How a seed financing can put you at the head of the class

Posted Sep 8, 2017 by Ted Wang

In the early days of a startup company, founders may be fortunate enough to be faced with a dilemma: raise a seed round or try to go straight to Series A? To some, this question has an obvious answer: raise a Series A if you can. It’s much more money for only slightly more dilution.

That simple answer, however, neglects a critical dynamic in the startup market, and may shortchange your startup for the long term. Now if you are a repeat entrepreneur like Russ Fradin or Diane Greene and have a string of successful ventures under your belt, the logic of this post doesn’t really apply to you. For the mere mortal founders, however, there is more to consider than simple dilution math.

Power law distributions

At any given time there is a cadre of companies that are viewed by the tech community as being at the head of their class. These companies reap a tremendous reward from this perception in terms of the quality of people, investors, partners, service providers and media coverage they are able to attract. This in turn increases that company’s chances of success. So while startups usually view their competition as companies that offer a similar product or service, in reality, all startups are in competition with each other. Your financing strategy should take into account how to become one of these top companies.

Being a top company is not simply a nice to have; in this environment it is a matter of survival. While the number of startup companies has exploded over the last decade, the number of Series B financings has remained relatively constant per Crunchbase data. In short, more companies than ever are competing for the same number of Series B rounds. By raising a seed round, a company buys itself more time and money to get to the Series B financing and therefore increases its chances of making it through this critical milestone.


Nine women x one month ≠ baby

Another benefit of a seed financing is it gives a company more time to find its footing. A seed round gives the founders 18–24 months to build a team, bring an initial product to market and iterate on that product. During this time, the team can deeply understand customers, find the segment of the market where the product solves a real need and start to figure out the right go to market strategy.

Product development can’t be accelerated by throwing more resources at the problem. After having worked with hundreds of companies over the past 20 years — I’ve observed that successful startups are born from a series of tiny “aha” moments, each of which aggregate to create a truly unique and differentiated product and go to market. This simply takes time and much trial and error. Knowing the bar for a Series B financing is higher than ever, why not give your startup more time for this critical exploration?

Money burns a hole in your startup

Some will argue that a startup could just raise a larger round and not spend it. It’s just really hard to do this in practice. While many early stage companies show excellent discipline around spending, as Fred Wilson says, there are simply too many temptations. A startup with cash on the balance sheet is just more likely to spend more on a nice office, stretch to pay an executive who is making big money in her current job, or even start spending a bit more on customer acquisition to reach growth goals. Like the astronauts on Apollo 13, startups with limited resources seem to miraculously solve intractable problems without additional spending. I try not to keep cookies in my house because, when they’re on the shelves, I eat them. Why tempt yourself?

The main thing is to keep the main thing the main thing

Raising a Series A round requires fewer proof points than a Series B. Accordingly, a seed round gives founders the opportunity to focus on a smaller number of milestones for the next fundraising. This in turn makes it more likely these milestones will be reached. For example, a seed stage company CEO in a software company can be focused on obtaining and delighting a few key customers in order to show sufficient traction for a Series A. To raise a Series B, that same CEO must scale the sales team so that it can hit a series of subsequent quarters, ensure that churn is low, build out customer a success function and round out the executive team. Why not lessen the degree of difficulty of the dive and allow yourself to manage fewer key milestones?

Whether madness is or is not the loftiest intelligence

I hear what you are thinking. “So let me get this straight, are you saying to take less money instead of more and intentionally give myself a shorter runway? Are you insane?” Maybe (and there are many who will tell you so) but consider this scenario I’ve seen play out a number of times: A talented person from industry decides to start a company. Because of her tremendous track record, she is able to raise a respectable $4 million Series A. She quickly builds a solid team of other talented folks and they go to work building the product, creating a marketing plan for the big product launch and, hiring a sales people and an engineering team to rapidly build and sell the many features that are envisioned. The product launches to much fanfare, but initial sales traction is slow. The company now finds itself in the unfortunate position of having burnt a good chunk of the cash and needing to both cut the burn to buy some time AND ramp up sluggish sales. Not a pretty picture.

