Read more about how we’re thinking and where we’re investing here.

Two months ago, we published our second eBook, Understanding Social Platforms. In it, we discuss the dynamics of each social platform type: messaging, private networks, public networks, enterprise networks, and communities. We also cover important topics for social platform businesses like metrics, exits, valuations, and our outlook for future opportunities in social.

Our portfolio company <a href="http://www.tophat.com">Top Hat</a> just closed a $22.5M (USD) Series C round. <a class="zem_slink" title="Union Square Ventures" href="http://unionsquareventures.com/" rel="homepage">Union Square Ventures</a> – one of our favorite co-investors – added to Top Hat’s existing investors and USV’s Albert Wenger joined their Board of Directors. This funding is big news, particularly since <a href="https://www.cbinsights.com/blog/ed-tech-2016-funding-drop/">2016 was a weak year</a> for Ed Tech funding. Generally speaking, Ed Tech has proven to be a tough vertical, primarily due to the fact that it’s hard to charge consumers (students) directly. And selling to institutions requires a long sales cycle. While a funding round is certainly not the only path to success for a start-up, this is an important milestone. As such, Top Hat can provide key lessons for early-stage companies: <strong>1. They took an innovative approach to distribution</strong> Top Hat adopted a bottoms-up approach to distribution, as covered in the Globe and Mail article: <a href="http://www.theglobeandmail.com/report-on-business/classroom-tech-company-gets-schooled-on-selling-direct/article33219363/">Sales took off after Top Hat ignored advice and flipped its sales strategy</a>. Back in 2010, the team tried approaching university administrators to get them to adopt their platform. The problem was that these school officials had other priorities and little incentive to change the way students access course materials. So Top Hat decided to flip their sales strategy and market/sell directly to university students and teachers. While bottom-up distribution is pretty common now in other verticals, it’s important to realize that bottom-up is rarely done in Ed Tech. Top Hat co-founder and CEO <a href="https://twitter.com/MikeSilagadze">Mike Silagadze</a> said: “Most people we talked to were very skeptical about our marketing approach; they thought it wouldn’t work. If we’d listened to outsiders it would have been a terrible idea because they would have told us not to do it.” <strong>2. They focused on revenue early on</strong> Top Hat had an early and continuous focus on revenue; they have been operating profitably since their launch in 2009. This meant there was less pressure to raise capital and they had more proof points when they did go looking for funding. <strong>3. They hustle</strong> Ultimately, success comes down to the persistence and hustle of the founders. I’ve seen examples of this time and time again. And, there are very few people out there who can outhustle Mike Silagadze. <strong>4. They expanded their vision over time</strong> Top Hat began as a classroom interaction tool, and they are now building a content/textbook marketplace. Interactive textbooks, test questions, and homework are authored by academics/instructors and available on the Top Hat marketplace. Finding a “second act” is tough to do, but when done right, it expands the underlying opportunity in a huge way. In short, Top Hat was able to identify a winning formula for classroom interaction, adopt the right distribution strategy to bring the tool into the classroom, and then expand the platform from there. Congratulations to Mike and the entire Top Hat team on this latest milestone. We’re so proud of the progress you’ve made so far and are looking forward to the rest of your journey in disrupting education.

Our portfolio company Top Hat just closed a $22.5M (USD) Series C round. Union Square Ventures – one of our favorite co-investors – added to Top Hat’s existing investors and USV’s Albert Wenger joined their Board of Directors.

<span style="font-weight: 400;">On the heels of being named principal last week, I am humbled by </span><a href="https://www.versionone.vc/congratulations-angela-tran-kingyens-newest-principal/"><span style="font-weight: 400;">Boris’s announcement</span></a><span style="font-weight: 400;"> and thrilled to begin leading deals for Version One. While many of you have already worked with me directly or read my thoughts on this blog over the years, I want to take the opportunity to share my goals: what I’m working on, where I can be the most helpful, and where I’d like to go from here.</span> <span style="font-weight: 400;">Those of you who already know me understand that I’m quite data-driven. My love for data isn’t too surprising given my background and in my “next chapter” of VC, I plan to double down on data projects, including:</span> <b>Building a stronger community around data science and learning</b> <span style="font-weight: 400;">Through my work with </span><a href="http://insightdatascience.com/"><span style="font-weight: 400;">Insight</span></a><span style="font-weight: 400;">,</span> <span style="font-weight: 400;">I’ve been fortunate to connect with incredible data scientists and data-driven entrepreneurs. I’m looking forward to cultivating stronger relationships with data experts and thought leaders who can help Version One and our portfolio companies with building products, hiring, and more. Stay tuned for most posts on these topics in the coming year.  </span> <span style="font-weight: 400;">I’m also passionate about leadership development and am excited about connecting with those who are working on building and promoting a culture of learning, leadership, and inclusivity.</span> <b>Creating a repository for startup data</b> <span style="font-weight: 400;">Companies collect so much data but it’s usually silo’ed. By compiling and leveraging this data, we can help founders better understand the dynamics of their business to grow and scale accordingly. In addition, data can help us as investors better evaluate investment opportunities. This is particularly important in early stages when evaluations are certainly much less objective.</span> <span style="font-weight: 400;">Over the years, we have blogged about ways that startups can structure their data – such as our metrics templates for </span><a href="https://www.versionone.vc/marketplace-kpi/"><span style="font-weight: 400;">marketplaces</span></a><span style="font-weight: 400;"> and </span><a href="https://www.versionone.vc/social-platforms-metrics-1/"><span style="font-weight: 400;">social platforms</span></a><span style="font-weight: 400;">. These are good starting points, but the data is still silo’ed so comparisons and benchmarking across companies are still done intuitively. We’ve also shared </span><a href="https://www.versionone.vc/marketplace-fundraising/"><span style="font-weight: 400;">frameworks and benchmarks</span></a><span style="font-weight: 400;">, but these have been more anecdotal than backed by data.</span> <span style="font-weight: 400;">It may be an incredibly ambitious goal, but I’d like to centralize data to become the go-to fund for advice on KPIs and benchmarks on anything from operations to sales and hiring. Of course, we don’t have the same scale as large VCs where whole teams are tasked with building out these platforms. However, I’m looking forward to crowdsourcing some of the work and collaborating with others to shed more light on startup data.</span> <b>Pushing my own knowledge on AI/ML</b> <span style="font-weight: 400;">From my work in my PhD, I’ve built a solid foundation when it comes to statistics and data mining. However, it’s been some time since I’ve needed to exercise my technical brain for complex machine learning and AI. I’m hoping to carve out some time in the day to code/hack so I can make an even bigger impact.  </span> <span style="font-weight: 400;">Stay tuned for updates on our blog and </span><a href="https://twitter.com/ATKingyens"><span style="font-weight: 400;">follow me on Twitter</span></a><span style="font-weight: 400;"> for my plans on how this will all come to fruition!</span> <span style="font-weight: 400;">Generally speaking, when it comes to investment themes, we at Version One are quite agnostic and instead are </span><a href="https://www.versionone.vc/our-refocused-investment-thesis/"><span style="font-weight: 400;">thesis-driven around network effects</span></a><span style="font-weight: 400;">. As such, I’ve personally spent a lot of time on </span><a href="https://www.versionone.vc/marketplace-handbook/"><span style="font-weight: 400;">marketplaces</span></a><span style="font-weight: 400;">,</span><a href="https://www.versionone.vc/social-handbook/"> <span style="font-weight: 400;">social platforms</span></a><span style="font-weight: 400;"> (i.e. messaging, networks, communities) and </span><a href="https://www.versionone.vc/healthcare-update/"><span style="font-weight: 400;">healthcare</span></a><span style="font-weight: 400;">. I’m still excited about these categories, but as I </span><a href="https://www.versionone.vc/2016-review/"><span style="font-weight: 400;">recently wrote</span></a><span style="font-weight: 400;">, we’re learning more about </span><a href="https://www.versionone.vc/cryptocurrencys-second-act-rise-ethereum-whats-store-2017/"><span style="font-weight: 400;">Blockchain</span></a><span style="font-weight: 400;">, genomics, and other emerging technologies (AR, VR, robotics, etc.).</span> <span style="font-weight: 400;">On a personal note, I am passionate about the democratization of knowledge, increased accessibility to healthcare, distribution of our wealth, and inclusion of the diverse.  I am the daughter of a refugee (of Canada) and now an immigrant of the US. My family and I are forever grateful for the openness and generosity of others as we wouldn’t be where we are today without them. Given the current state of affairs which challenge everyone’s basic rights, it seems that investing in companies with these same values is more critical than ever.</span> <span style="font-weight: 400;">If any of the above resonates with you, whether it’s on data, network effects, democratization, etc., please reach out to me. It doesn’t matter if you’re an entrepreneur, engineer, growth hacker, data scientist, student, professor or fellow investor… I’d love to learn from and work with you.</span> <span style="font-weight: 400;">Finally and most importantly, thanks to our entire community – investor friends, entrepreneurs, our founders and LPs – who reached out with congratulatory wishes and continue to bring out the best in me. And of course, a special shout out to Boris for this incredible opportunity to build Version One together.</span> -ange :)

