hoodies and t-shirts. Emma Chamberlain is a big coffee aficionado, and so she has her own coffee brand. Pewdiepie, who started his Youtube journey with horror video games, has a gaming chair for $399. Platforms like FanJoy, Popshop, and Shopify are powering this wave of creator commerce. However, this strategy is not always successful. Launch merch too quickly, and fans think you are a sellout. Launch it too often, and it loses its charm and hype. A creator who sells hoodies for $50, needs to make $24,000 in revenue to net about $2,000 per month. Industry standard for merchandise is a 2% conversion rate. The creator needs 24,000 fans to make a living wage. 

• Ads & Sponsorships – Sponsorships allow creators to keep their content free and charge brands to reach their audience instead. While effective and lucrative for larger creators, smaller creators have significantly lower sponsorship opportunities. Ads on the other hand, are often platform dependent, completely programmatic, and pay out creators proportional to the impressions from their audience. As a result, smaller creators get paid pennies. At $30 CPM, a creator with a weekly podcast, needs ~16,000 listeners to make $2000 per month.

As we can see, monetization opportunities are like in-game unlockable items. As soon as you hit a certain level, new ways to make money present themselves. First few fans? Subscriber revenue is now available. 10k listeners? Sponsors are now knocking on the door. 100k viewers? Red Bull is on the phone.

The Spiral of Death and the Chasm of Non Creation

Yet, most creators never even get to level 1 of monetization. They lack consistency and quality, and fail to build a meaningful audience. In the beginning, creating content is addicting. Every incremental follower is a shot of adrenaline. Soon enough, however, life gets in the way. Putting off streaming to pick up an extra shift at work. Going a few weeks without releasing a weekly podcast episode because of a big presentation at work. As consistency and quality suffers, growth stunts. Some hardcore fans, if there are any, might stick around. Others come and go. 

Everyday it gets a little bit harder to stand out and get new followers as new creators throw their hat in the ring. Even just a few weeks without meaningful growth can be demotivating. Since the audience is small, monetization is still locked. So creators work other jobs. Come home tired after work, too tired to create. Consistency and quality slips, which further makes it harder to grow the audience. This is the vicious spiral that forces creators into the chasm of non-creation and keeps them there.

This wide gap, or period in-between when a creator starts creating and distributing content on the internet, and when they start creating full-time, is the chasm of non-creation. Creators get stuck in this chasm because they aren’t making enough money to be full-time, their audience is not growing fast enough, and they don’t have ancillary support to build a sustainable business around their creations. 

What keeps them in the chasm

1. Poor Discovery – The only way to discover new content creators on most platforms is through word of mouth. Tiktok’s algorithmic feed is an exception. 

2. Platform overdependence – While platforms like Tiktok, Substack, and Twitch help creators with distribution, they also severely hamstring their monetization opportunities. Creators are limited to the monetization opportunities available on the platform. In a landscape where monetization is hard enough, the lack of options to monetize further makes it harder to climb out of the chasm. Oh and btw, the platform is taking a cut of every transaction on the platform.

3. Lack of audience data and off-platform engagement – Creators don’t truly own their audience relationship. I have been subscribed to Pewdiepie for 5 years. Yet, he can’t reach me on Twitter or my email and try to upsell his merch. Companies commonly use omni channel marketing to reach their biggest customers. Creators can’t because their fan data is locked into the platform.

4. Burden of admin overhead – As if making money wasn’t hard enough, creators also have to piece together benefits and services that otherwise come bundled together with a traditional job. Making and keeping track of tax payments, health insurance, and invoices and financial management.

Creator Economy 2.0: Picks and Shovels for Creator Businesses

As creators become more like mini-enterprises, they need more tools for discovery, diversify income, engage with their community, leverage data, manage budgets and finances, get access to health insurance and benefits, and manage increasingly complex business operations. Simplifying this process of the ‘enterprisation’ of the creator would let more people join this creator ecosystem and escape from the chasm, into life as a successful creator.

Thanks to Ronnie, and Ionela for edits when half of it was gibberish.