And so

Almost every one of the best companies I worked with over the last 20 years had a period of time during which the team was solely focused on building a delightful product and designing a thoughtful go to market. So while a seed financing might seem like you are putting your company at risk by giving your company less runway,a seed round may actually give you more runway for the truly difficult Series B round with fewer distractions and temptations and, that’s a good thing.

An Update from Cowboy Ventures and Announcing Our New Team Member, Ted Wang

Posted Jan 24, 2017 by Aileen Lee

Happy new year!  The beginning of the year is usually a good time to reflect – on how things have been going and to make fresh plans for what’s ahead. It’s also a great time for us to announce a new partner is joining our team, Ted Wang.  Please join us in welcoming Ted to the Cowboy Posse!

Reflections since starting almost five years ago
This summer will mark five years since getting into business with our first fund, Cowboy Ventures Fund I. When starting out in 2012 I had a belief there was an opportunity to build a new kind of firm in this emerging category called seed. I hoped to build a team entrepreneurs and co-investors loved to work with because we gave great guidance, were super-connected, helpful beyond expectations, personal, brought an active community of entrepreneurs and advisors, and a different perspective and way of working with entrepreneurs. So I leapt from my perch as a senior partner at KPCB to start Cowboy, aiming to work with the best seed-stage startup founders and the next generation of most valuable, innovative tech companies.

Fundraising in 2012
It’s kind of fun to remember some of the questions asked while fundraising five years ago. There were questions about seed as a category – whether it was a fad, or if seed funds would be put out of business by traditional VC funds. Whether Angellist was going to make seed and venture funds irrelevant. Many questions about how we would differentiate ourselves and how we’d get ‘deal flow’, still relevant today.

I also got some questions about whether being a woman would hurt our chances of succeeding. “Aren’t venture and startups boys clubs, how will you get deal flow?”  I’m grateful for the visionary institutions and individuals who took the leap to back our startup firm Cowboy Ventures. I’m also grateful they and some great new institutions joined to invest in Cowboy Ventures II, a $60m fund we started investing in 2015.

Bringing Data to Private Company Investing
After getting into business, I worked on an analysis of the past decade’s most successful tech companies in order to inform our investment strategy. This became a many-month data collection process that turned out many insights, some of which bucked conventional wisdom at the time – such as how many outlier companies were ‘born’ per year, a longer-than-expected time to liquidity for startups, an older-than-expected average age at founding for successful startup founders, the importance of cofounders with history together, the role prior experience had, the lack of gender diversity among founders, and more. The curiosity turned into the creation of a set of billion-dollar companies to study, and then into a blogpost to share the learning, called “Welcome to the Unicorn Club, where we coined the term “unicorn”.  

Needless to say it was a big surprise to see the article was shared over 10,000 times in the first month. And there’s now a Fortune Unicorn list, a Crunchbase Unicorn Leaderboard, a CB Insights Complete List of Unicorns and a WSJ List of Billion Dollar Companies, and other related analyses. We did an update in 2015 to our original analysis, which showed massive growth in what we call “paper unicorns”, changes in the capital efficiency of startups, and anticipating potential “unicorpses” ahead.  We look forward to updating our analysis this summer.

While the unicorn term has become grating to some – being part of a recognized outlier company is a source of pride for founders, team members and investors in an intensely risky field. It’s also what the traditional VC startup ecosystem is built on. I’m happy if we helped encourage deeper analysis and understanding of what it takes to build standout companies. We have a lot more to learn from the unstudied data in our industry.

Changes in the Plan Since Founding
It’s fun to remember Cowboy Ventures was a placeholder name in 2012. Names and words are important, and I thought I’d come up with a more “serious” name after closing the fund. After buying many urls, we realized Cowboy represented exactly what we were looking for – a spirit of the west, independent thinking, resilience, substance without formality, and being willing to brave the frontier with few resources and a small team. Cowboy Ventures also had a sense of humor as a name; and it evokes family, as it is a name conjured by our daughters and is the name of our son.