On the heels of being named principal last week, I am humbled by Boris’s announcement and thrilled to begin leading deals for Version One. While many of you have already worked with me directly or read my thoughts on this blog over the years, I want to take the opportunity to share my goals: what I’m working on, where I can be the most helpful, and where I’d like to go from here.

Out of all the posts I’ve written over the years, this one gives me the greatest pleasure. I am thrilled to announce that my colleague of over three years, <a href="https://twitter.com/ATKingyens">Angela Tran Kingyens</a>, has been promoted to Principal. In this new role Angela will start leading deals for Version One and this will obviously increase our investment capacity. When I first <a href="https://www.versionone.vc/announcing-version-one-ventures/">started Version One in 2012</a>, I wasn’t sure if it would stay a partner firm forever or ultimately evolve into a partnership. After all, partnerships are hard to grow and can turn messy. Sometimes staying small is the best strategy. Three years ago, I brought <a href="https://www.versionone.vc/introducing-version-ones-new-analyst-angela-kingyens/">Angela onboard as an analyst</a> to help manage the growing amount of work and bolster our presence in Silicon Valley. Since then, she has been instrumental to the firm, sourcing investments like <a href="http://www.goshippo.com">Shippo</a>, <a href="https://www.versionone.vc/announcing-investment-blockstack-new-decentralized-internet/">Blockstack</a>, and <a href="http://www.zenput.com">Zenput</a> and providing an invaluable filter to identify special entrepreneurs and opportunities. She has been managing the day-to-day activities of the fund, while working with our portfolio companies on data and hiring projects. She developed our <a href="http://ondigitalhealthcare.com/">thesis on healthcare</a> together with <a class="zem_slink" title="Union Square Ventures" href="http://unionsquareventures.com/" rel="homepage">Union Square Ventures</a>, played an critical role in our <a href="https://www.versionone.vc/marketplace-handbook/">Guide to Marketplaces</a>, and led our second <a href="https://www.versionone.vc/social-handbook/">ebook on social platforms</a>. She has built a deep network in Silicon Valley. Perhaps more importantly, Angela has sparked some of the most productive and provocative discussions within V1. She has pushed my thinking to new levels across many different areas and was key in developing our <a href="https://www.versionone.vc/our-refocused-investment-thesis/">re-focused investment thesis around network effects</a>. The best partnerships turn diverse perspectives into constructive discussions on how to invest and what to invest in. That’s why I’m so confident that this is the right time to grow Version One and that Angela is the right person. Angela is a data scientist with a passion for leadership development. Before joining V1, she co-launched <a href="http://insightdatascience.com/">Insight Data Science</a>, a YC-backed startup designed to help PhDs transition from academic research to careers in industry via a six-week training program. She received her PhD in Operations Research and Engineering from the <a class="zem_slink" title="University of Toronto" href="http://maps.google.com/maps?ll=43.6616666667,-79.395&amp;spn=0.01,0.01&amp;q=43.6616666667,-79.395 (University%20of%20Toronto)&amp;t=h" rel="geolocation">University of Toronto</a> where she taught classes like “Entrepreneurship and Business for Engineers” and “Leadership and Leading for Groups and Organizations.” For those of you who have already worked with Angela, you already know that there’s not a better person to represent the kind of investor that V1 strives to be. She is always helpful and supportive, but can push back and call out an inconvenient truth when necessary. When we go through our internal feedback from entrepreneurs, Angela consistently gets high marks in this respect. Congratulations to my friend and colleague. I am truly excited to have you as a partner in Version One and cannot wait to see where we go from here. P.S.: you can follow <a href="https://twitter.com/ATKingyens">Angela on Twitter</a> or by signing up to our <a href="https://www.versionone.vc/subscribe/">blog</a>.

Out of all the posts I’ve written over the years, this one gives me the greatest pleasure. I am thrilled to announce that my colleague of over three years, Angela Tran Kingyens, has been promoted to Principal. In this new role Angela will start leading deals for Version One and this will obviously increase our investment capacity.

<span style="font-weight: 400;">Back in 2014, I blogged about building a </span><a href="https://www.versionone.vc/engagement-pyramid/"><span style="font-weight: 400;">user engagement pyramid</span></a><span style="font-weight: 400;"> for social platforms, inspired by Fred Wilson’s </span><a href="http://avc.com/2011/06/dont-forget-your-logged-out-users/"><span style="font-weight: 400;">100/10/1 rule</span></a><span style="font-weight: 400;">.</span> <span style="font-weight: 400;">The premise of that post was simple: since user-generated content is king, the top of the pyramid (aka the most engaged users) are those who post status updates, photos and links. And, these creators are inspired when they are recognized for their contributions via shares, comments, and favourites. As such, the user engagement pyramid should look something like below and the goal of social networks is to move users up the pyramid.</span> <img class="size-medium wp-image-2336 aligncenter" src="https://gregburnison.ca/code/version1v/images/pyramid-277x300.jpg" alt="" width="277" height="300" /> <span style="font-weight: 400;">In that original post, I offered two non-mathematical steps for creating an engagement pyramid:</span> <ol> <li><span style="font-weight: 400;">At the top, place the activity that you determine to be a sign of someone who is most engaged with your product (this is usually the factor that drives your most important metrics).</span></li> <li>Next, rank the activities in decreasing order based on level of friction (from hardest to easiest).</li> </ol> <span style="font-weight: 400;">A few months ago, one of our founders reflected on this advice, “Conceptually, this is all good but is there a ‘scientific’ method of building this hierarchy of engagement?” As a lover of all things data, these comments inspired me to revisit the post and see if I could add a more solid mathematical framework to the pyramid.  </span> <span style="font-weight: 400;">Upon further reflection, I think the first point about placing your most engaged activity up top is still valid. However, for point 2, I think that friction (as measured by how hard/easy an activity is) may not be the most important factor for determining engagement. Here’s why:</span> <b>Individual vs. Systematic Engagement</b> <span style="font-weight: 400;">Let’s consider the following: is the user who logs on everyday and simply lurks more or less engaged than the user who only logs in once that month but posts content?</span> <span style="font-weight: 400;">On a purely DAU/MAU basis, the former is more engaged than the latter. However, there is a difference between the individual’s engagement and “systematic” engagement (how the individual’s actions influence all other actions of the platform). The pyramid above represents the latter because posting content, in theory, will attract more people to the platform than just lurking or liking. In other words, posting has higher systematic engagement than logging in.</span> <span style="font-weight: 400;">It’s a nuanced distinction, but important to understand.</span> <b>Can we create an index for engagement?</b> <span style="font-weight: 400;">If we revisit point #1, there’s some low-hanging fruit to help us figure out individual engagement:</span> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">Of those users with the highest DAU/MAU, what are actions are they doing?</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">On the flip side, of those users who post or comment frequently, what is their DAU/MAU?</span></li> </ul> <span style="font-weight: 400;">These two exercises should inform what the systematic engagement pyramid looks like. Most likely, you already have a strong intuition of what action should be on top and this exercise is just a matter of testing your hypothesis.</span> <span style="font-weight: 400;">Here’s an example. Let’s say you believe that posting an image engages the most users. How do you test this to be true? You’ll need to take a step back and define the influence or reach of a given action.</span> <span style="font-weight: 400;">In this case, the engagement “index” of an image can be computed as:</span> <p style="text-align: center;"><strong><em># of likes + # of comments + # of shares + # of views</em></strong></p> <span style="font-weight: 400;">Likewise, the engagement index of a comment is:</span> <p style="text-align: center;"><strong><em># likes + # of views</em></strong></p> <span style="font-weight: 400;">Simply put, think of the pyramid as ranking the potential reach of all users. Every step down the pyramid has a smaller reach. Based on the above, the reach of an image is greater than the reach of a comment. You can assign value to every possible user action (posting a status update, sharing a link, etc.) and then rank the actions according to total potential value.</span> <span style="font-weight: 400;">Keep in mind, that your index will be more complex, as I made a lot of assumptions on linearity for simplicity’s sake.</span> <b>Key takeaways</b> <span style="font-weight: 400;">What can we take away from all this? First, systematic and individual engagement are two different things: systematic engagement is a function of all individual engagement combined. It’s important to understand this distinction when building your engagement pyramid. Second, for as much as we try to quantify engagement, this process is still very much more art than science.   </span> <span style="font-weight: 400;">And please, keep the comments coming. Each discussion further refines the model and helps us all.</span>

This is an exciting time for cryptocurrencies. As we recently wrote in <a href="https://www.versionone.vc/cryptocurrencys-second-act-rise-ethereum-whats-store-2017/">Cryptocurrency’s Second Act</a>, the rise of Ethereum revealed that cryptocurrency is not a winner-takes-all market. It has evolved from a sole player with a limited use case into an ecosystem with at least two cryptocurrencies at scale, and many others trying to get to scale. We’re seeing interesting new use cases built on top of cryptocurrencies and the new ability to monetize software and open source. We’ve never been more bullish about the potential of cryptocurrencies than we are now and have been looking for an investment in the Blockchain space for quite awhile. That’s why we’re excited to announce our investment in <a href="https://blockstack.org/">Blockstack</a>, an organization formed to push the Blockstack open-source protocol forward and make the new decentralized internet a reality. Blockstack offers a full platform for decentralized applications, providing important services like identity, DNS/naming, storage and authentication. All of the Blockstack software is open source, maintained by the 4,000+ members in the Blockstack community. To date, more than 70,000 domain names have been registered on Blockstack. The Blockstack community is currently working on a new browser and app development platform that will allow anyone to use the new decentralized internet and the apps that are built on it. This is a large effort and we’re thrilled that the funding will help contribute more development resources to the project. This is a passionate group with a clear vision for the future of a decentralized internet. We believe that 2017 could be the year that cryptocurrencies start delivering on their huge potential, and Blockstack could be a big part of that story.

Back in 2009, <a class="zem_slink" title="Bitcoin" href="http://en.wikipedia.org/wiki/Bitcoin" rel="wikipedia">Bitcoin</a> became the first decentralized cryptocurrency. The prevailing thinking then was that the cryptocurrency market was going to be a winner-takes-all race due to the strong network effects around mining. And, most thought that Bitcoin would emerge as the winner in this race. What happened? Bitcoin, and the underlying blockchain technology, never developed a strong use case besides storing value. Bitcoin fell short in becoming an important payment method. Its ecosystem was <a href="http://www.coindesk.com/coinbase-ceo-rejects-bitcoin-hard-fork">plagued with infighting</a>, revealing that governance structures weren’t as stable as everyone had assumed. This does not mean the end of Bitcoin; storing value can be a large market opportunity as we have just seen in the <a href="http://www.coindesk.com/price/">run-up of the Bitcoin price</a> over the past year – similar to the role that gold plays in the offline world. But it does open the door to other players in cryptocurrency. <strong>Ethereum and the second act</strong> In 2016, we saw the second act for cryptocurrencies with the rise of Ethereum and its focus on smart contract functionality. Ethereum also introduced an important innovation in tokens. In the Ethereum ecosystem, <a href="https://www.ethereum.org/token">tokens</a> can represent any fungible tradable good, including coins, loyalty points, gold certificates, IOUs, and in-game items. What makes tokens particularly interesting is that they enable built-in monetization of software projects. From Alex Felix: “Utilizing a native cyptoasset paywall (or “tokenized ecosystem”) demand for network services is linked to price. Therefore, cryptoassets can both capture and represent value. […] As compared to a traditional third-party shareholder structure, the economic model of a decentralized network helps to align the interests of key stakeholders and allows them to benefit directly from the value they create. As a result, public <a class="zem_slink" title="Blockchain (database)" href="http://en.wikipedia.org/wiki/Blockchain_%28database%29" rel="wikipedia">Blockchain</a> projects are well positioned to overcome a number of key challenges that plagued traditional OSS commercialization.” While still very early, Ethereum has also unlocked new use cases, like decentralized storage (https://sia.tech/) and decentralized prediction markets (<a href="https://www.augur.net/)">https://www.augur.net/)</a>. The rise of Ethereum shows that cryptocurrency is not the winner-takes-all market that we once had thought. It’s evolving from a sole player with a limited use case (storing value) into an ecosystem with at least two cryptocurrencies at scale, and many others trying to get to scale. We’re seeing interesting new use cases built on top of cryptocurrencies and the new ability to monetize software and open source. Creating a new financial incentive might actually turn out to be the most important driver for future innovation in this space. <strong>Looking ahead…</strong> While we have never been more bullish than today about the potential of cryptocurrencies, some big questions still remain: <ul> <li>Using tokens in crowdfunding campaigns is an innovative way to fund projects that were once hard to fund and aligns stakeholders around a project. However, the emergence of tokens has also attracted a lot of weaker projects in search of easy money. The public failure of some of those projects might hurt the underlying innovation, at least in the short term. Will this token-driven crowdfunding market become the equivalent of OTC/pink slip markets, dominated by speculators and promoters? Or, will professional investors emerge and provide a certain level of due diligence and reputability?</li> <li>There’s also the matter of security (or the lack thereof). The <a href="http://hackingdistributed.com/2016/06/17/thoughts-on-the-dao-hack/">hack on The Dao</a>, one of the most prominent Ethereum-based projects, confirmed that the security problem has not yet been solved. There’s a lot of potential mistrust in the ecosystem.</li> <li>Lastly, some of the emerging use cases might not be perfectly legal…for example, running a prediction market = a betting operation. The current answer is that the operations are completely decentralized which makes then hard to take down (but they’re still not legal). What we need now are more use cases that are perfectly legal in the current legislative environment and provide a true value-add.</li> </ul> 2017 could be the year that cryptocurrencies start delivering on the huge potential many people saw in them for a long time and we will be actively investing in the space.

<span style="font-weight: 400;">Welcome back! We hope everyone had a restful holiday! While we’re ready to look ahead and embrace 2017, here’s a quick recap of the major activity across our portfolio last quarter. We’re looking forward to continuing this momentum into the new year.</span> <b>Portfolio companies in the news</b> In continuing to be the consumer’s financial advocate, <b><a href="http://www.asktrim.com/">Trim</a></b> launched a chatbot that <a href="http://venturebeat.com/2016/11/16/trims-new-bot-will-renegotiate-your-comcast-bill-while-you-play-tetris/">helps renegotiate your Comcast bill</a>. If you think you might be paying too much for your service and don’t feel like dealing with Comcast’s customer service, let Trim’s robot give it a shot. As CEO Thomas Smyth told VentureBeat, “Basically we want to see how many people we can help before Comcast shuts us down.” <strong><a href="https://www.frankandoak.com">Frank + Oak</a> </strong>(who was named <a href="https://pbs.twimg.com/media/CzqQEiCWgAA4dTR.jpg">innovator of the year</a> by Canadian Business) announced the launch of its  <a href="https://ca.frankandoak.com/50-50">50/50 Founders’ Fund</a>, in partnership with General Assembly. This seed-stage fund is named 50/50 since Frank + Oak plans to grant 50 percent of the fund to female entrepreneurs and 50 percent of the fund to male entrepreneurs. You can <a href="http://betakit.com/new-frank-oak-5050-founders-fund-promises-funding-equality-to-entrepreneurs/">read more about the Fund here</a>. <strong><a href="https://goshippo.com">Mattermark</a></strong> released the newest version of their <a href="https://itunes.apple.com/us/app/mattermark/id947663909?mt=8">iOS app</a>: it’s totally free and puts details about 1.7 million companies in your pocket. <strong><a href="https://goshippo.com">Shippo</a></strong> completed their <a href="https://www.producthunt.com/posts/stripe-connect-app-for-shipping">integration with Stripe</a>, making it simpler than ever to print labels and ship packages from Stripe. Both <strong><a href="https://www.abstractapp.com">Abstract</a></strong> (who’s building a common infrastructure to support the modern design workflow) and <strong><a href="https://www.manifold.co">Manifold</a></strong> (working to secure and manage config secrets across teams, environments and services) released their private alphas. <strong><a href="https://www.goclio.com">Clio</a></strong> and <strong><a href="https://tophat.com/">Top Hat</a></strong> ranked in the <a href="https://www2.deloitte.com/ca/en/pages/press-releases/articles/because-its-2016-deloitte-technology-fast-50-winners-are-more-diverse-and-growing-faster.html">Deloitte Fast 50</a>. Geekwire named <strong><a href="https://outreach.io">Outreach</a></strong> one of the <a href="http://www.geekwire.com/2016/meet-seattle-10-hot-startups-transforming-everything-education-enterprise-software/">top 10 transformational Seattle startups</a>, and Top Hat got some great press from the <a href="http://www.theglobeandmail.com/report-on-business/classroom-tech-company-gets-schooled-on-selling-direct/article33219363/">Globe and Mail</a> and <a href="http://business.financialpost.com/entrepreneur/growth-strategies/how-top-hat-is-winning-over-the-edtech-market-one-professor-at-a-time">Financial Post</a> for its success in the Edtech market. Both Outreach and Top Hat added some star power to their teams. Top Hat added <a href="http://www.businesswire.com/news/home/20161108005304/en/Top-Hat-Hires-Chief-Marketing-Officer-Nick#.WCJrJlieACI.twitter">Nick Stein as its first CMO</a>, while Outreach had <a href="http://www.geekwire.com/2016/tech-moves-outreach-brings-former-linkedin-t-mobile-salesforce-execs-avvo-names-new-vp-sales/">three high-profile hirings</a>: former LinkedIn exec Sarah Imbach joined the board of directors; former T-Mobile VP Matt Millen joined as Senior VP of Revenue Operations, and former Salesforce exec Katie Doyle was hired as VP of Marketing. Matt Munson shared an honest and transparent account of his and <strong><a href="https://www.twenty20.com">Twenty20</a></strong>’s journey: <a href="https://medium.com/reboot-leadership-resiliency/how-i-burned-10-million-dollars-so-you-dont-have-to-4e9e83754ce9#.urkg8aev7">How I Burned 10 Million Dollars So You Don’t Have To</a> (An Education in Humility, Humanity, and Leadership). It’s recommended reading for everyone. And last but not least:  in exit news, <a href="http://www.geekwire.com/2016/julep-acquired-big-roll-cosmetics-brands-newly-formed-glansaol/"><strong>Julep</strong> was acquired</a> by the newly formed Glansaol (who’s also acquiring Laura Geller and Clark’s Botanicals). All of Julep’s 143 employees will remain with the new company. Our companies are hiring in SF, Toronto, New York, Seattle, Vancouver, Montreal, Edmonton... so if you’re looking for cool opportunities - ping us and we’ll help you navigate our portfolio. &nbsp; <b>Catch up on our blog</b> <span style="font-weight: 400;">A few weeks ago, we published our second </span><a href="https://www.versionone.vc/social-handbook/"><span style="font-weight: 400;">eBook on social platforms</span></a><span style="font-weight: 400;"> which covers everything from messaging to networks, and communities to enterprise collaboration.</span> <span style="font-weight: 400;">We also hosted our first marketplace meetup in SF in October.  In case you missed it, here is a series of blog posts recapping the event.</span> <ul> <li style="font-weight: 400;"><a href="https://www.versionone.vc/growth-strategies-marketplaces-key-takeaways-fireside-chat-growth/"><span style="font-weight: 400;">Growth strategies for marketplaces: key takeaways from a fireside chat on growth</span></a></li> <li style="font-weight: 400;"><a href="https://www.versionone.vc/move-managed-marketplace-model/"><span style="font-weight: 400;">Should you move to a managed marketplace model?</span></a></li> <li style="font-weight: 400;"><a href="https://www.versionone.vc/growing-b2b-marketplace/"><span style="font-weight: 400;">Growing your B2B marketplace</span></a></li> <li style="font-weight: 400;"><span style="font-weight: 400;"><a href="https://www.versionone.vc/indiegogo-grew-business/">How Indiegogo grew its business</a></span></li> </ul> <span style="font-weight: 400;">Last quarter, we also wrote about developing and empowering those in our ecosystem:</span> <ul> <li style="font-weight: 400;"><a href="https://www.versionone.vc/accelerate-equality/"><span style="font-weight: 400;">One of the few girls in the room: How do we accelerate equality in tech?</span></a></li> <li style="font-weight: 400;"><a href="https://www.versionone.vc/announcing-canada-learning-code-supporting-bottom-innovation/"><span style="font-weight: 400;">Announcing Canada Learning Code: Supporting bottom-up innovation</span></a></li> <li style="font-weight: 400;"><span style="font-weight: 400;"><a href="https://www.versionone.vc/creative-destruction-lab-west-helping-create-next-generation-entrepreneurs/">Creative Destruction Lab West:  Helping create the next generation of entrepreneurs</a></span></li> </ul> <span style="font-weight: 400;">To keep up to date, follow us on Twitter: </span><a href="https://twitter.com/VersionOneVC"><span style="font-weight: 400;">@VersionOneVC</span></a><span style="font-weight: 400;">, </span><a href="https://twitter.com/bwertz"><span style="font-weight: 400;">@bwertz</span></a><span style="font-weight: 400;">, </span><a href="https://twitter.com/ATKingyens"><span style="font-weight: 400;">@atkingyens</span></a>

