If you’re a fan of beautiful products, or have had to think about customer engagement, and support for your business in the last five years — you’ve likely heard of Intercom. And if you haven’t heard of Intercom, you’ve probably heard the deluge of customer love that follows it around.
The big question is why? What has Intercom done that makes it so special?
Customer support and engagement was not a new concept when Intercom launched, but it is no surprise that it was done poorly for so long despite advancements in cloud technology and cloud software design. About a year ago, Intercom publicly shared a blog post sharing parts of their journey since founding the company. These included: growing from $1-$50M ARR in three years, maintaining their incredible world of mouth growth with 99% of new customer growth still being inbound, and passing 100k monthly active users. Additionally, they just announced a $125M round to grow their platform. These metrics are incredible, but I believe there is something deeper, and more special about Intercom that has made it successful today. I’d distill it to three core tenants: simplicity, transparency, and culture.
(1) SIMPLICITY — Stay true to the vision from Day 1: I still remember the first time we met Eoghan McCabe, co-founder and CEO of Intercom, in late 2013. We had been fans of the product from afar and had heard raving reviews from a vast array of companies for the last few months. Intercom’s vision was incredibly simple: make internet business personal. Eoghan asked, if software is the future of work, why is it so hard to use, and so impersonal? Intercom wanted to build a product, which when used felt like you were talking to the owner of a coffee shop in your neighborhood, a business you had known for years: simple, intuitive, warm — but also equipped with answers and results.
Why shouldn’t every customer engagement feel that way, if the software can be both powerful and elegant? This original vision was central to Intercom’s viral adoption, and despite a rise of competitors who are now picking off small verticals within customer engagement, Intercom’s strength in balancing strong customer brand with targeted actions (messages, inbox, articles), remains unchanged.
(2) TRANSPARENCY — You’ve got to get personal to build a personal product: Last year, I attended the last stop of Intercom’s 2017 World Tour in San Francisco. The tour was a series of events hosted in several cities around the world where Intercom employees would give short TED-style talks to their large community of users and fans. You’d think the talks were about how to best utilize Intercom within your company, or how using Intercom could lead to high ROI. Wrong! These talks were all about the mistakes Intercom has made — and what it learned from those mistakes. I still remember how I felt walking into the venue. It was nothing like I expected. Intercom fans stood outside the venue in long lines waiting to get checked in — they weren’t there for a meeting, or to close a sale — they had showed up on a weekday evening to gather around and listen to a company share their ups and downs over the last few years. When people line up for Apple’s WWD, it’s a summation of all that is great at the company. Products and presentations are perfected over years to project the best version of the company for a short few minutes.
But Intercom does it differently — they know that the new generation of founders and users want to talk about the hard parts of internet business — the times when they hired the wrong people, or launched a product at the wrong time. How could Intercom sell software that made business personal, without getting personal themselves? Megan Sheridan of Intercom says it best in her blog post: “History isn’t romantic. Success is never pure. This is our messy, true story.” Users showed up because they knew Intercom would give them a glimpse into what happens on the “inside.” It sounds cliché, but there was magic in the hall — no one was checking their phones, there was a fervent energy and excitement that is so deeply lacking in broader Silicon Valley today. Here’s a glimpse of that night.
3) CULTURE— Don’t forget the passion, art, and creativity: 2017 was an interesting year politically. Lots of communities banded together to fight for universal rights that were under threat. Emotions flared, several tech companies made bold statements in protest, but few, if any, took action. Intercom was, again, different. I still remember when Eoghan authored a post right after the purposed Muslim ban in late January 2017. There was no way he and the broader Intercom team would stay quiet while the very dream that brought them to the United States could be taken away from other immigrants, destined to create the next Intercom, or Facebook, or Google. He offered to help immigrants relocate to Dublin (where the engineering and product teams of Intercom were headquartered.)
The post was bold, brave, and inspiring — and when most of the highly powerful, resource rich companies in Silicon Valley touted what their PR firms told them to say — the team at Intercom took real, unscripted action. I’m sure every employee at Intercom, regardless of race and gender, felt taken care of that day, and worked a little harder, knowing that the company they dedicated a large part of their working day to, had their back. Little moments like this go a long way for culture — they contribute to it in ways that free gym membership, or extra salad toppings simply can’t.
Eoghan said it best in a blog post:
“We still feel like outsiders in Silicon Valley and the SaaS industry. We’ve stayed skeptical of the Valley playbooks, or at least never thought we could make them work for us. And in a time of excitement for things like artificial intelligence, we’ve been more interested in facilitating authentic connection (our mission being to make business personal). We’ve tried to put passion and art and love and creativity ahead of revenue and valuation and buzz and traction, discovering that the latter can often follow the former.”
I hope the broader Silicon Valley community can learn a bit from Intercom’s playbook. I’m incredibly proud to be a very small part of their journey.
It is rare to hear that phrase in Silicon Valley these days. What is it that Facebook cannot do? Not much.
When Facebook launched Instagram stories a few months before Snapchat’s IPO, many critics believed Snapchat’s meteoric growth was over. Instagram stories was Facebook’s 2nd attempt (the first being Poke, which was an utter disaster) to glean users away from Snapchat. How would Snapchat compete now, everyone wondered?
For me, the answer was easy. Facebook would not be able to compete on products that fundamentally disregard the ethos that Facebook is built on - a more open, and connected world (read: the proliferation of content existing on your social mantlepiece forever.) Key words here are “proliferation” and “forever.”
Facebook’s entire advertising thesis is built on having the best repository of data on each of its users. This data is a combination of all the content we have chosen to share with Facebook over time - what we like, where we went on Tuesday, and the 34 albums we shared over the years. Facebook needs to continue to incentivize its users to keep on producing content to keep our online data fields fresh. That’s where all their dough comes from. So, like I said before, proliferation is key.
Forever, is the second important moat. Half the reason I am still on Facebook is because it is nostalgic. I joined Facebook in my last year of high school and it has kept my memories of a decade or so online. These are memories I hold dear and I’d have to wade through thousands of pictures in my hard drive to relive some of those memories. Snapchat just doesn’t have that access to my nostalgia.
When Instagram skyrocketed to fame, Facebook got the signal that proliferation was not resonating with everyone anymore. The thoughtfulness of an Instagram post was the “signal in the noise” that users craved. In its best move to date, Facebook acquired Instagram - and the rest is history. Instagram became Facebook’s hottest property and the social real estate of the future. But there was a key problem - the ethos of both companies could not be more different. Proliferation of unthoughtful content was the antithesis of Instagram and the social laws of Instagram dis-incentivized most young millennials to post more than once a day. (Ask a young teenager how much of a faux pas it is to post several times a day!) These social laws kept Instagram fresh and still beloved by its users, despite Facebook’s ownership.
But ultimately, the Facebook culture would reign. In the last few months, Instagram has launched product features that are antithetical to its ethos. You can now post several pictures in one Instagram square AND post live stories - a complete Snapchat ripoff. The once hipster real estate feels like its being auctioned off to “the man.” Cue the social noise, and ugly ads.
Facebook is back-tracking on its once brilliant move - to let Instagram be Instagram. Now, Instagram looks like a disruptive construction site. A filtered sunset picture, a stream of five birthday party shots, and a live video of a blogger walking to get coffee. There’s too much going on. Luckily, Snapchat has the best seat in the house to watch this unfold. They will continue to do what they’ve always done - build a platform that goes against Facebook’s grain.
Snapchat has built a platform that caters to the new millennial. The millennial that doesn’t care about forever, or album making. The millennial that produces so much content that a “decade ago” means nothing. To these millennials, Snapchat is the platform that stayed true to itself, the new conversation stream for close family and friends- unfiltered, raw, and fresh (dog ear filters and all.)
Facebook just can’t compete on this front (this being: unfiltered, easily created content that won’t last forever) without dismantling the brand they spend 10+ years building.
That’s right. TV can thank social networks for its meteoric rise. Its not a new observation that TV “is in its golden age.” There is more TV content than there ever was before. Research shows that in 2015, 409 scripted TV shows aired on broadcast television (a 94% increase since 2009.) Most critics attribute this increase to the democratization of content through large players like Netflix and HBO Go. Their theory is - TV can be accessed more easily through a number of new mediums so more viewers can watch it. While I agree with that, I believe there are more influential elements at play.
The Case for Frequency: Facebook, Instagram, and Snapchat thrive because they encourage consumers to post content on a daily basis. Gone are the days where consumers spend time waiting to create content on a weekly or monthly basis. Frequent content is considered better content. As a result, we have come to expect this same frequency in what we consume. The average consumer now prefers 45-60 minutes of content frequently, rather than 90+ minutes of content infrequently. And the frequency engenders more addiction - a strong parallel to “following” our favorite content producers on Instagram or Snapchat.
Stronger Word of Mouth Dynamics: Before the rise of social networks, word of mouth depended on physically seeing someone. All types of content benefitted from strong word of mouth dynamics. For example, if you watched a great TV show or a great movie you’d be sure to tell a friend in school or a colleague in the workplace. Today, social networks exponentially increase word of mouth dynamics. You don’t have to wait to tell someone in person - you can tell them through the three social media channels they follow you on! And even better, it is no longer a 1-1 exchange, but a 1-to-many exchange. So why is this better for TV than for movies? The average person sees five movies a year. Those are five opportunities to highly recommend a movie to your friends and family through social media. TV is different. We watch more TV a month than movies a year - which gives more ample opportunities to talk about it.
Proximity to the Consumer: Prior to social networks, both movie and tv writers had limited exposure to what consumer’s wanted. They could set up focus groups, analyze which movies performed better in the box office, or debate which actors and actresses had a larger fan base. While helpful, they had little to no access to the consumer. Today, not only do we have shorter attention spans, but our opportunity cost for accessing different content is drastically lower. But social media has helped TV writers and networks access the consumer. Shonda Rhimes does a particularly good job with this through live-tweeting her shows and encouraging her actors to have a strong social media presence. This creates unconventional closeness to the consumer, which incentivizes them to come back again and again.
I’ve been increasingly impressed with Snapchat’s growth over time and its experimentation with revenue. As a result, I wanted to deep dive into its probably paths of monetization and the pros and cons. This is a lengthy read, but if you’re a nerd like me - I think you’ll enjoy it. Please comment or ping me if you have thoughts. Happy reading!
Why Now? Why Snapchat?
Many critics questioned the rise of Snapchat amidst large social media behemoths like Twitter, Instagram, and Facebook. No one expected users to crave another way to share photos with friends with the multitude of options that already existed. However, with the continued advancement of data tracking methodologies, users are smarter about their online presence and have more questions around what is stored or leveraged for advertising purposes. In the last decade, Facebook was disparaged in the media for being opaque about their tracking methodologies and making privacy settings intentionally hard to alter. Snapchat attracted users based on their ephemerality feature alone, a feature that Facebook was essentially barred from leveraging (given the copious amounts of revenue derived from advertisers who depended on this level of data on Facebook’s users.)
Today, consumers have a number of messaging and social apps to choose from – indicating a high degree of multi-homing and an unlikelihood of the market ever tipping to a winner-takes-all. As a result, multiple players will likely continue to exist on the global and local level and the question will shift from “how can I be number one?” to “how can I capture the most share, revenue and engagement amongst users?” While Snapchat has 100M daily active users compared to Facebook’s 1.01BN (as announced in its 3Q15 earnings),(1) Snapchat’s user base is the fastest growing of any social network. In 2014, GlobalWebIndex reports that Snapchat not only has a strong % of teens on its platform but also grew 57% in 2014 vs. the next closest competitor – Facebook Messenger at 50%. Now, defined as a formidable competitor to other social media players, Snapchat must appease financial stakeholders through a clear monetization strategy that does not alienate their strong, engaged user base nor strengthen their competitors.
Snapchat’s Rise to Prominence
When Snapchat first rose to prominence, it conveniently avoided comparisons with Facebook, and ultimately used its stark differences as a competitive strength.
First, Evan Spiegel avoided the media and focused only on quietly engaging the young demographic that had started to virally adopt the app. In fact, up until late 2013, Snapchat was oft in the media for being a new app that young teens were using to send “sexting” messages to each other. The Guardian, aptly claimed that it was: “Snapchat’s quiet revolution that meant people assumed it was for illicit purposes.”(2) For a long time, he didn’t even correct the media’s assumption that Snapchat was trying to be more than a “sexting” app.
Facebook had built its brand on sustaining a platform that would make the world more open and connected. Users were encouraged to update Facebook with major life events and share moments with friends that would last forever. Ephemerality was the last thing Facebook wanted to convince its users to do. Professor Yoffie, of Harvard Business School, writes in “Judo Strategy”: “Competing with a stronger player at what he does best is a losing game. But every champion has areas where he is weak, often precisely because he has invested so heavily in his core strengths.” (3) There was very little Facebook could do to counter Snapchat without risking its own “core strengths.” As a result, Facebook made a famous bid to acquire Snapchat for $3 Billion, which enthralled and excited tech media reporters and clearly made Facebook appear scared and vulnerable to Snapchat’s “attack.”
Did the Unicorn become a Unicorpse? Investors Put Pressure on Snapchat
Snapchat enjoyed a long honeymoon period as it rose to social media prominence, competing with the likes of Facebook, YouTube, and Twitter. In 2015 alone, Snapchat raised more than $1B in venture capital money and its valuation grew from $70M in early 2013 to $16B in May 2015, a whopping 22,757% increase in just over two years.(4) In documents leaked to Gawker on August 19th 2015, Snapchat purportedly made only $3 million of revenue but lost $128 million in 2014.(5)
Today, Snapchat is trying to be two, radically different companies at once. On the one hand, Snapchat is the antithesis of Facebook – a large part of its content disappears and it hopes to make money through creative means like virtual goods and native content rather than traditional ads. On the other hand, it is evolving into another Facebook, doing whatever it can to satisfy advertisers at the expense of its users. Snapchat must pick one sustainable monetization path to scale. If unable to do so, Snapchat threatens to scare away both advertisers and users alike.
Strategy 1: Copy Facebook’s Strategy
Snapchat’s monetization strategy has been multi-faceted. Snapchat has consistently tried various methods like Branded Geofilters, and Ads within Live Stories to monetize so that it does not have to build out a robust data analytics platform like Facebook had to in order to position itself favorably with traditional advertisers. However, without data tracking today, Snapchat’s advertisers are not getting the specific targeting they have come to expect from large social media players, leading Snapchat to have to slash prices from $700K per day just a year ago to under $100K.(6) Today, Snapchat retains photos and videos on its servers until the content is viewed and then deletes it, with no real ability to analyze the user data collected. Comparatively, Facebook’s data tracking infrastructure has gotten stronger. In 2013, Facebook built a homemade query engine called Presto that allowed it to analyze a “250-petabyte-and-growing data warehouse.” A Facebook engineer, Martin Traverso, said in a Gigaom article that “more than 850 Facebook employees use Presto every day…scanning 320 TB each day.”(7)
Second, without a traditional data tracking platform, Snapchat has had to think of creative new ways to advertise which have, in turn, ended up confusing all sides of the platform by diluting the user experience. Originally, Snapchat only had a 1:1 messaging functionality; Today, Snapchat offers 1:1 messaging, Discover Content (featuring 18 publishers), and daily Live Stories. When choosing how many sides to bring on board on a multi-sided platform, Snapchat has attracted too many sides, which has led to confusion and complexity.
Third, by embracing Facebook’s strategy, Snapchat does not have to make dangerous design and pricing decisions that it may have to write off in the future. One example of such a decision was the recent introduction of the Snapchat “Replay” feature for $0.99. Traditionally, users could replay one Snap a day for free. Now, by allowing content consumers to replay content for a price, Snapchat is threatening to anger its content generators, indirectly incentivizing them to create less un-edited and authentic content.
Strategy 2 – Avoid Tit-For-Tat: Leverage Strengths and Build Complements
Rather than match their competitor’s moves, Snapchat should “avoid tit-for-tat” and continue to play to its strengths. Snapchat has the most engaged user base with a unique hold on a young target demographic.
First, while Snapchat’s monetization strategy does not offer granular data or clickable advertising to date, it boasts other important advantages that competitors do not have. Recent surveys have found that consumers 13-24 watch an average of 11.3 hours of online videos per week as opposed to just 8.3 hours of broadcast with 62% reporting that digital content makes them “feel good” compared to just 40% for TV.(8) Snapchat has ushered in this digital shift from online video to mobile, and can continue to charge hefty prices for this engagement. Snapchat’s digital content only lasts for 24 hours, which incentivizes users to view and engage with it more, given its “fleeting” nature. “That one-day life span creates an urgency that’s unprecedented in today’s distraction-filled world. If your email inbox was going to disappear in 24 hours,“ said Danielle Mullin in a FastCompany interview, VP of marketing for ABC Family, "you would feel the need to actually read every single email. That’s the genius of Snapchat.(9)
Second, Snapchat’s 3V is well positioned with purely Vertical content, which is “made for mobile – allowing up to 9x the completion rate compared to horizontal mobile video, featuring immersive full-screen Video content, and Views that are full-screen and 100% viewable.”(10) When an ad is shown, users must view the ad in its entirety because it takes over the screen, rather than existing on the sidebar or the bottom of the page where it can be overlooked. The format itself can command higher prices from advertisers despite the lack of sophisticated targeting. Additionally, while users have the option to skip over Snapchat ads right away, the company believes it can provide more nuanced data to its advertisers who would know for sure if an ad was viewed or not. With traditional advertising, brand partners pay for ads but often do not know if they were watched all the way through.
Recommendation
I believe that Snapchat must continue its current strategy and play to its strengths for the following reasons: First, despite Facebook’s size, Snapchat has better excelled at captivating a younger audience. Snapchat is unique in that 60% of its users are under 24 years old and 86% are under 35 years old. Meanwhile, according to comScore, Facebook has the lowest user percentage under 34 years old at 38%.(11) Snapchat has the unique ability to reach a sub-segment of young adults that have become “less interested and more difficult to connect with, capture attention, impress, convince and entertain.”(12) Given short attention spans, increased usage of multi-tasking, and multiple forms of media available, advertisers are constantly struggling to get in front of millennials – a demographic that they are willing to spend 500% more on.(13) Over 65% of the total monthly minutes spent on Snapchat are consumed by those under 24 years old – roughly triple the consumption rate seen across the “Total Internet” according to comScore.(14)
Second, as of May 2014, 700 million snaps are shared each day(15), suggesting 8-10 snaps per average monthly user each day – a very high daily engagement rate. Despite being the youngest company in comparison to WhatsApp, Facebook, Instagram and Flickr, Snapchat comes out on top in terms of photos shared per second per user.(16) Thus, even though Snapchat does not offer what traditional advertisers have come to expect from social media apps, their engagement stats still attract enormous attention. In November 2015, Snapchat announced that 6 billion videos are viewed daily on its app – 3x its rate in May 2015 and just 2 billion shy of Facebook’s 8 billion videos.(17) Specifically, as reported in Fast Company, “advertisers find Snapchat’s demographics and traffic enticing enough.”(18)
Third, while Snapchat began as a multi-sided platform for just two sides (content creators and content consumers), it has allowed more sides onto the platform over time. These sides include content partnerships with media companies, branded virtual goods, and traditional advertising within content. While there are serious drawbacks to attracting too many sides due to the “risk of creating too much complexity and…conflicts of interest between the multiple sides and the MSP,”(19) there are powerful strategic and economic advantages. More sides to the platform engender larger “cross-side network effects”(20) especially when combined with the ownership of powerful and profitable complements such as Snapchat’s recent acquisition of $1 lenses. By continuing to stay the course, Snapchat is evolving into a platform play rather than a product play – encouraging complementary sides to bolster network effects and preventing competition from infringing on its success. A great early result of Snapchat’s platform advantage was the failure of Poke, Facebook’s Snapchat rip-off that gained little steam with users. If Snapchat only focuses on its core product, opponents can attempt to release more innovative or similar products. But a platform has higher barriers of entry that are harder to imitate.