The scope of Cowboy’s investments has also broadened since getting started. We quickly realized we could be helpful to enterprise companies in addition to consumer cos; so since we’ve helped lead investments in SaaS companies (like Abstract, Homebase and Textio), edtech (Guild Education), govtech (Seneca Systems), security (Area 1) and infrastructure technology (Librato and Lightstep), as well as consumer oriented companies like commerce (Dollar Shave Club, Massdrop, Memebox and True & Co), IoT (August) and content/audience-driven business models (Hooked and AfterSchool).

The Cowboy Team – We Think Different
I had a vision to be a small but leveraged team that ‘punches above our weight’ in helping the companies with which we work. Joanne joined our investment team after wowing us with her work while still in grad school; we are a small, nimble investment team that hopes to provide provide best-in-class value for our portfolio companies. To bring even more expertise to startups we also leverage a small team of world-class operating partners (called ‘ninjas’ on our website) who are startup savvy and advise based on their experience scaling successful tech companies like Facebook, Netflix and Intel.

Two years ago we added a talent partner, Michelle who works on-site at portfolio companies to help build their teams (think we were the first seed fund to offer this).

One of the most common needs for seed-stage companies is with adding the right next people, and building a super effective recruiting culture. This is what Michelle does – help with organizational plans, to prioritize hires, and recruit awesome and diverse team members, while being on-call for HR and recruiting-related questions for our whole portfolio.

The Cowboy Family: 55 companies, $4.1Bn in value, 12 liquidity events
Since founding we’ve invested in 55 amazing companies. Some stats on what kinds of companies we’ve invested in and how things are going:

  • 80% of our first investments have been in seed stage companies, usually raising rounds of $3m or less. The other 20% include initial investments in series A companies (like LendingHome, Crunchbase, Brava and Philz Coffee), and even a series B (not yet announced)
  • Our active portfolio companies are on average 3.2 years old
  • 65% of seed companies had a working prototype when we invested; 35% had thoughtful plans, but had not yet build a working product  
  • 42% of the companies we’ve backed sell to enterprises; 58% are consumer-oriented
  • 20% of our portfolio companies are still seed stage. Their average seed raise has been $2m
  • 64% of our portfolio companies have raised a series A; their average series A has been $8m
  • 29% of our portfolio companies have raised a series B; their average series B raise has been $19m
  • 9% of our portfolio companies have raised a series C or D
  • None of our portfolio companies are profitable yet. A number plan to achieve profitability in 2017; and even more plan to be profitable in 2018
  • Cowboy-backed consumer companies raised $12m thru series A; as have enterprise-oriented companies (the ‘capital efficiency gap’ between consumer and enterprise companies in our 2013 analysis may have closed)
  • Dollar Shave Club was our first investment from Cowboy Ventures I, hopefully a harbinger of more good things to come – thank you team DSC!  
  • In addition to DSC, 20% of our portfolio companies have been acquired by companies like Google, SolarWinds, OneMedical and AngelList
  • Just 2 of our 55 portfolio companies have decided to wind things down, likely a lower than average ratio for a venture fund. Might mean we should be making more risky investments; or that our portfolio companies have been uncommonly good at raising follow-on rounds; or it’s too early to tell and this stat doesn’t mean anything
  • 2 of our active portfolio companies have successfully pivoted, changing their mission to pursue a different product or customer since funding

Founding team backgrounds

  • 82% of our portfolio companies have co-founders; 2.3 co-founders on average
  • Of companies with co-founders, 67% had previous history together via work or school
  • 60% companies had a technical founder on board at founding; 67% of enterprise oriented companies and 56% of consumer oriented companies
  • 33% of Cowboy-backed companies have a woman co-founder  
  • Founders were 34 years old on average at founding (ranging from 19 to 62!)
  • 75% of companies have at least one founder who had previously started a company of some sort
  • 83% of companies have at least one founder who worked previously at a tech company
  • 17% of companies have at least one founder who dropped out of college
  • About half of our companies have at least one founder who is an immigrant

Looking ahead:  A new partner joining our rodeo, Ted Wang
I’ve been the sole general partner at Cowboy Ventures for the past five years and am proud to have gotten us into business, set a course, come up with fun non-traditional logos and backed the exceptional people in the Cowboy family. But we know teams win, and having different people around the table drives better outcomes, especially in investing. And we want to continually improve in being exceptionally helpful to entrepreneurs.

So I’m thrilled to announce Ted is joining our posse as an investment partner. Ted brings unmatched experience, guidance, relationships, new ideas and energy to our teams. Ted and I also share a strong service orientation toward founders, a love for the potential of Cowboy Ventures, New Jersey grit and a friendship that spans over a decade.

A few words about Ted’s relevant experience for founders. He ran and grew his own legal startup, so he can relate to some of the struggle startup founders go through. Starting with only a small practice at Fenwick & West, he became the leading lawyer for venture-backed consumer and enterprise tech startups over the past 10 years. By having a nose for tech trends, great instincts about people, hustling, giving outstanding advice, being respected and recommended by many great founders and investors, and being a no BS, fun to work with human, he was chosen as outside counsel (most often at company founding stage) by many of the best founders across the country. This includes teams at Facebook, Twitter, Square, Dropbox, Gusto, Jet, Quip, Sonos, Zuora, Alt School, Appirio and 200+ more clients. Just imagine having the chance to be advised by an investor who has sat for years at board tables with so many of the most valuable tech companies, helped with thousands of financings and M&A transactions, and seen hundreds of companies have to turn out the lights in the past decade. We think he is going to be awesomely helpful to startups.

Ted has also done cool things for the entrepreneurial community like author the widely used open source Series Seed documents. I used to joke a smart venture investment strategy would be to build a Ted Wang shadow portfolio – it would generate better returns than most venture funds.  

Beyond his business success, Ted is also a fantastic friend, family member, adventurer and citizen. His wife Michele is one of my favorite people in the world, as are their two children Kate & Jake. They have amazing enthusiasm for life experiences, like moving to Argentina two years ago to experience a year abroad. Ted also has passions outside of work like seeing live music, following our local sports teams, and making Silicon Valley more accessible and livable – he was one of the drivers behind the recently approved Measure A that created a $950m bond to build more affordable housing in Santa Clara County.

On behalf of the Cowboy Ventures community, I’m excited to welcome Ted to our team. His energy, ideas, experiences and relationships will make us even better, and will make work more fun for us.  He can be reached at and @twang on Twitter.

What’s Ahead for Cowboy Ventures?
We’re as excited as ever about the power of entrepreneurial teams, and about how software and hardware will continue to transform industries and build new, durable, super valuable companies to meet customer needs.

We’ve just seen the tip of the iceberg in terms of the number of new, valuable technology companies that will be built and scale because of the new technology utilities available to developers and entrepreneurs. We’re particularly interested in how voice will become an important new input; how many more inefficient, manual, paper-based and repetitive processes will be improved by the power of modern software with better, mobile-friendly user experiences; innovative new tech-driven brands building products customers love; and “learning loop software” or “smarter software” – software that machine-learns and uses AI in real time to personalize the user experience, making it more convenient, effective and delightful for customers.

And what we will continue to be most fired up about is the people. We love meeting every week with teams who have an innovative technical approach or new insight to a large market; who are voracious learners; who hustle and figure out how to do more with less; who are oriented toward building products customers love; who want to build inclusive, diverse, modern cultures; and who want to improve the world. We’re grateful to the awesome group of companies in the Cowboy portfolio who do this every day. And if you are starting a tech company and this speaks to you, we hope you will connect with us.

It’s been amazing almost five years.  We are proud to be making progress on our mission, thanks to a fantastic community of companies, advisors, investors and friends of Cowboy Ventures. Thanks for reading a bit about us and we wish you a healthy, happy, productive and peace-filled year ahead.

I’m Joining the Cowboy Posse

Posted Jan 24, 2017 by Ted Wang

stocksy_txp412bc114vnk100_medium_290067After nearly 20 years working with startups in Silicon Valley as counsel, I’m excited to announce I’m joining Cowboy Ventures as an investing partner.