<span style="font-weight: 400;">This has been an important year for us as a firm, as well as the market in general. We couldn’t begin any recap of 2016 without focusing on the bubble we hear so much about. The industry entered the year bracing for an apocalypse. Every announcement – whether it was a funding round, exit or layoffs – was analyzed within the context that the tech bubble has definitely burst or that we’re still in the bubble.</span> <span style="font-weight: 400;">So, what really happened in 2016? There was a significant pull-back of the public markets in Q1. As </span><a href="http://tomtunguz.com/forward-multiples-mid-2016/"><span style="font-weight: 400;">Tomasz Tunguz of Redpoint</span></a><span style="font-weight: 400;"> showed, </span><span style="font-weight: 400;">in February 2016, public SaaS companies had fallen </span><a href="http://tomtunguz.com/depression-in-saas/"><span style="font-weight: 400;">57% from their highs</span></a><span style="font-weight: 400;">. Yet while they were trading at 3.3x forward revenue in February 2016 (the low), they appreciated by 6% each month for the following six months. As Tomasz points out, these public companies are now trading at 4.7x forward, which is relatively comparable to the median of 5.2x for the last two years.</span> <span style="font-weight: 400;">In other words, any correction in public valuations happened quickly and has now stabilized.</span> <span style="font-weight: 400;">But what kind of impact has this had on the private markets? The fundraising environment is certainly tougher for later rounds. From Series A and onwards, fundraising takes longer and valuations are typically below the expectations and benchmarks of 2015. At the same time, seed money is still abundant due to the proliferation of micro VC over the past few years. This can set up a perfect storm if early-stage companies don’t manage their expectations and reality properly.</span> <span style="font-weight: 400;">Mattermark (a portfolio company) looked at the </span><a href="https://mattermark.com/startup-graduation-rate-surprisingly-low/"><span style="font-weight: 400;">matriculation rates for a class of startups</span></a><span style="font-weight: 400;">. They started with a simple question: if 100 startups raise a Seed round, how many of those will go on to raise a Series A, and then a Series B</span><span style="font-weight: 400;">?</span> <span style="font-weight: 400;">Mattermark found that, on average, around 31 of the initial startups raised a Series A. From there, the number of startups that raise a Series B halves and continues to halve in a stepwise function through Series F and beyond.</span><span style="font-weight: 400;"> It’s a pretty steep drop-off rate.</span> <span style="font-weight: 400;">The challenge here is that founders – having an easy time raising their seed rounds and maybe Series A – can be lulled into thinking that each subsequent round will be just as easy. Likewise, early-stage investors may not appreciate just how much follow-on support their portfolio companies will need.</span> <b>2016 for Version One companies</b> <span style="font-weight: 400;">So, how have Version One portfolio companies done in this environment?</span> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">Collectively, our companies raised over $100M in 2016</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">We welcomed five new companies to our portfolio: </span><a href="https://www.abstractapp.com/"><span style="font-weight: 400;">Abstract</span></a><span style="font-weight: 400;">, </span><a href="http://www.asktrim.com/"><span style="font-weight: 400;">Trim</span></a><span style="font-weight: 400;">, and three yet-to-be-announced</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Across Funds I and II, eight companies raised follow-on funding. The ones we announced publicly are:  </span><a href="https://goshippo.com/"><span style="font-weight: 400;">Shippo</span></a><span style="font-weight: 400;"> (Series A), </span><a href="https://mattermark.com/"><span style="font-weight: 400;">Mattermark</span></a><span style="font-weight: 400;"> (Series B), </span><a href="https://outreach.io/"><span style="font-weight: 400;">Outreach</span></a><span style="font-weight: 400;"> (Series B).</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">In total, we now have 28 active companies with the highest concentration of companies in the SF/Bay Area (11) and Toronto/Kitchener-Waterloo (7).</span></li> </ul> <b>Looking ahead to 2017</b> <span style="font-weight: 400;">We expect that the financing scene in 2017 will look very similar to 2016. Of course, upcoming IPOs like Snapchat will bring some added excitement to the industry.</span> <span style="font-weight: 400;">We also believe that we’ll get more clarity on what the next platform will be. Every 10-15 years, a major cycle reshapes the computing landscape: PC (1981), Internet (1994), Mobile (2007). If historical trends continue, we should now be at the cusp of the next big thing. Chris Dixon for example believes that we’re in the </span><a href="https://medium.com/software-is-eating-the-world/what-s-next-in-computing-e54b870b80cc#.tx4m0212m"><span style="font-weight: 400;">early stage of </span><i><span style="font-weight: 400;">multiple</span></i><span style="font-weight: 400;"> new eras</span></a><span style="font-weight: 400;">, fueled by advancements in deep learning and different platforms (autos, wearables, drones, IoT, and AR/VR).</span> <span style="font-weight: 400;">If we look beyond the cyclical nature of computing platforms, we can see that technological innovation comes in waves – with a surge of technological development followed by quieter periods of adaptation. First, there was the Industrial Revolution, followed by the Age of Steam and Railways; Steel &amp; Heavy Engineering; Oil, Autos &amp; Mass Production; and now the Information and Communications Technology Revolution.</span> <span style="font-weight: 400;">In his post </span><a href="http://reactionwheel.net/2015/10/the-deployment-age.html"><span style="font-weight: 400;">“The Deployment Age,”</span></a><span style="font-weight: 400;"> Jerry Neumann discusses our current stage within this historical context, providing a great synopsis of Carlota Perez’ theories surrounding the path that each technological revolution takes, including the social, economic, and institutional ramifications.</span> <span style="font-weight: 400;">In short, Perez believes that we are currently in the deployment period for web and mobile. In this phase, companies move from creating entirely new markets to expanding and consolidating their existing markets. They make their products cheaper and easier to use in order to appeal to more customers. And, funding moves entirely to production capital, with little to no focus on next-wave technologies.</span> <span style="font-weight: 400;">As investors, we need to be future-looking…whether we’re looking for the next new computing platform or looking for new ways to expand the existing market. As such, we are excited about:</span> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">Cryptocurrencies (blockchain/Ethereum)</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">VR/AR</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Genomics</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Robotics</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Quantum Computing</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">And more</span></li> </ul> <span style="font-weight: 400;">In the coming year, we’ll be spending significant time on these themes, likely focused on the application layer. It’s important to note that we’re looking for startups leveraging </span><a href="https://www.versionone.vc/our-refocused-investment-thesis/"><span style="font-weight: 400;">network effects</span></a><span style="font-weight: 400;"> in these new themes, because they are platform-agnostic after all.</span> <span style="font-weight: 400;">We still love </span><a href="https://www.versionone.vc/marketplace-handbook/"><span style="font-weight: 400;">marketplaces</span></a><span style="font-weight: 400;">, </span><a href="https://www.versionone.vc/social-handbook/"><span style="font-weight: 400;">social platforms</span></a><span style="font-weight: 400;">, and </span><a href="https://www.versionone.vc/favorite-investment-themes-right-now-ai-machine-learning/"><span style="font-weight: 400;">applications of AI/ML</span></a><span style="font-weight: 400;">,</span><span style="font-weight: 400;"> but starting January, we’ll begin writing more about </span><span style="font-weight: 400;">these new themes with the hope of stirring up new dialogue about emerging technology.  If you’re enthusiastic about these themes as an entrepreneur, investor, or operator, please reach out!</span> <b>But until then...</b> <span style="font-weight: 400;">… </span><span style="font-weight: 400;">we thank our LPs, colleagues, partners, portfolio companies, friends, and followers, for their continued support this year.  We are fortunate to love what we do because of the people who make it worthwhile. </span> <span style="font-weight: 400;">Our best wishes to you and yours for a happy holiday season and here’s to an awesome 2017!</span> <span style="font-weight: 400;">- Angela &amp; Boris :)</span>

It has been a little over a year since we published our first handbook, A Guide to Marketplaces. And now, we’re pleased to announce that we have just produced our second eBook, “Understanding Social Platforms.”