The fourth and last advantage of staying the course and avoiding Facebook’s strategy is that Snapchat can maintain the leverage it used to first rise to social media fame. Spiegel often mentioned how he wanted to change the social media ecosystem to become “more like a conversation”(21) rather than a pedestal piece where we share only the best parts of our life. In “looking forward” to the future to recreate in-person real-life communication, avoiding Facebook’s strategy allows Spiegel to “reason back” to actions necessary to create products committed to this vision. In mimicking Facebook’s strategy, Spiegel would be building a product that did not meet his vision for Snapchat’s future. He would have to start building a robust data analytics platform, one that went directly against his vision for the future of Snapchat - an authentic conversation driver. This move away from the Snapchat brand could scare away young users who have grown fed up of Facebook’s NSA-like qualities. A robust data analytics platform would also counter Snapchat’s often contested privacy policy, a move that could be terrible for Snapchat’s public image. Today, Snapchat’s privacy strategy reads: “Snapchat captures what it’s like to live in the moment. So in many cases the messages sent through our services are automatically deleted from our servers once we detect that they have been viewed or have expired. And again in most cases, the services are programmed to delete a message from the recipient’s device once it’s been viewed or expired as well.”(22) Following Facebook would be a complete 360 degree reversion of these principles, and would incentivize Facebook to strike back. Today, with privacy as Snapchat’s number one goal, Facebook is left vulnerable and unable to change, especially given their millions of dollars of investment in tracking infrastructure.
In conclusion, I believe Snapchat should stay the course and avoid embracing Facebook’s strategy. Snapchat has re-defined what it means to interact with others on mobile, and will continue to push the boundaries of monetization strategies, without discounting the core user.
Note: This blog is an excerpt from a term paper my colleague Ariana Fahrney and I wrote for a Science & Technology Strategy class at Harvard Business School.
This semester I thought a lot about Facebook and its stellar financial performance. But I have often wondered why Facebook doesn’t have a special innovation team a la Amazon’s “Lab126″ or Google’s “Google X”?
With more than 1B monthly active users today, Facebook’s research and development teams should be in A/B testing heaven! There are so many areas such as e-commerce and workplace communication that Facebook can work to encompass through trial and error, rather than waiting for other well-funded startups to “verticalize” a user’s needs.
While I admit, millennials prefer to utilize a number of different apps for different functions - I believe long term usage will still converge on one platform and Facebook is miles ahead of its next best competitor.
Facebook should put together a team of the best and brightest minds in the world, each of whom specialize in a particular sector or research interest. This team should include not only engineers, but also psychologists, artists, and bankers. Only a mix of all perspectives will help paint the blank slate of a future user’s needs.
Most of you know that I started Harvard Business School last fall, after spending 2.5 years as a VC in New York, and 2 years as Chief of Staff to a startup CEO in Silicon Valley. I also spent this past summer working on a longtime passion of mine - Launch X. We completed our first two classes in SF and NYC this summer, and have a lot of news to report back on what we learned. Stay tuned! More to come.
What has been missing from this blog is my time at Harvard. Unfortunately, my first year was a wonderful blur and I didn’t have much time to keep up with this blog. I’d like to change that this year and become more active in sharing my learnings with this community.
The great thing about second year at business school is that you get to pick all your own classes. One of the classes I chose was Digital Marketing Strategy. We learn everything from how to measure customer engagement, launch advertising campaigns, and design effective inbound and outbound marketing strategies. Today, my Professor shared his fascinating research around virality and what makes customers tick. Here are a few of his learnings:
1. Customer attention drops off in an online video when a brand logo is shown conspicuously. Today’s customer enjoys more subtle forms of advertising like Coke’s Happiness Factory.
2. Ending an ad with a brand logo may seem like the easy solution. Clearly, Apple is very successful with doing just that. However, advertising’s relationship with its customers is found to be more “Pavlovian.” If you wait to associate your story with a logo at the end of an ad, customers may not connect your story with your brand (yes! even after only 30 seconds!). As a result, its important to remind customers during the ad with subtle, non-obvious, logo reminders so that the “feeling” of the brand remains with them longer term.
3. Ads that produce high viewership do not necessarily produce high sharing. This is because most people think about how an ad they enjoyed reflects on them socially before they share it. Shocking humor (read: gross) often works for high viewership but doesn’t necessarily translate to high levels of sharing. Pure humor (read: joy, simple laughter) is more directly proportional to high levels of sharing.
4. Delivering humor over time rather than in the beginning or end of an ad is also important. Emotional rollercoasters resonate with customers.
5. Ads that are personalized or demand some level of engagement from the customer usually perform better. A great example is Old Spice’s personalized YouTube responses.
Note: Please grant my Professor the appropriate sourcing rights when referencing these findings in the future.
Our favorite thing in the world is getting texts from one Launch X Fellow supporting another Fellow. 👸🏽 // Got this amazing photo of @mvollum crushing the stage at an @ibm technology event from @operaqueenie. #womenhelpingwomen #launchXforever 👯🙋🏼
Launch X Fellows learning a bit of venture math with @nargz503 of #RothenbergVentures. #womeninVC #launchx #womeninSTEM #women #STEM #accelerator #funding #siliconvalley #bayarea #entrepreneurship #VC #sanfrancisco
Most of you know that I am back in California to kick start the inaugural class of Launch X - an idea that started off as a pipe dream and became a reality through the support of my amazing advisors and friends. Eight, incredibly talented female entrepreneurs will learn how to raise capital over the next four weeks in order to launch their world-changing ideas and share them with the world. Its been two days since I flew to the Bay Area from NYC and it feels like I never left.
What is it about this crazy, always sunny, place that keeps bringing me back? Of course, there is precedent for success, and nostalgia for my youth (go Card!); but is there an intangible “x factor” that other cities don’t have? Since high school, I have lived in several American cities: Palo Alto, San Francisco, New York, and Boston. New York is on the wish list for so many people chasing dreams, but how does it compare to the Bay Area?
A smart man once told me that New York is a place where you witness three insane things every day. An opera singer on the subway, a taxi driver barely missing a pedestrian in the heart of Times Square, or a ridiculous sunset on the Hudson River Parkway after being stuck in bumper to bumper traffic on your way home. At 21, nothing is cooler than consistent bewilderment - but as one grows older, it can start to chip away at you. Its heavy, its gritty, and its a rollercoaster of emotions everysingleday. You are forced into the ground and brought back up, and you live by Darwin’s survival of the fittest mantra. At the end of it - you seek stability, a new normal in order to get off the rollercoaster that has shaken you to your core.
The Valley is the opposite. Everything is good, and yet, everyone believes it can get better. There are rollercoasters, but ones you get on willingly. You are the driver and the passenger. The Valley is the home of the underdog; it is a microcosm of the American dream in its truest form. The excess in money/valuations and talk of the impending bubble burst seem to threaten that existence, but all who are part of the Valley believe in an invisible hand…a correcting force that is born off of another engineer’s garage dream. The Valley doesn’t believe in setting foundations; it believes in renewal.
