Without equivocation, consumer technology has completely transformed our daily behavior over the past decade:
It’s changed how we communicate to the world (Twitter/Medium).
It’s changed how we share our lives (Facebook/Snapchat/LinkedIn).
It’s changed the way we travel (Uber/AirBnb).
It’s changed how we manage various aspects of our lives (Dropbox/Mint/Fitbit/GrubHub).
As such, it’s easy to see why consumer technology start-ups have a held a special place in the hearts of entrepreneurs and investors alike. The dream of building the next consumer behavior shifting mainstream platform is incredibly compelling. No surprise that consumer start-ups make up the bulk of newly formed companies today.
A byproduct of course is massive competition and very few consumer tech companies that make a discernible dent. To discuss the current consumer sector, I sat down with the team at Maven Ventures. Called as a “must meet” investor by 500 startups founder Dave McClure and the 1st consumer tech only incubator and Micro VC, the Maven team has great perspective on the consumer space. Below is a transcript of our conversation.
Jim, what inspired you to start Maven Ventures?
I’ve spent the last 20 years of my career as an entrepreneur in one capacity or another – a founder, angel investor, mentor, and VC. For 5 years as an angel investor, I worked hands-on with about two companies a year, helping them to raise a round and acting as an interim COO to help grow the business. During that time, such companies as Google and Intuit acquired five of those ten startups for great returns (like the recent Check acquisition by Intuit for $360M). I decided to scale that model into something much larger and last year launched the Maven Ventures Fund and Growth Labs Incubator in Palo Alto.
The Maven Ventures Fund is a Micro VC focusing primarily on Seed and Series A investments up to $250,000 per deal. We work exclusively with direct-to-consumer businesses with hyper-growth potential, which allows us to focus on what we know and have scaled successfully in the past. Maven also runs an in-house incubator through Maven Ventures Growth Labs where we spend time working directly with the startups to shape their mission, vision, marketing, and early-growth strategies. To deliver greater impact to our incubator and portfolio companies, we have also enlisted a group of 20 incredible growth mentors who spend time hands-on with the startups we invest in. These are some of the best and brightest growth hackers in the business who’ve previously scaled Facebook, Twitter and Linkedin.
You were amongst the very early team at Friendster. Despite being the first social network with a large installed base, both MySpace and (of course) Facebook overtook Friendster as preferred social networks of choice. Why did that happen?
I’ve had many years to reflect on this and there’s not one main reason. One thing to consider is that sometimes it’s a blessing but others a curse to be first to market. In Friendster’s case, we were just a year too soon from a technology perspective to build out a massively scaling site that the world had not seen until then. MySpace, and especially Facebook coming a year or two later, had the advantage of learning from all the technical mistakes of Friendster. There are several important lessons learned that I wrote about in a blog post.
Many of the lessons learned from the early days of social networking have shaped our perspective and thesis at Maven. Here’s a very brief summary of the longer post:
Focus: at Friendster, especially early on, it was very difficult to choose one direction and stay the course. That’s why we look for focus in our consumer-based portfolio companies.
Product: it is tempting to constantly innovate and launch new features at an early-stage startup. But, it’s critical to hone in on key product features and channel limited resources there.
Performance: a great product doesn’t matter if it doesn’t work. Friendster made some early product decisions that proved to be costly for site performance. It wasn’t a good idea to sacrifice the site performance for new features.
Growth vs. Revenue: for products like social networks, it was important to focus on the product first, revenue later. This wasn’t intuitive in 2002 when we launched Friendster. We know today that for many companies to achieve hyper-growth potential, like social networks, it’s vitally important to reach an inflection point in growth and engagement before starting to focus on monetization.
While there has been a fair amount of energy around Enterprise IT over the last couple of years (VC funding and exits), most young entrepreneurs are choosing to start consumer-facing companies. What do you attribute that to?