For the past decade at Fenwick & West, I have loved working with a broad group of clients from incorporation to being a public company, and everything in between. I’ve realized that it’s time for a new challenge and so I’ve decided to use my skills and experience to work with startups more directly as an investor and business advisor. At Cowboy, I will have a chance to do that with a friend I’ve known for over a decade, and become part of a firm about which I am super excited.

How did I get here?

I  began my legal career at the wonderful firm Gunderson Dettmer almost 20 years ago.  After a few great years there, I left to start a solo law practice so I could be closer to the action of my startup clients. My first “office” was a single room in a dingy second story office building next to Gordon Biersch. I started with two clients. These humble beginnings gave me a great appreciation for the excitement and optimism of starting something new.  I also felt firsthand the intermittent terror entrepreneurs can feel during this stage and the resulting sense of urgency.

It sounds absurd now, but the fundamental bet that I made at this point in my career was that the Internet would be big.  As the Internet sector rebounded from the crash, my law practice grew like a weed.  In a few short years, my clients’ needs had outgrown the capabilities of my small firm and so I joined Fenwick & West.  Fenwick was the ideal place for me.  It was an excellent firm with a great group of experienced, highly skilled lawyers and I was a young, scrappy and hungry lawyer with something to prove.  I went to every conference, had 200 business lunches in one year alone and stayed up all hours of the night working on my clients’ deals.  With a little bit of pluck and a little bit of luck my practice flourished.

During my decade at Fenwick, I had the good fortune to work with many of the best entrepreneurs, investors and advisors of the era.  I helped Evan Williams to shut down a struggling podcasting company called Odeo and spin out this funny little idea called Twitter into a separate company.  I negotiated the seed financing term sheet for Dropbox with Drew and Arash in the Palace Hotel during the Web 2.0 conference. I was at a Facebook board meeting when I first heard Mark Zuckerberg articulate his law of information sharing.  I watched Jack Dorsey grow as a leader at Square and saw Marc Lore make huge bets that ultimately paid off at  Watching these fantastic entrepreneurs work was a terrific education for me.

Of course, the startup lifecycle is not all lollipops and rainbows.  I’ve also had countless conversations with founders who have had to turn out the lights on their dream and I know how heartbreaking it can be.  I’ve seen pivots, double pivots and in one case, a complete 360 degree turn. I’ve been part of victory being snatched from the jaws of defeat and of promising deals that fell apart at the last second.  Some of the people whom I respect the most are those who handled a shutdown or layoff the right way, treating people with dignity and respect and putting the interests of others before their own.  

With all of the situations I encountered, good and bad, I learned a lot about the startup world.  There was the time when we sold a company at just the right moment and the one when we failed to sell when we should have.  I’ve seen new team members who raised a company’s game and others who drove a company into the ground like a dart.  I’ve watched entrepreneurs who have ignored all distractions while staying laser focused on critical matters and those who drowned trying to chase down every seemingly golden opportunity. No matter what is happening at a startup, I’ve seen that “movie” before and for years I’ve shared these learnings with my clients.

Being outside counsel, however, comes with some limitations, not the least of which is the billable clock looming over every conversation.  As counsel even though I was on the journey with founders from the beginning, and I felt respected and trusted (and, in the best cases, loved) I also often felt I had to hold back given my role.  For years I’ve been giving people advice as to how to navigate the perilous waters of the startup world.  It’s time to jump into the boat.   I am still young, scrappy and hungry and am excited to use my experience to help entrepreneurs thrive and to prove myself as one of the most valuable early stage investors.

Why Cowboy Ventures / Cowboy Ventures is Special

I’m fortunate to have known Cowboy’s founder, Aileen Lee  for many years and she and her husband Jason are among my closest friends and favorite people in the world. She has been a trusted confidant on both business and personal matters for me and my wife. She and her family even traveled all the way to Argentina to visit us when we were there for a year abroad.

My wife and I were at the the initial kick off “thank you” dinner for the firm and we’ve been enthusiastically watching Aileen build Cowboy ever since.  What she and the team have created is an outstanding firm known for bringing valuable, hands-on advice and connections to its portfolio companies.  The Cowboy team stands out for the durable, personal relationships it creates with its founders.  Being a founder can be a hard and lonely road, and Cowboy has thrived by fostering authentic communications with its founders, and not just when they are  “killing it.”  Cowboy is also a more diverse and inclusive group than others.  As the token man at the firm, I’m proud to be joining a group that has advocated for and understands the benefits of diversity and inclusion. In short, Aileen and her team have built one of the most respected new ‘brands’ in venture and I feel very lucky to be a part of it.