Building software for creators? Like and comment below, tweet me @itsparaj, and email me at pmathur@bipcapital.com

I meet 20+ seed and pre-seed founders every week. Every founder has a unique presentation style. Some like to go through the deck slide by slide. Others prefer a more dynamic conversation without a deck. After studying hundreds of pitches, the most effective and efficient pitches follow this framework — Founder-Product-Market-Fit.

Founder – why you are the right team to invest in

A pre-seed/seed investment is mostly a bet on the founding team and their ability to move fast, execute, learn, and overcome adversity. Because this is potentially the beginning of a 10+ year relationship (hopefully), start your pitch by talking about you and the team. Tell your story. Highlight your professional accomplishments, industry and functional areas of expertise, and any unique insights you have about the problem you are solving. In this segment, some founders rely on logos (Stanford, Google, McKinsey), others rely on pedigree and experience (X years leading B2B Sales teams), and some on results and exits. The main goal is to help the investor understand why you are the right person to bet on, right now.

Product –  your solution to an existing problem

After convincing the investor that you have done other cool things before this, the next step is showing that you can do this. To do that, you need to answer two questions. First, is it even possible to build this solution? Second, can you build this? If the answer to either of those is no, it might be hard to raise money for your idea. Otherwise, this is the perfect time to talk about the specifics of your product. What it does. How it works. How it solves the problem. How much of it have you built so far. This last part is important because it reflects your ability to move fast and execute. If you started the company in 2018, and it’s 2020, and you don’t have an MVP yet, it raises red flags. If you can convince the investor that your product truly solves the problem and you have made meaningful progress towards putting this product in the hands of the customers, this section is successful.

Market – customers care about your solution

If the (all too) recent demise of Quibi proves anything, it is that building a cool new product isn’t enough to attract customers. As a result, you need to first highlight the segments that face the problem you have set out to solve. It’s okay if it’s not a precisely defined market, it’s helpful to show your thinking around how you are slicing and dicing the market and how you are creating your ideal customer profile (VCs will use this in their internal market sizing).  Once you show target customers, the next step is to show your progress in reaching them, and their ability and willingness to pay for your solution. The best way to do this is revenue. If you are really early you can use a combo: show how much the problem costs them in dollars and time, and how much you found they are willing to pay through customer interviews. You want the investor to walk away from this segment thinking that you understand the customer profile, their needs and wants, have a strategy for how to reach them, a preliminary understanding of how much the solution is worth to them, and how much traction you have so far with your early adopters.

Fit – okay so you did it once but can you do it again, and again?

Once I hit a full court basketball shot. Is the NBA calling? No, I have never been able to do it again. To succeed as a startup founder you need to sell your product to a customer. Then do it again. Then do it a million more times, atleast. The final key piece of the puzzle is discussing how you can repeatedly get customers to use and pay for your product. In VC-speak this is your go to market strategy. Walk through your process for acquiring customers and how you can repeat it, even if it is not ironclad. If you have a few different channels, mention them all and then highlight your favorite one and why you like it. The secret to sticking the landing here, is to show that you have figured out a way to repeatedly get customers.

By the end of this pitch, ideally, you showcase your founder highlight reel, prove you can build a product that actually solves a problem, demonstrate that customers care about it enough to pay for it, and that you can do it again, and again, and again. Thinking through your pitch in this format will help you modify your pitch for any situation, from the elevator pitch, to a 30 min intro call, to an hour long partner meeting.

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12 years ago, Kevin Kelly, WIRED editor, wrote a prescient essay predicting the rise of the creator economy. He asserted that creators can build sustainable revenue by deeply monetizing a small base of die-hard true fans.

Today, this creator economy is thriving in a lot of different verticals. Platforms and business-in-a-box startups have quickly enabled creators to monetize their passion. Through Twitch (gaming), Substack (Writing), Teachable (online courses), Patreon (everything else), and others, people are monetizing their biggest fans through subscription businesses.

