WHAT TO LOOK FOR IN A CONSUMER TECH COMPANY
The consumer tech sector is one of the most exciting and lucrative investment opportunities that exist. We look for consumer tech companies with:
– Great products that people will love;
– product-market fit with a large market opportunity; and
– great teams that can deliver on their product vision.
We’ve been investing in consumer tech for over 10 years and have had the fortune of investing in incredible companies like Houzz, Warby Parker, Julep Beauty, One Kings Lane, Dollar Shave Club, Ipsy, Shipt and Sweetgreen.
In this blog post we will share what we look for when evaluating consumer tech companies.
MARKET OPPORTUNITY & PRODUCT-MARKET FIT
A big part of what makes a consumer tech investment attractive is the size of the market opportunity. We look for consumer tech companies that have a clear product vision and are pursuing a large market opportunity — think at least $1B.
In addition to the size of the market opportunity, we also look for early signs of product-market fit. This is especially important when there are multiple players competing in the same space. A great team with an amazing initial product can give an
What to Look for in a Consumer Tech Company
There are many factors that make up a customer-facing tech company. User growth, success with other companies, traction with investors and the ability to scale quickly are all important things to consider when choosing a consumer tech company. But here are four key areas to look for when evaluating consumer tech companies:
1. A large market opportunity
Consumer tech is different from enterprise software. It’s easier for consumers to adopt than it is for enterprise companies, but the users aren’t paying customers. This means that consumer tech companies have to find ways to monetize their users or they won’t last long. The larger the market opportunity, the more profitable and sustainable a company will be as it grows.
2. A strong brand
Branding is important in consumer tech because “cool factor” drives much of the adoption of consumer products. A brand that resonates with its target audience has an advantage over competitors because of greater name recognition and word-of-mouth marketing potential. While there are certainly exceptions, strong brands generally translate into strong businesses.
3. Effective monetization
As mentioned above, it’s difficult for consumer tech companies to survive without
What to Look for in a Consumer Tech Company
There are three things I care about when I look at a consumer technology company. They are:
1. The engineering – is it good? Did they do something hard and well?
2. The product – is it nice and fun to use? Does it solve an important problem, or make an existing solution better?
3. The team – are they smart, do they work well together and do they stay together?
In this post I’ll tell you what I think of some of the more recent consumer companies that have been founded. I’ve included companies that started from 2010 onwards (i.e. 6 years). The vast majority of companies have not been included because there is only so much time to go around and because there has been so much coverage elsewhere (e.g. Uber).
There are three things you need to look for in a consumer tech company:
1. The product/service should be insanely great.
2. It should be attached to a huge market, which is growing and has multiple points of distribution (retailers, carriers, partners, etc.).
3. The team and the culture should be extraordinary.
The first thing we look for is the product or service. Is it insanely great? If it’s going to succeed in the real world – with real customers – then it has to be insanely great from the customer’s perspective. We want a product that people use because they love it, not because they’re paid to use it or feel obligated to use it. We have invested in companies that sell products ranging from software to hardware and services, but all of them have one thing in common: their customers love what they make.
If a company doesn’t have an insanely great product/service – one that is clearly superior to the competition – then nothing else really matters!
Most consumer tech companies are either “lifestyle” companies or “product” companies (or some hybrid).
Lifestyle companies do what they do because it’s fun and profitable, but the product itself is not the main point. The main point is to be cool. Google, for example, started off as a lifestyle company. I doubt that Larry and Sergey thought about their search engine as anything but a means to an end: their real goal was to make Google the coolest place to work. (The “don’t be evil” motto was a way of making sure they didn’t accidentally create a boring place to work, which would have made it hard to attract and retain employees.)
Product companies on the other hand are all about the product. They believe in what they’re doing, and they want the product to be as good as possible. And not just good in the sense of meeting the needs of their customers: they want it to be technologically excellent. For them software is more than just something you ship; it’s a thing of beauty in itself, an art form.
Product companies are rarer than lifestyle companies, which makes sense because good programmers know how much effort it takes to produce great software. If you want people to work that hard on your project,
Many people think you only have one chance to get a consumer tech company right, and that’s it. You either catch the wave or you don’t. But I’ve been surprised many times to see old, supposedly dead companies rise from the grave.
When Amazon went public, I thought they were crazy. Their original business plan was pure vaporware: “We are going to sell books online.” Even if they could figure out how to do that, we had all those bookstore chains. Borders and Barnes & Noble were very well respected. They had distribution networks, warehouses, stores in every mall; they were real companies. How could some startup compete with that?
It was not obvious at all in 1997 that physical retail would be disrupted by online retail. But Amazon turned out to be one of the greatest companies ever, and Borders died and Barnes & Noble is on its way out too.
So what looked like a stupid idea turned out not to be so stupid after all.
I’ve spent the last six years as a venture investor in New York City, helping to build and invest in a number of consumer technology companies.
Over this time, I’ve developed a set of criteria for evaluating new investments — particularly in the consumer space. I’d like to share those criteria with you here.
For context, I was fortunate to have an amazing mentor for the early part of my career: Chris Dixon. Chris is one of the best investors and entrepreneurs around, and his guidance has been invaluable as I’ve helped build companies. Many of the takeaways below were first shared with me by him or are based on my observations while working alongside him over the last few years.
Chris also has a great blog post on how to evaluate startups (and how he chooses founders), which you should definitely read if you haven’t already.
What to Look for in Consumer Companies
I think the biggest mistake most people make is that they try to predict whether something will be successful based on how they would use it or how they perceive others using it. This can go very wrong very quickly — especially if you’re not part of your target demographic (which is often the case).
Instead, there are four things you should look for when evaluating a consumer company: