20VC The Snapchat Memo Lightspeed's Jeremy Liew on The 4 Key Elements To Consider When Evaluating A Consumer Social Product, What is GoodGreatWorld Class For Retention, Usage and Downloads in Consumer Social Today & The Core Insight Development of Eva



In this episode of "20 VC," host Harry Stebbings interviews Jeremy Liew, a partner at Lightspeed Venture Partners, who led Snapchat's Seed round. Liew shares his journey of discovering Snapchat through a partner's observation of his daughter's changing selfie habits and his persistent efforts to contact the founders, which included leveraging his Stanford network via Facebook. He highlights the app's initial traction, with significant user engagement and retention rates, and reflects on the missed opportunity to invest further in Snapchat at a higher valuation shortly after the seed round. Liew also discusses the importance of a founder's product vision, citing Evan Spiegel's insight into ephemeral messaging as a cornerstone of Snapchat's success. He emphasizes the role of user culture in driving a product's adoption, even in the face of feature replication by competitors. The conversation also touches on the importance of young women as early adopters in consumer tech and how Snapchat's appeal to this demographic indicated its potential to become a part of pop culture.

Summary Notes

Introduction to "The Memo" Show

  • "The Memo" is a show that delves into the greatest deals of the last decade with the venture capitalist (VC) who led the early funding rounds.
  • The show focuses on the investment memo written at the time of the investment.
  • The investment memo for each discussed deal is made available on the 20 Minute VC website.

"It's the memo, our new show where we unpack the greatest deals of the last decade with the vc that led their early round. And the entire discussion is centered around the investment memo they wrote when they made the investment."

The quote explains the premise of the show, emphasizing the analysis of investment memos from significant VC deals.

Guest Introduction: Jeremy Liu

  • Jeremy Liu is a partner at Lightspeed Venture Partners.
  • He led the Snapchat Seed round.
  • Lightspeed's portfolio includes companies like Affirm, Snap, Mulesoft, and Epic Games.
  • Jeremy has sat on the boards of Snap, Affirm, Blockchain.com, and The Honest Company.
  • Prior to Lightspeed, he worked at AOL, serving as SVP of corporate development and chief of staff to the CEO, and later as general manager of Netscape.
  • Jeremy has been featured on the Forbes Midas list multiple times.

"I'm so happy to welcome Jeremy Liu, partner at Lightspeed and the lead for Snapchat Seed round."

The quote introduces Jeremy Liu, highlighting his role in leading the Snapchat Seed round and his position at Lightspeed.

Remote Work Solutions: Ripling

  • Ripling assists startups in automating HR and IT, particularly in managing remote teams.
  • It automates state tax agency registration and compliance with local labor laws.
  • Ripling's platform allows for quick onboarding of new hires, including payroll, benefits, and app setup.
  • They offer a service to ship work laptops with necessary software and security to remote employees.

"Well, ripling helps fast growing startups automate their hr and it and now they're making it super easy to manage employees and contractors anywhere."

The quote highlights Ripling's role in simplifying HR and IT management for startups, especially in the context of remote work.

Crypto Wallet: Exodus

  • Exodus is a user-friendly blockchain product with a focus on design and user experience.
  • It supports desktop and mobile platforms, allowing wallet syncing across devices.
  • The app provides instant cryptocurrency exchanges and portfolio performance tracking.
  • Exodus integrates with the Trezor hardware wallet for enhanced security.

"Exodus is building beautiful and user friendly blockchain products."

The quote describes Exodus's mission to create aesthetically pleasing and easy-to-use blockchain products.

Investment Platform: OurCrowd

  • OurCrowd allows accredited investors to invest early in startups.
  • Investors have participated in successful IPOs and acquisitions.
  • The platform is currently promoting investment in Nexa 3D, a 3D manufacturing innovator.
  • OurCrowd highlights the potential productivity and cost advantages offered by Nexa 3D.

"With rcrowd, accredited investors have access to invest directly, easily, and most importantly, early."

The quote explains OurCrowd's value proposition, which is to provide accredited investors with early investment opportunities.

Discovery of Snapchat

  • Jeremy Liu learned about Snapchat from his partner Barry Eggers, whose daughter used the app.
  • Snapchat was popular among high school students alongside Instagram and Angry Birds.
  • Jeremy initially did not understand Snapchat's appeal due to a lack of context.
  • After unsuccessful contact attempts via email and LinkedIn, Jeremy used a whois lookup and eventually reached Evan Spiegel, Snapchat's CEO, through Facebook.
  • Evan Spiegel responded to Jeremy's Facebook message because of Jeremy's profile picture with President Obama.

"So rather than selfies where she was trying to look pretty as possible and in beautiful settings, she was making weird faces and looking strange. And he asked her, like, what's going on? And she said, oh, dad, there's this new app that everyone's using at school. It's called Snapchat."

The quote provides the backstory of how Snapchat came to Jeremy Liu's attention through an observation of changing selfie behavior among high school students.

Persistence in Venture Capital

  • Persistence is key when seeking a meeting, especially for highly sought-after opportunities.
  • Young, hungry associates should differentiate themselves and persist despite challenges.
  • Jeremy's persistence paid off when Snapchat expressed a need for financing due to rising server costs.
  • Jeremy offered Lightspeed's help to cover Snapchat's server expenses.

"And so I do think you've got to try to find some ways to differentiate and to stand out and to keep trying, because for sure, if you give up, the answer is going to be no."

The quote emphasizes the importance of persistence and creativity in securing valuable meetings in the venture capital industry.

Importance of Young Women in Consumer Tech

  • Consumer tech has become more about the consumer and less about the technology.
  • Young women are early adopters of pop culture, including social networking, ecommerce, and streaming media.
  • Investments showing heavy usage by young women, even when not specifically targeted to them, are seen positively.
  • Snapchat's user base was 75% young women, indicating potential for becoming part of pop culture.

"And so one of the key questions that we think about when we look at a potential investment is, could this become part of pop culture? It's always a positive indicator when some of the early adopters of pop culture are heavily over indexed in using an app or an ecommerce store, when it's not specifically targeted to them."

The quote explains the strategic importance of young women as early adopters in consumer tech and their influence on determining an app's potential to become part of pop culture.## Market Evolution and Gender Dynamics

  • Young women tend to be early adopters of social platforms.
  • Women's social interactions often revolve around conversation, which facilitates word-of-mouth spread of pop culture.
  • Men's social gatherings often involve activities that limit conversation, reducing the spread of social culture.
  • Young women and the African American population in the US have been core early adopters across various social media platforms.
  • As people age and start families, their social interaction and ability to spread culture decrease.

"Women build their relationships through conversations, and they build those relationships through sharing information with each other. And obviously, that sort of conversation and relationship is a fantastic conduit for word of mouth, for anything that people really appreciate."

This quote explains the social dynamics of how women interact and the role this plays in spreading information and pop culture through word-of-mouth.

"It's always been young women who've been that first set of early adopters."

This quote highlights the consistent trend of young women being the first to adopt new social media platforms.

Snapchat's Market Development

  • Snapchat's growth was initially thought to be driven by word-of-mouth.
  • Early usage patterns showed geographic concentration, indicating strong word-of-mouth spread.
  • Snapchat's rapid growth in Norway was unexpected and showed the app's potential to transcend its initial demographic.
  • The app's popularity in Norway suggested it could become part of the broader pop culture.

"We had always thought that this was something that was genuinely spreading through word of mouth."

This quote describes the initial belief about Snapchat's growth mechanism, emphasizing the importance of personal recommendations.

"It had built a very, very large following in Norway, which had actually transcended that sort of high school and college age population."

This quote reveals the surprising and significant growth of Snapchat in Norway, which surpassed the expected demographic and became a top app.

Market Size and Business Model Considerations

  • The potential for an app to reach a broader audience is important for the business model, especially for advertising opportunities.
  • Snapchat's early adoption beyond young people in Norway was seen as a positive indicator for its future growth.

"The bigger the population, the broader the population, the bigger the opportunities are for advertising."

This quote underscores the relationship between market size and the viability of an app's business model, particularly for generating advertising revenue.

Snapchat's Early Traction and Metrics

  • Snapchat had a high user engagement with 90,000 daily active users from 180,000 installs.
  • Key metrics included 50% month-on-month growth, 50% dau to MAU ratios, and 50% retention after 90 days.
  • These metrics indicated that Snapchat was becoming a habit for users.
  • The investment decision was influenced by the app's potential to become part of pop culture, create new habits, and have scalable growth.

"That speaks to upside volatility. We look for four things when we're making an investment."

This quote explains the investment criteria used to evaluate Snapchat's potential, focusing on growth, engagement, and the formation of user habits.

Engagement Metrics and Market Saturation

  • Engagement metrics can vary as a product moves from its core market to less aligned audiences.
  • Messaging as a core use case has universal appeal, which may not diminish as the audience broadens.
  • The early adopter phenomenon with young women predicted wider adoption due to the scalability of messaging.

"That use of messaging is universal. And that's when we talk about kind of pop culture, and we talk about a set of young women as early adopters that are not a niche, but early adopters."

This quote discusses the universality of messaging as a function and how the early adoption by young women can signal broader market potential.

Benchmarks for Consumer Social Space

  • Benchmarks for engagement and retention vary depending on the product type.
  • Messaging and social networks require a response, leading to different engagement levels compared to social media.
  • Good benchmarks for messaging and social networks would include high engagement and retention rates.

"I draw the distinction between social media and social networking as to whether or not a response is required."

This quote clarifies the difference between social media and social networking, which impacts the expected engagement and retention benchmarks.## Investment Metrics and Excitement Around Snapchat

  • A high dau to MAU (daily active users to monthly active users) ratio of over 50% is indicative of a successful platform.
  • A d30 (day 30 retention rate) of 30% to 40% is considered exceptional for engagement and retention.
  • Snapchat's metrics exceeded these benchmarks, which was a significant factor in generating investor excitement.
  • Being open to anomalies and quick to respond to outliers can be more advantageous than being purely thesis-driven.

"dau to MAU ratio of north of 50%, and you would want to see at least a d 30 of, say, 30% to 40%. For something to really be working, to be sort of in that outlier level. And Snapchat exceeded both of those metrics."

This quote emphasizes the importance of certain key performance indicators (KPIs) that investors look for in a platform. Snapchat's performance on these metrics was a strong signal of its potential success.

Backing a Student Team and Evan Spiegel's Insight

  • Social networks often founded by individuals early in their careers.
  • Founders' age is less important than having a unique insight that explains a product's success.
  • Evan Spiegel's insight about social media creating performance anxiety led to the creation of Snapchat, which allowed for more authentic sharing.
  • Snapchat's disappearing messages encouraged the sharing of a full range of human experiences, fostering closer relationships.
  • The concept of ephemeral communication was a powerful insight that explained Snapchat's growth and retention.

"But what's far more important than their age is the fourth thing that we look for in a consumer investment, which is, does the founder have a unique insight that explains the success, that explains what's going on?"

The quote highlights the value placed on a founder's unique insight into the market or user behavior, which can be a more critical factor than their age or experience.

Evan Spiegel's Product Vision and Leadership

  • Evan Spiegel's consistent product vision has been a key driver of Snapchat's success.
  • Spiegel's approach to product development is based on first principles rather than iterations of existing best practices.
  • The introduction of Stories in chronological order revolutionized the social media feed format.
  • Spiegel's maturity as a business leader and strategist has grown alongside the company, contributing to its value.

"One of the funny things about product management is that it gets built up on the, quote, unquote, best practices of product over time. And so everything ends up being an iteration on top of the thing that came before."

This quote explains how Evan Spiegel's approach to product management differs from the norm by not simply iterating on existing products but instead starting from first principles to innovate.

Value of Product Vision in a Competitive Market

  • In consumer social spaces, features can be copied, but user culture is harder to change.
  • User culture dictates how features are used and can differentiate platforms even if they have similar functionalities.
  • Snapchat's user culture promotes authenticity, which has been key to its different use of Stories compared to Instagram.
  • When evaluating new platforms, the potential for creating a unique user culture should be considered.

"There's the features and functionality, but then there's also the user culture. And user culture is very, very, very hard to change."

This quote underscores the significance of user culture in the success and differentiation of social media platforms, beyond just the features they offer.## Opportunity to Build a New Social Graph

  • In 2012, the team identified the need for a social network focused on close friends due to the observed deterioration of the social map on Facebook.
  • Facebook's social graph had become sprawling and less intimate, prompting the idea of a new, more personal social network.
  • Path had previously attempted to create such a network but was unsuccessful.

"We thought that there was an opportunity to build a new social graph, a new social network that was much more focused on close friends."

This quote highlights the team's vision for creating a new social network centered around close relationships, which was seen as a gap in the market at the time.

Challenges of Social Media Companies

  • In 2012, social media companies faced challenges with scaling costs in excess of revenue, leading to high burn rates.
  • The company's burn rate reached over a million dollars a month within a year, raising concerns about financing and capital efficiency.
  • A key indicator of potential success for social networks was reaching 100 million monthly active users, which typically led to monetization opportunities.

"And one of the biggest challenges of social media companies, it is that they succeed. They scale users and therefore costs far, far in excess of them scaling revenue."

This quote explains the fundamental challenge for social media startups: user growth often outpaces revenue, leading to high operational costs.

Investment Decision and Valuation

  • The team faced a pivotal investment decision when approached to invest in a subsequent funding round at a valuation three times higher than the initial seed investment.
  • Concerns about valuation led to a decision not to invest immediately, which was later considered a mistake given the company's growth trajectory.

"And absolutely, given the growth of that business, what was a fair valuation today felt like a high valuation today in a quarter would have been a fair valuation, assuming current growth."

The quote reflects on the missed opportunity and the learning experience of not letting short-term valuation concerns overshadow the potential long-term growth of the business.

Product Vision and Leadership

  • Evan's product vision and leadership were seen as the driving forces behind the company's direction and success.
  • The product vision remained a constant guide through both good and bad times.

"I really do think it's Evan's product vision leadership."

This quote emphasizes the importance of strong product vision and leadership in guiding a company's success, as evidenced by Evan's role at Snap.

Unsung Heroes of Snap

  • Bobby Murphy's early work on computer vision technology laid the groundwork for future features like lenses and AR capabilities in the app.
  • Imran Khan, as chief strategy officer, significantly contributed to the company's growth by managing sales, monetization, and financing efforts.

"Bobby doesn't get enough credit."

This quote acknowledges Bobby Murphy's foresight and contributions to Snap's technological advancements, which have become key aspects of the platform.

Early Memories of Snap

  • A fond memory from Snap's early days involved a small team working out of a Venice beach house, emphasizing their hard work and camaraderie.
  • The anecdote illustrates the startup's culture and the team's dedication, even outside of the office environment.

"I just have this memory of when the company was very small. It was maybe like, seven to ten employees."

This quote paints a picture of Snap's humble beginnings and the close-knit nature of the early team.

Reflections on Snap's Journey

  • The conversation concludes with a reflection on Snap's incredible journey and the joy of reminiscing about the company's early chapters.
  • A mention of the ability to view the investment memo written at the time of the seed investment is made.

"It's always fun to walk down memory lane with a company like Snap because it really has been such an incredible company."

This quote captures the speaker's sentiment towards Snap's evolution and the significance of its growth story.

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