I propose taking this concept and applying it to sports — an ecosystem that has left hundreds of millions of dollars on the table every year, by under-monetizing its biggest fans. Primarily operating in the offline world, sports teams and leagues have failed to capitalize on the shift to digital nativity to create unique experiences for their superfans.

Introducing: SuperSub Strategy

The SuperSub Strategy focuses on sports teams selling an exclusive annual digital subscription to their most hardcore “Super fans” giving them exclusive access, elevated status, and a private community to deepen their connection to the team and the personalities.

This SuperSub Strategy enables teams to:

• Build Deeper Relationships with Superfans, and make them feel special

• Monetize Hardcore Fans, wherever they are in the world

• Create Additional Revenue, with marginal costs

Sports 1.0

Let’s start by looking at how sports teams make money. Their revenue falls into two main buckets: national, and local.

National revenue has two major components - television rights deals and licensing and merchandising. TV rights are incredibly valuable. For example, the NBA is in the middle of a 9 year, $25B national TV deal with ESPN, ABC, & Turner. This revenue is split evenly among the teams and is the biggest share of annual revenue for the teams. On top of this, the league distributes proceeds from licensing the brand and likenesses for content and merchandise (3rd party merch = licensing revenue).

Ok cool. Teams are getting a chunk of their annual revenue top-down from the league. So what are teams doing to directly make money?

At the local level, teams are laser focused on ticket sales, concessions, and sponsorships. This is their bread and butter.

This model is less lucrative for challenger sports leagues like Major League Rugby, Premier Lacrosse League, World Surf League, and others. These leagues have small, highly energetic fan bases, but no big media rights deals.

For these leagues, revenue mainly comes from ticket sales and concessions, and value-in-kind sponsorships. In the absence of on-field rugby, their coffers dry up fast. Plus, they can’t afford to organize the season without fans since the cost of putting together a sporting event (even without fans) far exceeds their meagre media rights income.

Sports 2.0 - SuperSub

If I was running a sports team, I would focus on launching a SuperSub - an annual digital subscription for my team’s biggest fans, giving them the three things they want the most:

1. Access

2. Community

3. Status

Access

Social Media has changed the fame game. In the past, celebrities were mysterious. They stepped on the pitch, did a fantastic job, and vanished into the night.

In 2020, fame is built on top of access. By giving unfettered access to their life, the Kardashians popularized the “Access Celebrity”. Nobody knows what they do, but everyone feels a deep sense of loyalty to the family having watched them grow up on the show. Despite being obscenely rich, access has made them relatable.

Sports are no different. Fans are desperate for more behind the scenes content. They want more intimate access to their favorite teams and personalities. Young athletes are taking advantage of this to build a brand and a following.

Javale McGee (Love the guy, but Career PPG: 7.9) and Matisse Thybulle (Career PPG: 4) have been vlogging their journey in the NBA bubble and their videos are averaging over a million views each. Lonzo Ball has similarly built a rabid following, despite his poor on-court performances, through his own reality show — Ball in the Family, which had 3.4M views per episode. I am a Lonzo stan and proud of it. 

Access is the first key component of the SuperSub strategy. Turn your players, coaches, and executives into media companies and create high quality content and give your SuperSubs exclusive access. Your most die-hard fans would love to listen in to a locker room conversation between Brady and Gronk, be a fly on the wall for Lebron’s Taco Tuesdays, or even spend thousands for virtual meet and greets and to attend virtual scrimmages.

Shameless plug, I helped the CEO of the New England Free Jacks launch his own ‘behind the scenes’ podcast with a similar goal.

Deliberately not talking too much about VR here, but just imagine in-game access through VR…

Community

Being a sports fan is all about community and shared identity. Walking past someone in a Lakers jersey, feels like being part of an in-group. Sports fans are seeking out these communities online and spending a lot of time in them. The /r/nba subreddit has 3.4 million NBA fans, while 245,000 people lurk in the /r/lakers subreddit. These are fans looking for a shared digital space to talk basketball with their tribe. Teams are currently completely missing out on this massive source of digital engagement from their hardcore fans. How hardcore? A fan put together this in depth, hilarious, analysis of the impact of Taco Tuesdays on Lebron’s stats. The result? 20k+ upvotes, 50 awards (aka $$$ for reddit), and 2000+ comments. The Lakers missed out.

