You are hyped. What's next?
Updated: May 4, 2021
Last week, I went to Spain, first Barcelona, then Madrid, to get some facetime with some of our portfolio companies, and some entrepreneurs who are building exciting new ventures. As I said in a previous post, nothing beats in-person in my line of work. Even though it is an organizational pain these days, it is all about going where the great entrepreneurs are, and show your support... The next stop is Paris 🙌 So, ping me if you are around.
The Covid 'City Hype'
While in Madrid, one of the European cities with more moderate Covid measures, I met some fellow investors and entrepreneurs who have been spending some time here over the last month or two. During a dinner, a Portuguese friend suddenly said: 'Guys, hold on... our government just announced that the restrictions in Lisbon will be lifted nearly entirely. Let's spend some time over there!' The next ' City Hype' in the tech community was unleashed... In the end, 2 of the 6 people went to Lisbon.
This is a 30%+ conversion, acquired 100% organically. This is pretty sweet. The question now is: Will any one of these two people be so blown away by Lisbon that they will stay longer (or perhaps even settle and invest in some property?!), or, at least, come back more regularly in the future. Lisbon is a very cool city, so there is a good chance the city hoppers might really like the product...
Hype is one of the most powerful tools for startups to get visibility, and, as a result, solid early organic growth, in a specific community. The most recent poster child of this in the tech world is the audio social network Clubhouse. As most of you know, Clubhouse blew up within VC circles last year. Back in Q2 2020, invite-only and with reportedly only 5,000 users, it had already been hyped as the next Twitter or Snapchat by the media, and was able to raise its first big funding round. Beyond user acquisition, the beauty of all of this is that the company had created a hype wave within the very circle that would fund it...It is challenging to do branding better and get VC attention at the same time.
Usually, the shiny new toy syndrome lasts a month or two, at best, and then the hot new app crowd moves on. But for Clubhouse, the trend continued in the US, the app experienced the same hype in the European tech community in Q1 2021, and the company got more funding. While the hype finally seems to wear off, it has been quite a run. So, what's next?
Ok, great, you are hyped. What's next?
'Hype helps your visibility, but when the sizzle stops if the steak is not good, the client won’t eat it.' At the end of the day, it is a balancing act. Hype is a powerful shortcut that is difficult enough to create, so let's not waste the opportunity. If you have a good product that provides users with enough value, the right amount of hype helps a lot. Otherwise, the community will leave disappointed, and it will be tough to get them excited again, at best. At worst, these users could even turn against you. For some companies, hype can work right from the start (e.g. for a social product such as Clubhouse with one core feature and no monetization needs early on); for others, it is better to wait for post-Series A, or even Series B. One European company that does a great job is Sorare, the global fantasy football game where players can trade and play with official digital cards. Every couple of weeks, they add new soccer clubs to their trading platform, promoting it extremely well. Finally, some companies, such as Skype, a portfolio company from our first fund, or our current portfolio company Durcal don't need hype. The product and its viral features alone do the job.
So, in the wake of the hype, many users will churn, of course, but you will also have built a loyal user base who will be a fraction of your total users. 30% is usually best-in-class. If you keep more than that, your product is excellent. So, if one of the two people who went to Lisbon comes back more often in the future, the city would have done a tremendous job. 'If you kept 10% or less, you’ve got a problem. In between those numbers is where most entrepreneurs land after the hype is over. The thing to do is focus on those who remain, service them incredibly well, and start building from there. Forget about the hot app crowd. They may or may not be back. Your loyal users will'.
This is one area of business building where being a startup helps. Hype is a core part of how many startups get off the ground, and get people in their small, often geeky, community excited about the startup's insight(s) on how the future will look like. Once hyped, the startup has nothing else to do other than being laser-focused on the product and its community. Big companies have to deal with a much more extensive and diverse user pool. Pressure from these users can make them lose patience and focus, and, as a result, will kill things off before they have had a chance to develop.
Hype is a powerful force for startups. And I am impressed by the recent examples of it. I will make sure to think more about leveraging it well with my startups in the future.
The 'hot' companies come and go.
You can’t create lasting value on hype. Hype gives you a boost for sure but, at the end of the day, the product wins, and that is where all entrepreneurs must focus, particularly when the hype cycle ends. The worse part of hype is when some VC firm funds you based on initial hype, allowing you to continue the hype. And 2nd bad thing about hype is that it inflates multiples for valuation. Often VCs tilt their investments towards what’s 'hot', another term for hype, instead of doing their homework to see beyond the mountain of hype. Make sure you choose investors that love your team and product, and not just the short-term hype...
This week are the Madrilenian regional elections. The atmosphere was buzzing in the city. Here is a picture from the Puerto Del Sol square in front of the Major's office... I will also get vaccinated this week in Luxembourg. It is great to see the European vaccination engine catch up with our friends in Israel and the US. Here is to a better summer 2021!
Life is awesome,
Other content I found useful
- Here the announcement of one of our latest investments, Affogata. There is only one boss: The Customer... Affogata's tech brings the relevant voice of existing and future customers from all types of external resources to each stakeholder in an organization, attached to clear KPIs. It sounds a bit like magic, and that's why we like the company so much. Everyone in a company can now have a clear impact on the organisation's topline, while having a better overview of the effects of each activity. The startup helps already players such as Fiverr, Wix, and a dozen other major brands understand what the market thinks about them before anyone else does... If you have a company, check it out.
- Our company Cyberhat raises a $15M Series B. Their product Cyrebro is crushing it. It is the first technology-agnostic cloud-based security operations center (SOC) that is pioneering the SOC-as-a-Platform model. In short, SMEs and enterprises all over the world can now have access to the best-of-breed cybersecurity resources to quickly respond to and mitigate cyber threats, transforming how businesses run their security operations.
- Velocity and VC: 11, a fantastic post by Jeff Bussgang on the tech investment velocity during Covid. What’s changed in this pandemic is that the velocity of our activity has dramatically increased due to the systemic removal of any modicum of friction that might have existed in “the old days” up until March of 2020. There are many obvious upsides to this increase in velocity, but there are many downsides. Forget that VCs and entrepreneurs are working harder than ever (whine away, my friends — I hear the violin music now). What really concerns me is the sloppiness that results in increased velocity...
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