<i><span style="font-weight: 400;">This is the fourth and final post covering speakers’ insights from our marketplace meetup held in San Francisco on October 20. If you haven’t already, check out previous posts detailing Andrew Chen’s (Uber) fireside chat on</span></i><a href="https://www.versionone.vc/growth-strategies-marketplaces-key-takeaways-fireside-chat-growth/"> <i><span style="font-weight: 400;">growth strategies</span></i></a><i><span style="font-weight: 400;">, Anthony Marino’s (ThredUp) talk on <a href="https://www.versionone.vc/move-managed-marketplace-model/">managed marketplaces</a>, and</span></i><a href="https://www.versionone.vc/growing-b2b-marketplace/"> <i><span style="font-weight: 400;">B2B marketplace dynamics</span></i></a><i><span style="font-weight: 400;"> from Shippo’s Mikhail Ledvich.</span></i> <span style="font-weight: 400;">The first challenge for any marketplace is to solve the initial chicken and egg problem of supply and demand. As a marketplace figures out </span><span style="font-weight: 400;">how to bring buyers and sellers together and builds liquidity, the virtuous cycle starts kicking in. A high number of quality suppliers attract more customers; then more customers attract more suppliers to join, until the growth of sellers and buyers quickly accelerates. The ultimate goal is that a successful marketplace startup grows into a big company.</span> <span style="font-weight: 400;">However, scaling up is a challenge for any start-up, and it can be particularly hard for marketplace companies. This is why it was so great to hear from </span><span style="font-weight: 400;"><a href="http://www.indiegogo.com">Indiegogo</a> co-founder <a href="https://twitter.com/gogoslava">Slava Rubin</a> on how Indiegogo grew by 1) expanding into different verticals and 2) expanding into different products. Here are some of the main takeaways from Slava’s talk.</span> <b>Expand into different verticals</b> <span style="font-weight: 400;">We always preach that marketplace and SaaS start-ups should find a niche, nail it, and then expand outwards. For eBay and Amazon, this approach worked especially well since there was some overlap between the buyer and supplier bases across different verticals. </span> <span style="font-weight: 400;">Film was Indiegogo’s first campaign category when the platform launched in 2008</span><span style="font-weight: 400;">. Filmmakers were an ideal target, since they needed capital to get their ideas on the screen. They also tend to be a very social group, and have video and cool perks to entice funders.</span> <span style="font-weight: 400;">Indiegogo worked very closely with filmmakers to create successful campaigns that went well past initial funding goals. They then figured out how to apply those best practices to other verticals, expanding into other markets like hardware gadgets, comics and personal causes.</span> <span style="font-weight: 400;">Slava offered these pieces of advice to marketplace founders starting today:</span> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">Start tight and gather a lot of information</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Don’t spread across verticals too fast</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Use data to identify popularity; don’t rely on your (or other’s) perceptions alone</span></li> </ul> <b>Expand into different products</b> <span style="font-weight: 400;">The other way to grow the business is by expanding the product portfolio. Uber was very successful in adding uberX to its original Black Car service. They unlocked more buying and engagement with a new product that addressed slightly different buying needs (a more affordable, everyday transportation option). </span><span style="font-weight: 400;">Slava gave some insight into how Indiegogo has expanded their products over time.</span> <span style="font-weight: 400;">First, they removed the deadline requirement in campaigns and created an on-demand product. It was a small change with a big impact. That new product now represents 35% of their business. It also keeps people on the platform for a longer period of time.</span> <span style="font-weight: 400;">Another big product development that formally launched in the days following our meetup is Indiegogo’s new</span><a href="https://www.linkedin.com/pulse/indiegogo-launches-equity-crowdfunding-today-slava-rubin"><span style="font-weight: 400;"> equity crowdfunding platform</span></a><span style="font-weight: 400;">, which lets entrepreneurs offer backers an equity stake in their projects and creations. Indiegogo is the first major crowdfunding site to take advantage of the new securities rule that took effect last May, letting ordinary, unaccredited investors back private companies. It will be very exciting to see what an equity-based model has in store for Indiegogo and crowdfunding in general.</span> <span style="font-weight: 400;">Slava’s advice on product changes:</span> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">Little tweaks can be very important</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Keep iterating the product, listen to users and track their behavior</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Learn from the feedback and data and keep iterating</span></li> </ul> <span style="font-weight: 400;">As Indiegogo shows, a marketplace can grow by expanding both its categories and products. But, you need to tighten the focus and show product-market fit first. Only then can you think about growth.  </span>

<span style="font-weight: 400;">A few weeks ago, one of our newest portfolio companies, </span><a href="https://www.abstractapp.com"><span style="font-weight: 400;">Abstract</span></a><span style="font-weight: 400;">, launched their Private Alpha. You can read co-founder Josh Brewer’s </span><a href="https://www.abstractapp.com/2016/11/01/abstract-private-alpha.html"><span style="font-weight: 400;">announcement here</span></a><span style="font-weight: 400;">. </span><span style="font-weight: 400;">Josh was previously the principal designer at Twitter.</span> <span style="font-weight: 400;">Abstract is building a common infrastructure to support the modern design workflow.  If you’re a digital designer, you’ve probably run into some or all of these challenges:</span> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">Your assets are disorganized and scattered across several places</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Multiple (and conflicting) copies of files create confusion</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">You don’t know who made an edit or why</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Feedback slips through the cracks and doesn’t get incorporated</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Inconsistencies creep into the work</span></li> </ul> <span style="font-weight: 400;">That’s where Abstract comes in. It helps with the “other half” of design work: managing changes/versions, documenting the work, and making sure everyone stays informed. </span> <span style="font-weight: 400;">As co-founder Frank Chimero </span><a href="https://www.abstractapp.com/2016/05/14/the-other-half-of-design.html"><span style="font-weight: 400;">explains</span></a><span style="font-weight: 400;"> "The majority of a design job is orchestrating the team, ensuring visual consistency, updating stakeholders, documenting decisions, interpreting feedback, and delivering the work for implementation. When you look at it this way, it becomes clear. We don’t need more visual tools. We need help managing our work and how design relates to the rest of the organization.”</span> <b>Why we’re excited about Abstract </b> <span style="font-weight: 400;">We’ve written about the rise of the </span><a href="https://www.versionone.vc/the-rise-of-the-vertical-reputation-graph/"><span style="font-weight: 400;">vertical reputation graph</span></a><span style="font-weight: 400;"> and how the </span><a href="https://www.versionone.vc/is-social-dead/"><span style="font-weight: 400;">enterprise</span></a><span style="font-weight: 400;"> is still a nascent area for collaboration. From these posts, it should be clear that we get excited about social and collaborative platforms where there are strong </span><a href="https://www.versionone.vc/our-refocused-investment-thesis/"><span style="font-weight: 400;">network effects</span></a><span style="font-weight: 400;">, virality and daily utility. Abstract fits all those criteria. </span> <span style="font-weight: 400;">In addition, Abstract is addressing a technically challenging problem. Unlike code where version control of text is relatively straightforward, product and design IP is locked up in inaccessible file formats (binary). This leads to a lack of visibility and inefficiencies in the design process and the product development lifecycle. </span> <span style="font-weight: 400;">So… if you are a designer and/or have led a design team, check out this new product!  </span><span style="font-weight: 400;">Abstract is currently only available for Mac and has robust support for Sketch files, with support for more file formats (Adobe) coming soon. If you are interested in learning more about integrating with Abstract, please contact info@abstractapp.com.</span>