Community is the second pillar of the SuperSub strategy. Create, manage, and monetize your own third space for your most hardcore fans to hangout with each other. Make it exclusive, so your fans wear membership like a badge of honor, further enticing other fans to be more hardcore, because they want to be a part of this in-group.

Status

“People are status seeking monkeys”

Eugene Wei, Status-as-a-Service

Humans are always playing status games. Owning a clubhouse account before everyone else is a status game. Being verified on Twitter? Status game. Knowing a celebrity (saw them on the street once)…status game.

Sports fans are no different. They want the status of being a supporter of the best team. That’s why everyone hates bandwagon fans because they are newer fans and hence have a lower status. The entire premise of March Madness is a status game — showing off my superior knowledge of random college basketball teams.

Sports teams have done good job monetizing these status games in the offline world — selling court-side seats and box seats.

The final piece of an effective SuperSub strategy is Status. Give your super-fans a pathway to an elevated status. Find ways to highlight their status and make them feel better and more special than everyone else. And this status isn’t only dependent on money, but also on activity and participation. Showcase your most active fans and community leaders, and give them bragging rights through physical and digital activations.

SuperSub in Action

Let’s run some scenarios to see the potential scale of the SuperSub strategy in two distinct cases: a top sporting brand with a massive existing audience, and a challenger brand building an audience from the ground up.

Los Angeles Lakers

The LA Lakers have 14M instagram followers and 22M fans on FB. Conservatively, if there are 10M Lakers fans in the US, then 0.5% of them are die-hard superfans.

The Lakers launch the “Kobe Program”, a digital subscription program for superfans to get exclusive content (podcasts, vlogs, videos, subs-only zoom calls with team), a member-only digital community app, and a special Kobe metal membership card which gets them exclusive deals with brand partners. Let’s say they launch with tiered rewards.

1. Rookie ($200/yr) (92% of superfans choose this option)

2. All Star ($400/yr) (7.5% of superfans pick this option)

3. Hall of Fame ($1000/yr) (0.5% of superfans pick this option)

Here’s what Lakers’ SuperSub revenue would look like -

This adds $11M in revenue with minimal marginal costs. More importantly, it deepens the connection between the Lakers and its superfans and gives the organization more access to ancillary content and monetization opportunities. Plus, it allows the team to monetize fans like me, who they otherwise couldn’t monetize — hardcore fans who can’t attend Lakers games because they don’t live in LA.

There are also second order positive externalities. At a high level, the Lakers can further monetize this die-hard community with sponsors and brand partners, communicate more directly and intimately with fans and get access to their UGC and feedback, and convert them into ticket holders and merchandise buyers at a higher rate. Plus, these perks will entice other fans (who consider themselves superfans) to be more involved (and spend more money) to get access to the Kobe Program.

Couch Potato FC

Now let’s see a similar implementation at a smaller, challenger sports team, playing in a startup league.

Let’s say Couch Potato FC only has 20,000 fans. Since its in a smaller league, building a brand from the ground up, a bigger proportion of their early supporters would consider themselves superfans. Let’s consider 5% for this example, and a single tier of membership for $300/yr.

An extra 300k is a massive increase in revenue for a startup sports league without a media rights deal. Add a decrease in ticket sales due to COVID, and this might easily be the largest revenue driver for 2020.

If the number seems small, here is some additional context. The NBA has a $25B media rights deal split by 30 teams. Essentially, the Lakers’ cut of this deal is equivalent to $9.26 per Lakers fan.

Couch Potato needs 32,400 fans to generate $300k in media rights revenue, which they can otherwise get using the SuperSub strategy with only 1000 super fans. That is, assuming my league can even get a meaningful media rights deal at such a small scale.