Most entrepreneurs dream about creating the next great consumer app or product that hundreds of millions of people will love and use everyday. Often the best consumer products are born from entrepreneurs that are solving problems for themselves, friends, or family. Plus, it’s simply more fun than enterprise. At Maven, we constantly meet former successful (and unsuccessful) enterprise software entrepreneurs who think they have a great idea for a consumer software business. Most of the ideas are not great, but once in a while, we meet a very talented tech team that has an inkling of an idea that we get excited about. We work closely with them to help articulate their vision and pivot into something that can become a massive consumer business. Some of our most successful startups have started this way, like Tango, the leading communication platform with over 200M members which recently received a large investment from Alibaba valuing the business at more than $1B.
Drawing on Maven’s deep experience within consumer IT, outside of team profile, what are the 2-3 characteristics that you look for when investing in a company?
First, as you mention, the team dynamics and skill sets are paramount to the success and failure of a startup, and are the first gating item for a Maven investment. The next most important characteristic is that the team needs to clearly articulate what we call “a vision worth fighting for”. In other words, they must be passionate about solving a big problem for a massive consumer market that isn’t otherwise currently getting solved. Building a new consumer habit is one of the hardest things to do. Moreover, without the passion, on the days when things aren’t going well, which are most days, the founders are likely to simply give up. From a VC perspective, without this vision and passion, the founders should not spend the next 5-10 years of their lives working on this project. Maven looks for teams who convey passion for their company and paint a picture of why it needs to exist in the world, which will keep them motivated to keep fighting when things get really tough.
What is the number one mistake you see consumer start-ups most often make early on?
There are many. One I discussed in the previous answer—lack of a clearly articulated vision worth fighting for. Another mistake we often see is lack of focus. As mentioned, building new consumer habits is one of the toughest things to do. Without disciplined, maniacal focus on solving one massive problem early on, it’s almost impossible to succeed. We often see teams try to straddle both an enterprise and consumer strategy at launch and typically that leads to not doing either very, and almost all of the time, to failing at both. Take your best guess, choose your strategy, and go for it! And, if it’s not working, you can try to pivot later. Here are a few more tactical examples as well:
1. Focusing on “growth hacking” too soon. Growth needs to be predicated on a great product that has achieved market fit – growth hacking is not a trick to get users!
2. Not making it easy and rewarding for users to share your product. Once product-market fit is achieved, growth should come from your users who love your product and are sharing it with others.
3. Hiring too fast. When investment money flows in, start-ups may be inclined to start a hiring frenzy. That makes it tough to get quality people. Even small teams need to develop a culture and values, and need to look for employees that are a cultural fit. Hiring a skilled person who doesn’t jive with the culture can really harm and early stage company.
Companies such as Facebook, Snapchat, Uber, and Airbnb have all been very disruptive and created distinct consumer trends. With the continued proliferation and progression of mobile technology, what are the major consumer trends you are seeing now? What trends do you anticipate will emerge over the next 5-10 years?
As a consumer investor, with the pace of technological progression today, I typically look 1 to 5 years out. I’ve been successful in the past at investing very early in new consumer software businesses at the start of new platforms. For example, as an entrepreneur, I was very successful at identifying the portal and search engine as the next big consumer space on the new Internet platform (NBCi $6B IPO). Then, I was fortunate to spot the new trend of social networking (4th employee of Friendster, 1st at Bebo, $850M sale to AOL). Then, I saw the new iPhone appear and invested primarily in consumer mobile services and apps like Tango and Check.
Today, I’m looking at the wearables market for interesting consumer software opportunities, especially around the new iWatch market that will quickly develop. I’m also interested in the new Oculus and VR hardware platforms that will create new massive consumer software opportunities. One day, we’ll look back and laugh at how we used to communicate and ‘social network’ via photos and text on a boring, flat, 2D screen. I’m also excited about the future of self-driving cars which will likely be the most impactful technology advancement in the next 5 years. Maven has investments in all three of these areas and we’re looking at more.