<i><span style="font-weight: 400;">This is the third in a series of posts summarizing our speakers’ insights from the V1 marketplace meetup on October 20. Check out other posts detailing Andrew Chen’s (Uber) fireside chat on</span></i><a href="https://www.versionone.vc/growth-strategies-marketplaces-key-takeaways-fireside-chat-growth/"> <i><span style="font-weight: 400;">growth strategies</span></i></a><i><span style="font-weight: 400;"> and Anthony Marino’s (ThredUp) talk on <a href="https://www.versionone.vc/move-managed-marketplace-model/">managed marketplaces</a>.</span></i> <span style="font-weight: 400;">When we talk about marketplaces, we’re usually referring to B2C companies – eBay, Uber, Etsy, etc. But as anyone who is involved in B2C marketplaces knows, the dynamics governing B2C and B2B marketplaces are poles apart.</span> <span style="font-weight: 400;">The key factors in a B2C marketplace are typically availability and price. For consumers, there’s minimal risk if a transaction goes bad; for example, maybe you never receive your product and the marketplace reimburses your payment. But with B2B, the stakes are much higher: a bad transaction can hurt the business and reflect poorly on the purchaser.</span> <span style="font-weight: 400;">That’s why we were so pleased to have <a href="https://www.linkedin.com/in/mledvich">Mikhail Ledvich</a>, Head of Marketing at Shippo, discuss the unique dynamics and growth strategies for B2B marketplaces.</span><a href="https://goshippo.com/"> <span style="font-weight: 400;">Shippo</span></a><span style="font-weight: 400;"> (a portfolio company) powers shipping for businesses. They help companies compare shipping rates, print discounted shipping labels, and track shipments, with the goal of making shipping easy and affordable for everyone. </span> <span style="font-weight: 400;">In his talk, Mikhail offered three key bits of advice for B2B marketplaces:</span> <b>1. Remember that not every business is the same</b> <span style="font-weight: 400;">Marketplaces need to segment their customers and approach each segment accordingly. Enterprise customers require account management; these are the players that move the needle. The SMB/long tail should be self-served. These groups keep the marketplace liquid and allow you to scale up to work with enterprises later on. You also need to be ready to deal with a wide spectrum of buyer knowledge.</span> <span style="font-weight: 400;">Mikhail wisely noted that there’s a different dynamic here: in B2C marketplaces, power sellers often evolve from individual sellers who find success in the marketplace and then grow their business. But, in B2B marketplaces, large sellers are already present from the start.</span> <b>2. Add value to the transaction on </b><b><i>both</i></b><b> sides</b> <span style="font-weight: 400;">Marketplaces need to create the right policies and services that add trust and authentication for both sides of the transaction. B2B buyers are worried about unknown vendors (because again, there can be serious repercussions should a B2B transaction go bad). B2B vendors are concerned about cash flow, since payment cycles tend to stretch. If you can guarantee payment cycles, suppliers will line up to sell on your platforms.</span> <b>3. Standardize transactions</b> <span style="font-weight: 400;">Mikhail also emphasized the importance of standardizing transactions…ensuring that both parties feel they’re involved with a professional transaction rather than something conducted on Craigslist. Specifically, he recommended to make it easy for anyone to access information and recommend the best products/services to meet a customer’s needs. B2B marketplaces should also take advantage of the data they already have to eliminate steps (and friction) from the process.  </span> <span style="font-weight: 400;">These are important words of advice for any B2B marketplace; thanks to Mikhail and everyone who participated in our marketplace meetup.  </span>

<span style="font-weight: 400;">On October 20, we hosted a </span><a href="https://www.versionone.vc/recapping-v1-marketplace-meetup-sf/"><span style="font-weight: 400;">marketplace meetup</span></a><span style="font-weight: 400;"> in San Francisco. More than 75 founders and investors joined us for the event – and for those of you who couldn’t make it, we will be sharing some of the key insights and discussions from the event in a series of posts (check out our first post on <a href="https://www.versionone.vc/growth-strategies-marketplaces-key-takeaways-fireside-chat-growth/">growth strategies for marketplaces</a>).</span> <a href="https://www.linkedin.com/in/anmarino"><span style="font-weight: 400;">Anthony Marino</span></a><span style="font-weight: 400;">, CMO of</span><a href="https://www.thredup.com/"> <span style="font-weight: 400;">ThredUp</span></a><span style="font-weight: 400;">, gave a very interesting and well-received lightning talk on managed marketplaces. ThredUp offers a great case study on the importance of breaking away from conventional wisdom.</span> <span style="font-weight: 400;">First, some background on the subject. In our eyes, a “pure” marketplace just connects buyers and sellers, while a “managed” marketplace takes on </span><span style="font-weight: 400;">additional parts of the value chain to deliver a better overall experience. As we wrote about in our </span><a href="https://www.versionone.vc/marketplace-handbook/"><span style="font-weight: 400;">Marketplace Handbook</span></a><span style="font-weight: 400;">, the managed model can be a game-changer when dealing with high-value items. For example, when selling luxury items and cars.</span> <span style="font-weight: 400;">However, there are some very real downsides to building a managed marketplace. First, taking on additional tasks cuts into your gross margin and adds operational complexity. And, there’s considerable risk involved should you take on sellers’ inventory; if economic conditions change, you can end up sitting on inventory you can’t move.</span> <span style="font-weight: 400;">Now, enter ThredUp. ThredUp primarily deals with children’s and moms’ clothing – not exactly big ticket items. It’s a great market opportunity, because as any parent knows, it’s easy to over-spend on kids clothing and items are worn for only one season (or less). ThredUp moms started off taking photos and cataloging their clothing, but soon they didn’t want to do it any more. Photographing clothes is a hassle and too time-consuming when you have a hundred other things to do.</span> <span style="font-weight: 400;">To help support their users, ThredUp considered taking over these tasks. But, as Anthony described, they were advised against taking on inventory. It was too risky, too expensive, too complex. But, ThredUp considered the situation, knew how much their users needed some help, and went ahead with a managed model. Moms could “order a bag and throw their things in.” ThredUp took care of the rest. And guess what? Business took off again.</span> <span style="font-weight: 400;">Today, ThredUp has distribution centers around the country. Their employees systematically take photos, write up descriptions, and verify the quality of the clothing.</span> <span style="font-weight: 400;">Inventory quality and variety has improved…because it’s much easier for sellers to throw clothes in a bag than to sit down and catalog items one by one. ThredUp’s managed model unlocked new supply and made the marketplace even more compelling to buyers.</span> <span style="font-weight: 400;">The takeaway? Sometimes it’s okay to stray from the norm. In ThredUp’s case, they listened to what their users were asking and delivered on those needs, and only those needs. You don’t want to add costs by taking on more than necessary. ThredUp found a cost-effective way to move to a managed model and this move fueled their marketplace.</span> <span style="font-weight: 400;">The question to ask yourself is how much value can you add/unlock by managing parts of the marketplace and is it worth the added risk?</span>