This SuperSub Strategy is going to grow in importance over time as sports increase their focus on the digital fan experience for their hardcore superfans. Plus, it allows teams to monetize their die-hard fans, who otherwise aren’t close enough to buy tickets and attend games.

By combining Access, Community, and Status to create a brand new digital fan experience, sports teams and leagues would unlock alternate revenue streams and ways to build a deeper connection between the fans the team and its personalities.

I would love to hear your feedback, thoughts, and questions! Just hit reply or put it in the comments below!

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Paraj

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Hi everyone!

This week I was looking through my credit card bills and I realized something weird. Quarantine has been BRUTAL for my food delivery spending. Before, I would eat a meal at work and somehow muster up the oomph to cook dinner at home. Now, sitting at home 24x7, I have no motivation to cook THREE MEALS a day. With Doordash and Grubhub laughing their way to the bank - I tried to map the world of cooking entertainment to a) Get the motivation to cook & b) Learn how to cook.

So I focused on food “entertainment” media and split them by where they are used in the customer journey:

1. Learning to cook

2. Exploring new dishes and ideas for just-in-time cooking & recipes

3. Content creation and monetization after cooking

This is a work in progress so hit me with your comments, they will be much appreciated.

1. Learning Phase

• Millennials cook less than any other generation: Nearly 40% of millennials consider themselves bad cooks. They are also eating in the least - only 4 nights a week.

“Barely a third of Millennials in the Porch.com survey knew how to cook poached eggs; a scant 50% of them knew how to roast a chicken. Only 41% could make salad dressing, possibly the simplest recipe in the culinary canon. Nearly two-thirds were unable to make a chicken salad sandwich.”

Daniel Payne, USAToday

The first step is learning how to cook. Competent home cooks commonly learn cooking by observing and helping their parents cook. For the rest of us, it is an endless saga of googling and watching videos.

• Learning to cook is non linear

Beginners like me might whip up some delicious chicken marsala, but suck at hard boiling eggs. How do you teach me cooking? Where do you start?

As a result, most cooking learning is just-in-time. Googling “How to filet a fish” after I have decided that I am going to try making fish filet. In this category, Youtube and Google reign supreme.

There are incumbents that try to teach cooking in a more traditional online manner - sequentially, in modules with videos. Have you heard of Rouxbe? America’s Test Kitchen? I hadn't before this, but they have video modules such as “Mediterranean food” from professional chefs for under $20/mo. Requires a big time commitment though.

I prefer more bite-sized content. Instructables has more basic courses like “How to make bread” but the selection is extremely limited. Recently, I discovered Life School which is bite-sized, but also provides context and history alongside practical lessons.

Then, there’s entertainment-learning. Masterclass combines high production value, with a high entertainment value and celebrity chefs. Though it can be too bougee…I just want to learn how to make ramen taste good.

2. Exploration Phase / General Entertainment

“What should I make?”

Legend says that Adam and Eve couldn’t decide what to cook for dinner so they decided to eat an apple instead. Now if only they had dinner ideas…

• Sub-par user experience

In this phase, the search can be wide (“what to make for food today”) or hyper specific (“what to make with zucchini and garlic powder”).

“The problem is that when I search for ideas, there are three hurdles: trust, ingredients, and time. Do I trust this person’s cooking and palate? Do I have all the ingredients to make this as good as it can be? If not, would my substitutions be good enough? And finally, do I have the time to explore variations and iterations of this recipe? This process is a pain and can be a rabbit hole. Some days it can take hours.”

Ionela Turcin, Founder of Highkey Hungry, passionate home chef

Plus, the experience sucks! Cooking focused blogs over optimize for SEO juice and have way too much fluff content to increase.

This is what the first three scrolls look like for the top search result for a pasta carbonara recipe. Yikes. Where’s the recipe?

• Inspiration and Entertainment

Instagram is confusing…On one hand, I see everyone’s summer bodies and it makes me jealous. At the same time, it serves up these delicious food photos and now I simultaneously want to lose weight and eat all that food.