And it is this very renewal that engenders creativity. Every time I am here, all my illusions of fear dissipate. Anything and everything is possible.
I am absolutely delighted to announce the beginning of Launch X, the first immersive program of its kind, that helps female entrepreneurs learn how to raise capital for their businesses. I have gotten a lot of questions of why I started this and what exactly I am hoping to achieve.
First, let’s talk about why.
No one disagrees with the fact that there is a gender problem in the Valley. As shown through research conducted by the Diana Project (a comprehensive study of more than 6k VC funded businesses), only 9% of total VC dollars invested went to companies with women on the executive team in 2011. This number increased dramatically in 2013 to 27%. While the growth is incredible, the percentage of total VC dollars invested in companies with a female CEO has remained static at 2.7%. Why is it so hard for female CEOs to raise money? Unfortunately, there is no proven root cause for the low percentage of VC dollars funding female entrepreneurs. Instead, there are a whole host of theories that contribute to this reality:
1. Fewer women have STEM backgrounds
2. VC firms have few, if any, female partners
3. Women are more risk averse and thus less likely to start companies
4. Women lack the mentorship that leads to better know-how on raising capital and navigating the VC process
The first theory is supported by data. Although women have half the jobs in the US economy, they hold less than 25% of STEM jobs. Additionally, women with a STEM degree are less likely to work in STEM related jobs compared to men with a STEM degree.
The second theory is also supported by data. In 1999, 10% of venture firms had female partners. In 2013, the percentage has decreased to only 6% of venture firms. But do we know that having more women in venture would lead to more female-founded startups? Yes, VC firms with women partners are 2x as likely to invest in companies with women in the executive team and 3x as likely to invest in companies with female founders.
The third theory, while touted most, is often the most refuted. In 1996, Hersch authored a study that found women made safer choices than men re: consumer decisions like seat-belt use and smoking behavior. Zahid Iqbal, in 2006, took a different approach and compared stock trading behavior between male and female executives in response to stock option rewards. Through a more financial perspective than previous studies, he found that male executives are “more risk averse by engaging in higher diversification-related stock sales than the female executives.”
Launch X is tackling the fourth theory. If we believe that more female partners at VC firms, and more women in STEM will lead to more female-funded startups in the long term, what can be done in the short term to make sure the increase in female entrepreneurs can also lead to an increase in funded startups? I believe closing the education and mentorship gap on how to raise capital is the appropriate short term fix. And that is where Launch X comes in…
What is Launch X trying to achieve?
I started Launch X to provide an immersive program that could teach talented female entrepreneurs how to raise capital. As a former investor, I am a strong believer that the best ideas will get funded, but today women and men are not on an equal playing field. Launch X makes sure that female founders are on an equal playing field when it comes to understanding different types of capital, and knowing how to approach and pitch to VCs – information that men often glean from strong mentorship circles with male founders and male VCs. Through the platform of Launch X, we make sure you are connected to VCs and founders who have been through the process and can provide in-depth and customized workshops.
A number of initiatives like women 2.0 have attempted to help female entrepreneurs succeed (See infographic below), but there is still enormous white space between organizations that encourage and support women to start companies and organizations that provide actual capital. This white space must be filled by platforms that teach women how to approach and access the available capital. The hardest bridge to cross is the first seed financing, without which even a great idea can’t become a great company (of course, bootstrapping your company is the most enviable route, but few entrepreneurs have that luxury.)
We are launching our inaugural class of 10 female entrepreneurs at the end of June and can’t wait to share the results. The deadline to apply is on June 15th 2015. Please pass on the message to amazing female entrepreneurs you know.
Note: The research on female founders and their access to capital is still incredibly nascent and there are a lot of angles to explore. The infographic below tries to accumulate some of this data into a “digestable” format. If you have ideas on further questions to explore, please leave a comment. I would love and welcome your help!
