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Theory
We’ll choose a company and discuss, illustratively, how each of the following might develop over time
Abaca Venture Levels
Level
Typical Funding
Product
Business Model
Scale
Acquirer IPO
Our product is recognized as top in the industry.
Our revenue has been at scale for multiple years.
Unit economics are fully optimized in all customer segments.
VC: Series C, D+
Our product is in the top tier for solving industry standards.
We're rapidly scaling and growth is outpacing competitors.
Growth in our customer base is month-on-month.
VC: Series B, C
Our product & tech are scalable and ready for high growth.
We're building a profitable model across multiple metrics.
Our unit economics are fully repeatable in most customer segments.
VC: Series A
Our core product and technology are ready for large scale.
Our customers recognize the value of pricing changes.
We're clearing regulatory hurdles in multiple markets.
VC: Seed + Angel
Our product is ready for early-stage growth.
Our business model supports profitable growth.
Our pricing model works well across early market segments.
Angel Friends & Family
Our team is ready to iterate based on market feedback.
We've built a business model but are still validating it.
Customers show willingness to buy.
Angel Friends & Family Personal Credit
We have the ability to build and iterate on our product.
We have built a repeatable business model.
We're still working on pricing and scaling our solution.
Friends & Family Personal Credit
We have the first version of our product ready for testing.
We're starting to validate the business model.
Our product shows signs of potential fit with the market.
Friends & Family Personal Credit
We have a clear concept of our product and market.
We're exploring potential business models.
We're still testing assumptions on product-market fit.
Concepts
Key Performance Indicators
Customer acquisition cost (CAC)
CAC is the amount of money you need to spend on sales, marketing and related expenses, on average, to acquire a new customer. This tells us about the efficiency of your marketing efforts, although it’s much more meaningful when combined with some of the other metrics below, and when compared to competitors’ CAC.
Lifetime value (LTV)
Lifetime value (LTV) is the measurement of the net value of an average customer to your business over the estimated life of the relationship with your company.
CAC:LTV
We consider the ratio of CAC to LTV to be the golden metric. This is a true indicator of the sustainability of a company. If a company can predictably and repeatedly turn x into 10x (note: 10x is just an illustration and not meant to imply any sort of minimum or standard), then it’s sustainable.
Months to Recover CAC
This KPI measures how long it takes for a customer to generate enough net revenue to cover the CAC. CAC recovery time has a direct impact on cash flow and, consequentially, runway.
Runway
Runway is the measure of the amount of time until the company runs out of cash, expressed in terms of months. Runway is computed by dividing remaining cash by monthly burn.
Profit Margin
Expressed as a percentage, profit margin tells us how much your product sells for above the actual cost of the product itself. Put another way, it reveals how much of the selling price is “mark-up.”
Conversion Ratio
We consider conversion rate to be a very telling KPI in that it reveals a combination of the company’s ability to sell its products to its customers and customers’ desire for the product. It is particularly instructive to track and review conversion rate over time and regularly run experiments to improve it.
Monthly Active Users (MAU)
MAU is the number of unique users who engage with the site or app in a 30-day period.
Gross Merchandise Volume (GMV)
Certain businesses find that revenue may not be the most informative indicator of their financial performance. This is especially true for marketplaces for which revenue (i.e. their take rate) represents a small portion of overall transactions. Gross merchandise volume (GMV) can be a useful KPI in these cases. GMV is the overall dollar value of sales of goods or services purchased through a marketplace.
Traction Methods
Blogs
Content Marketing
E-books
Email Marketing
Newsletter
Publicity, PR
TechCrunch
Guerilla PR
Search Engine Marketing (SEM)
Search Engine Optimization (SEO)
Social & Display Ads
Offline Ads
Viral Marketing
Business Development
Win-win partnerships
Sales
Affiliate Programs
App Stores
Trade Shows
Events
Community Building
Competitive Advantage
Network Effects
Marketplace (Uber)
Data (Google)
Platform (LinkedIn)
Cost Moats
Switching Cost (Apple)
Sunk Cost (Gillette)
Cost Advantage (AWS)
Brand
Brand (Starbucks)
Resource Moats
Intellectual Property (Disney)
Knowledge (Canon)
Regulatory (Coinbase)
Examples
Application
Pick a tag (e.g., YCombinator, industry) and illustratively complete the assignment together.
Assignment
From your list of 20 startups, choose the 10 that you think perform best in terms of product-market fit (likely skimming across highlights)
Optional: Draft an investment memo section that how you conceptualized product-market fit (e.g., traction or scale metrics) to the data you found available on WeFunder.