In addition, media companies like Bon Appetit, Tasty, Epicurious, and Delish dominate Youtube and social media with their food-focused videos and photos and have built massive followings. Here is a great article by Jerry Lu on how Bon Appetit embraced digital and built a massive business.

The hot new kid on the block in this segment is Tiktok. Creators like @newt and @eitan are growing like wildfire with their 60-second cooking videos with fast cuts. Forget long-form YouTube videos which take too long to watch and are hard to follow along, Tiktok videos might be the new entertainment and discovery engine for food.

4. Content Creation Tools (w/ monetization sub-section)

Twitch unlocked supply of content by enabling gamers to become content creators. Cooking is inherently similar in that both the hardcore and the hobbyists are making food everyday. All they need is a way to convert that daily habit into content and a channel to distribute and monetize this passion.

Bon Appetit grew into a lovable brand (pre-2020 scandal) by building their content strategy around relatable home chefs. Not actors. Not professional chefs. Who is going to invert the Bon Appetit model and let home chefs build and own their audience?

Currently there a few players in this space - none directly focused on cooking. Cooking livestreams are gaining popularity on Twitch. Virtual cooking classes with subscriptions can be hacked together using Zoom, zmURL, and Gumroad. Cooking newsletters can build loyal followings using free tools like Substack. You can create and sell cooking classes using Teachable.

There is a good chance that a cooking media focused platform will consolidate these home chefs and give them a way to build, own, and monetize their audience. Kinda like an OnlyFans for cooking. In the meantime, feel free to share your own opinion on this subject, what is your cooking process, what are your favorite food media brands, and what’s your prediction for the future of food media. I look forward to hearing from you!

Are you a passionate home cook? Hit reply and tell me your favorite recipe to make at home!

Potato Wedges 🍟

1️⃣ 👁️👄👁️ It is what it is...so what was it?👁️👄👁️

2️⃣ Koji lets you remix games. Another company to watch in this space is Playbyte.

3️⃣ Trivia Royale is our latest addiction. Fortnite but for trivia.

4️⃣ Microsoft is cutting its losses: livestreaming platform Mixer is shutting down and sending creators to Facebook Gaming.

5️⃣ Tencent’s new streaming platform is coming to the US to take on Twitch

Paraj’s Playlist 🎶

📺 American Horror Story Season 1 on Amazon Prime

🎮 Uncharted 2: Among Thieves on Playstation 4

🎧 Couch Potato Weekly Playlist 🎙️ + 🎶

Thanks for reading today’s Couch Potato! Have a friend who might love this article? Share it with them! They (and I) will love you forever for it.

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Paraj

Let’s start from the top.

What is a ‘metaverse’? Is it not a super meta verse I spit when freestyle rapping?

Close, but no. Metaverse is a virtual shared space, or a “third space” which is digitally persistent (aka always exists, unlike my willingness to shower everyday in quarantine). It is also “live” and synchronized for participants across the world to have shared experiences together (like the recent Travis Scott concert). But these special experiences aren’t required. You could technically hang out by yourself sitting on your 3 pixel digital couch doing absolutely nothing inside the metaverse, forever.

A digital space where you can go anytime, to do anything you want.

(even in a quarantine…though in theory a metaverse could also have an “epidemic” and a “quarantine”…what do we do then? Metaverse inside a metaverse…metaverse inception?)

It goes beyond just a “game”. You can live entire lives in this physical space - including getting a job and being part of a fully functioning economy. This description might remind you of Second Life, or Grand Theft Auto, or even The Sims. They walked, so Fortnite, Roblox, and Animal Crossing could run.

Is this real? How does it work?

Yes this is a real thing, and it doesn’t quite exist like I describe it above but we are getting close. Fortnite, Roblox, and Animal Crossing are Metaverse version 0.01, in different ways. But first, hat tip to Chris Dixon for fortune telling in 2010 that “the next big thing will look like a toy”. He is right.

All three started as video games and have expanded into so much more. For this one, I am going to focus on Fortnite with a few examples from other games.

