23 Mar 2020

When Networks Meet SaaS

When Networks Meet SaaS

Software-as-a-Service (SaaS) startups are extremely popular with investors for a host of reasons. SaaS startups are extremely scalable because software has zero (or near-zero) marginal costs once developed, i.e. it costs virtually nothing to create another copy. Combining this scalability with subscription-based pricing results in a revenue model with high gross margins and predictable revenue (ignoring AI and data processing heavy models for now). In addition, many B2B SaaS startups are also fairly defensible because they benefit from high switching costs, i.e. those that are a “system of record” become “embedded” in the day-to-day operations of their customers’ businesses which makes it difficult for competitors to displace them.

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9 Mar 2020

The Network Matrix: Bridges & Identity

Network Bridges

As I explained in my last post, the “marketplace matrix” is a great framework to get a quick understanding of the strengths and weaknesses of marketplace startups. Combining both defensibility and scalability of unit economics gives us a more holistic, but not yet comprehensive, view of these businesses. Interestingly, the core tenets of this framework are not restricted to marketplaces and can be extended to other types of network-based businesses as well (1-sided, 2-sided or multi-sided networks). But moving from the subset of marketplaces to the superset of networks requires the introduction of new concepts. I’ll explain these by looking at some well-known names in the social media space, and then extend these ideas to other network-based business in far-flung spaces, from payments to online gaming.

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24 Feb 2020

Defensibility x Scalability = The Marketplace Matrix

In the first part of our marketplace thesis, I explained how we think about the geographic scalability of marketplaces, i.e. we prefer marketplaces where a given unit of supply is accessible to customers across borders as opposed to those where it is restricted to a small local area. We saw that marketplaces with cross-border network effects (e.g. Airbnb), created a lot more value for investors than those with hyperlocal network effects (e.g. Uber). In sports terminology, this is a view of the “offensive” side of the game. But we also need to study the “defensive” side to gauge how well marketplaces can defend themselves from competition and copycats at scale.

11 Feb 2020

Marketplaces & Scalability: Lessons from Uber & Airbnb

Uber and Airbnb are two of the most iconic companies from the last decade. Both companies created entirely new markets via a marketplace model and were originally considered to be part of the same “sharing economy”. Since then, their paths have diverged. While they were both wildly successful, Uber (and Lyft) required far more funding to create value than Airbnb did.

30 Jan 2020

Why I’m Joining 6CVentures

Today, I’m joining 6CVentures, a new early stage venture capital firm, as Partner and Head of Research. Long story short, we’re a sector-agnostic fund investing at the Pre-Seed and Seed stage (so if you’re an entrepreneur at this stage, reach out). I will be spending a lot of time in the coming months talking about our investment thesis on 6CV Perspective, but I wanted to start on a personal note.

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16 Dec 2019

Netflix's Napster Moment

Netflix has been the darling of technology investors for the past few years. Since early 2017, its overall subscriber base has increased by roughly 60%, as it more than doubled its subscriber base outside the US. And, in response, Netflix's stock price nearly tripled over this period. By now, the engine for its growth is well known, i.e. original scripted content exclusive to Netflix. Of course, as we can see in the chart above, this has also dramatically increased its cash burn. Netflix's stated strategy was to invest into original content to acquire users and then subsequently ease off these investments to reach cash flow break-even. But a lot has changed in the global video streaming landscape since this strategy was conceived.

29 Apr 2019

Uber's IPO and Local Network Effects

Uber Ridesharing Revenue

My writing has been inconsistent (at best) lately, but Uber's IPO seems as good a time as any to come out of hibernation. I have written about Uber's business model numerous times in the past and more often than not, I have defended its financial performance. My argument was that Uber's losses were caused by large investments into logistics infrastructure (largely fixed) that would then result in long-term revenue growth (and overtake costs). Uber seems to be using that exact same argument to position itself to investors. Uber's IPO prospectus finally shed some more light on its progress, but I was concerned by what I saw. It showed the scale of investments, but it also showed that Uber is no longer a high growth company.

11 Sep 2018

Benchmarking Crypto Valuations

Cryptoassets pose an interesting challenge from a valuation point-of-view. They combine some properties of currencies, commodities and equities, but don’t quite meet the definition for any of them. The lack of immediate, underlying utility makes valuation attempts even more challenging.
So far, I have seen three broad approaches for valuing cryptoassets. The first uses the equation of exchange (MV=PQ) under the assumption that cryptoassets are a medium of exchange. The challenge with this approach is that, at least today, cryptoassets linked to blockchain protocols (like Bitcoin and Ether), aren’t really used as a medium of exchange to buy real-world products. They are a store of value, but mainly because they are viewed as speculative assets or used as a medium of exchange to purchase other speculative cryptoassets built on top of protocols. In other words, their value is tied to the value of speculative assets further down the value chain, i.e. decentralized apps (DApps) with linked crypto tokens.

4 Sep 2018

Beyond the ICO: State of DApp Innovation

The advent of smart contracts also saw the emergence of a new fundraising mechanism for crypto startups — the ICO. Overall, we have seen over $18B raised so far via this mechanism. And while falling prices of cryptoassets have slowed the market for ICOs of late, the funds raised should to be more than enough to sustain innovation. 

So what does the state of token-based innovation look like in 2018? What type of decentralized apps (DApps) have emerged so far?

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29 Aug 2018

Defining and Benchmarking Crypto Adoption

The rise of the crypto ecosystem has often been compared with the early years of the internet. In addition, the peak of the crypto asset bubble in December 2017 has been compared with a (smaller scale) dotcom bubble. Beyond parallels in price inflation, many also hope the ecosystem is a similar inflection point in terms of innovation and adoption. As the chart above shows, the dotcom collapse was merely the beginning of the internet revolution which led to unimaginable innovation and near-universal internet adoption. Is this where we are on the crypto adoption curve?