<span style="font-weight: 400;">Last week I had the great pleasure of sitting down with <a href="https://twitter.com/andrewchen">Andrew Chen</a> for a fireside chat on growth strategies as part of the <a href="https://www.versionone.vc/recapping-v1-marketplace-meetup-sf/">Version One marketplace meetup</a>. More than 75 marketplace founders and investors attended the event – coming from as far as South Africa and Nova Scotia.</span> <span style="font-weight: 400;">As an investor and former founder, I know that scalable growth (and the pretty hockey stick graph) is the holy grail for every startup. And Andrew understands growth strategy as well as anyone in the industry.</span> <span style="font-weight: 400;">Growth hacking and growth teams are so commonplace today, at least inside Silicon Valley, that it’s easy to forget that “growth” (as we know it now) is a relatively new phenomenon. Just a decade ago, most software/cloud startups used a traditional model where product and marketing were siloed: product teams created the product and marketing drove people to the website to buy it.</span> <span style="font-weight: 400;">The evolution of the growth function changed this dynamic, mashing together product dev and marketing as integrated functions. About five years ago, we saw the early waves of growth – typically an individual or two (“growth hackers”) who were championing growth within product development. Today, it’s common to see entire growth teams and a dedicated growth PM.</span> <span style="font-weight: 400;">As part of our fireside chat, Andrew and I discussed some of the most important growth strategies for startups. Since it was part of the Version One marketplace meetup, we geared the conversation toward </span><a href="https://www.versionone.vc/marketplace-deck/"><span style="font-weight: 400;">marketplace companies</span></a><span style="font-weight: 400;">, but many points apply to software/SaaS startups as well. Here are some highlights from the conversation.    </span> <b>When is the right time to hire a growth person?</b> <span style="font-weight: 400;">When we think about this question, it’s important to remember that startups today fail due to lack of distribution and product-market fit - </span><b>not </b><span style="font-weight: 400;">because of technical problems that they were unable to solve. This means that growth needs to be baked right into the product idea from the start. The general path we like to see is: first, founders need to have insight into growth. Then, the startup needs to get strong product-market fit. And usually by Series B, startups start hiring a growth team.</span> <span style="font-weight: 400;">It’s important to see organic lift </span><i><span style="font-weight: 400;">first</span></i><span style="font-weight: 400;">, and then you can begin optimizing. It’s pointless to focus on A/B testing before there’s any kind of traction. Both Facebook and Uber started their growth teams really late in the game, but these companies had a lot of organic traction first.</span> <b>Best practices for growth: build your data infrastructure</b> <span style="font-weight: 400;">Whenever Sean Ellis (who</span><a href="http://www.startup-marketing.com/where-are-all-the-growth-hackers/"> <span style="font-weight: 400;">coined the term</span></a><span style="font-weight: 400;"> “growth hacker” back in 2010)  joined a company, he wrote it into the contract that the team needs to build proper growth monitoring dashboards and A/B testing platforms.</span> <span style="font-weight: 400;">Data is the cornerstone of the growth function. In order to optimize landing pages, sign up, and other user behaviors, you need data to find out what’s working and what’s not. There’s no silver bullet here. Growth teams need to invest significant resources to build the right infrastructure to experiment, monitor user behavior, tweak and repeat. It helps to have a KPI-driven mindset.</span> <span style="font-weight: 400;">Most growth teams begin with commercially available monitoring and analytics tools, but over time, companies that have really scaled end up building their own custom data infrastructure. That’s because every company has its own strategy and metrics that mean something to one company won’t necessarily mean anything to another. In other words, if you’re looking at generic metrics, you’ll end up with a generic strategy. Yet with that said, it’s unrealistic for a startup to have the resources and time to build out a custom analytics tool until they reach a certain level.</span> <b>Virality and marketplaces: generally low, but…</b> <span style="font-weight: 400;">Generally speaking, marketplaces aren’t blessed with intrinsic virality. Many companies try to spark virality – with promo codes or gamification – but these artificial strategies don’t scale well. To create true virality, you need to build something where the frequency of consumption is high. It won’t work if users only need to visit the marketplace once or twice a year.</span> <span style="font-weight: 400;">To get viral growth, a marketplace must give users a strong incentive to invite others onboard. The best incentive depends on the nature of your marketplace. Airbnb offers discounts for customers that bring in new guests/hosts. Dropbox offers more storage space when you invite others to join. Incentives don’t always need to be monetary; the key is to give users a better experience the more they tell others. For example, Facebook becomes more fun and meaningful as more of your friends join the platform.</span> <b>New platforms as distribution tools</b> <span style="font-weight: 400;">Every viral company is built on top of a larger, pre-existing platform. Facebook was built on top of .edu emails, and today, companies build on top of Facebook or Slack. If you’re building a marketplace, what social graphs are you building on top of? You can’t go it alone.</span> <span style="font-weight: 400;">Study how people are using today’s newest platforms, but within a historical context as humans haven’t changed (just</span><a href="https://www.amazon.com/My-Life-Advertising-Claude-Hopkins/dp/1478347333"> <span style="font-weight: 400;">read about Claude Hopkins</span></a><span style="font-weight: 400;">, an advertising pioneer back in the early 1900’s who used coupon codes to track response rates, tested different headlines/offers, and analyzed the data…sound familiar?).</span> <span style="font-weight: 400;">New platforms can drive significant growth for some time. For example, Zynga was originally built on top of viral Facebook channels. However, the window of opportunity is very small: pretty soon either the platform will wake up and limit the free traffic or competition will flood the platform, making it too noisy.</span> <span style="font-weight: 400;">Right now, the most interesting platform out there is Facebook Messenger; we’ll all be doing more and more within the chat window in the coming year and there are certainly untapped opportunities to use Messenger as a distribution platform.</span> <span style="font-weight: 400;">If there is one main takeaway from our discussion, it’s that growth isn’t something you can just bolt on when you’re looking for funding or to reach a new level. You have to holistically think about your product, distribution platform, and virality from the start. While your data infrastructure and growth team will get more sophisticated as your company grows, it’s still critical to lay the foundation early on. </span>

<span style="font-weight: 400;">Last Thursday, we hosted a private marketplace-themed event in San Francisco, </span><b>The Holy Grail of the Marketplace: The Virtuous Cycle</b><span style="font-weight: 400;">. </span><span style="font-weight: 400;">More than 75 marketplace founders and investors attended the event – coming from as far as South Africa and Nova Scotia.</span> <span style="font-weight: 400;">We initially started bringing the marketplace community together when we published our </span><a href="https://www.versionone.vc/marketplace-deck/"><span style="font-weight: 400;">Guide to Marketplaces</span></a><span style="font-weight: 400;">. And nights like these prove that this space is just as dynamic and promising as ever. We learned of many awesome new marketplace concepts, and it’s great to see that both investor and founder interest remain high. There was a great lineup of speakers, some very stimulating side conversations – and I was continually reminded how important it is for everyone to step back from the day to day and get together in person. </span> <span style="font-weight: 400;">Some highlights of the evening included: <a class="zem_slink" title="Slava Rubin" href="http://www.crunchbase.com/person/slava-rubin" rel="crunchbase">Slava Rubin</a> (</span><a href="https://www.indiegogo.com/#/picks_for_you"><span style="font-weight: 400;">Indiegogo</span></a><span style="font-weight: 400;"> - a V1 portfolio company) talking about how to expand LTV/marketplace size over time; Mikhail Ledvich (</span><a href="https://goshippo.com/"><span style="font-weight: 400;">Shippo</span></a><span style="font-weight: 400;"> - also part of the V1 family) discussing how to grow B2B marketplaces (it’s very different than B2C marketplaces); and Anthony Marino (</span><a href="https://www.thredup.com/"><span style="font-weight: 400;">ThredUp</span></a><span style="font-weight: 400;">) talking about moving from a pure marketplace to a managed marketplace.  And we were fortunate enough to have a fireside chat with</span><a href="http://andrewchen.co/"> <span style="font-weight: 400;">Andrew Chen</span></a><span style="font-weight: 400;">, who runs growth at <a class="zem_slink" title="Uber (company)" href="http://en.wikipedia.org/wiki/Uber_%28company%29" rel="wikipedia">Uber</a>. </span> <span style="font-weight: 400;">For those of you couldn’t join us, we will be sharing the insights from the evening in a series of blog posts over the next month, the first being a summary of growth strategies from Andrew Chen.</span> <span style="font-weight: 400;">Thanks to all who came out and spent their evening with us. We’re looking forward to more meetups in the future. </span>