So let’s sum up the characteristics. Metaverse is:

1. A digital shared space, that is

2. Live and synchronous, and

3. Allows for an almost unlimited range of possible activities, created

4. By the users together, and has a

5. Fully functioning economy

Fortnite

First, Fortnite started as a battle Royale game - drop in, load up, kill other people.

Then, they added Creative Mode. Players could hang out with their friends, and build and share their creative structures, maps, or mini-games. Think of each creative mode map as a single-purpose “neighborhood”. I go to neighborhood X for aiming practice. I go to neighborhood Y to practice building. I go to neighborhood Z for a fun 1v1 mini-game. Throughout these different neighborhoods, my digital identity stays persistent. [Shared Digital Space ✔️, Live and Synchronous ✔️, Built by the users✔️]

Roblox similarly provides a platform for creators to build new games on top of. The top 10 mini games on Roblox have been played nearly 20 billion times.

Then, Fortnite started layering in storylines with cinematic experiences, and live events such as the Marshmello concert, Quibi TV Show launch, and most recently the Travis Scott Concert. These experiences had nothing to do with the battle royale part of Fortnite, and everything to do with the metaverse part. Players can now spend more time in the game, just hanging out and doing others other than shooting each other.[Expanding the range of possible activities ✔️]

Now Fortnite is taking the next big step by launching Party Royale, a brand new island with no guns, so players can fish, dance, and hangout. Trust me, I am already planning Couch Potato #58 to be a newsletter inside Fortnite…

Fortnite isn’t the only one, students bummed about cancelled graduation used Animal Crossing to host their own graduation inside the game.

However, Fortnite currently does not have a virtual economy. This means you can’t create things, sell them, make money, and exchange goods and services in game…yet. Here’s are a few overly simplistic predictions for how Fortnite can take baby steps in the economy department:

• Let users create skins and sell them using V-Bucks in-game on Party Royale

• Let users charge “tickets” to their “neighborhoods”

One game that NAILS their in-game economy is EVE Online, which even has in-depth monthly economic reports. Also the Animal Crossing economy is going into recession, much like the real world.

To analogize, the game publisher is “God”. Provides the platform and a few basic rules (“science”). The rest of the metaverse is built by the players (“mankind”). There can be a core activity - Battle Royale for Fortnite, Gardening for Animal Crossing, Space Exploration for EVE Online, but there is no constraint on activities within the universe.

Hmmm…okay I kinda get it. So what’s next?

Getting people into this metaverse is a big challenge. It can only be a cool hangout spot where you live your second life only if everyone you know and care about is also in the world.

Battle Royale brought 8-30 year olds into the metaverse. What is going to be the big shiny thing that makes my mom send me a dreaded “Hey how do I get on Fortnite” text? As the universe of possible activities expands within the metaverse, different groups will join for different things. Over the next 18 months, metaverse aspirants will continue adding possible things to do inside the game to attract new audiences and make them stick. Will it work?

At the same time the barrier to entry into the metaverse needs to be very low. The easier it is to enter and exit the metaverse, the more time users will spend in it. This means it should be accessible on mobile, consoles, and desktop. Similarly, cross-platform play is critical so PS4, Xbox, and PC players all exist in the same world.

Fortnite, Roblox, Animal Crossing…there are many games aspiring to become something bigger. As we saw with Second Life, timing is everything. Is now the right time? The race is wide open.

This was a super simple primer on the metaverse. How does it make you feel? Excited about the potential of a cool new digital universe? Anxious about its impact on our “real” lives? Worried that we are heading towards a virtual world shunning our natural environment and real interpersonal connections? Hit reply and let me know!

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Welcome to the Potato Parlor! Think of this as a hangout spot where we geek out over all things media, entertainment, gaming, and streaming. In the mood to read? Cool wait for the next edition. In the mood to game? Cool HMU on Fortnite, COD, or NBA2k by DMing me on Twitter. Wanna watch something? Reply to my emails with your favorite show and maybe we Netflix party and watch an episode together! Possibilities are endless, we can do anything. No, I won’t get off the couch.

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