But there’s more.

At Cowboy Ventures, Aileen and her team work incredibly hard, and they have also managed to succeed while creating a tribe of people who excel at and love the work they do. Hard work and fun need not be mutually exclusive.  Watch the Golden State Warriors play basketball or listen to Pearl Jam make music and it’s evident that people can perform at the highest level and truly enjoy doing so.  Cowboy exemplifies this spirit and it’s one of the things that drew me to the firm.   Aileen refers to this attitude as “always happy, never satisfied” and this is spirit that has animated my entire career.   I look forward to working with founders who share these values and want to work hard and have fun with us.

What I’ll be looking for in the coming year

Since I’ve yet to spend one day on the job, I’m not ready to declare a thesis, unless you count “working  with outstanding people” a thesis.  My current thought is to follow the same type of “no duh” thinking that led me to focus on the technology sector 20 years ago and the Internet 10 years after that.  It’s pretty clear that natural language processing and machine learning are radically changing computing and that services based on AI are going to find new and amazing ways to help both consumers and businesses.  In particular I’ve got a feeling that this will really impact accounting and so would like to meet anyone who is working in that area.  I’m also pretty confident that our current TVs and other video consumption devices are going to look like Space Invaders looks today when compared to whatever it is we will be watching a decade from now and so both virtual and augmented reality are of interest.  Finally,  when I started working in the industry, my clients’ products were software programs or consumer facing services.  Now I represent folks who are creating tech enabled primary schools, universities, home healthcare services and concierge medical care facilities.  I am intrigued by these “third wave” companies which use technology as the backbone of delivering superior services to consumers in established industries.

What type of people do I want to back?  As I reflect over my career there are a few commonalities in successful founders I’ve noted:

    • Forceful, but not loud: There’s a notion that great entrepreneurs are rah, rah leaders or slick sales people, but that doesn’t foot with my experience.  Most of the great founders I’ve worked with have been rather subdued sorts.  The amount of volume a person generates has no relation to the amount of determination that person has and this quiet demeanor can often mask a steely determination that is critical for success.
    • Ability to focus: There’s an old trope that startups die of indigestion and not starvation.  The best founders I’ve worked with know how to focus the effort and energies of the team on the key objectives that really matter.  Steven Covey famously said  “the main thing is to keep the main thing the main thing.” The best entrepreneurs are able to ignore the myriad of distractions that arise and focus on the critical projects that make their company successful.
  • Data driven: The best founders are willing to let new information take them in different directions.  I was once discussing a course of action with a well known technology CEO, who was quietly but forcefully disagreeing with my point of view.  I added one fact to the discussion and he did an about face and proceeded as I was suggesting, as if the previous conversation had not happened. To me this is emblematic of the data driven approach.  
  • Learn it alls:  The best founders I’ve worked with are intellectually curious.  They are constantly learning new things, both in work and in their free time and they come to conversations genuinely curious to learn and understand what the other people have to say.  They are probably not going to be extraordinarily patient if that information isn’t delivered promptly and succinctly but if someone is presenting new and useful information, she is going to get that founder’s attention.

Listing these traits in retrospect is obviously a hell of a lot easier than finding people who exhibit them ex ante, but the above list should give folks a good notion of the types of people I’d like to meet.

Thank you!

I would like to thank my many wonderful clients, partners and other team members from Fenwick & West for more than ten amazing years.  It was a heck of a decade and I am privileged to have worked with such an outstanding group of people.  Although I will be focusing my efforts on Cowboy, I will remain a special counsel to the firm and will still be available to help with problems as needed.  I look forward to working with you all in new ways as I ride off into the next chapter.  Giddy Up!

PS: my new contact info will be and i can be found at @twang on Twitter.

Welcome To The Unicorn Club, 2015: Learning From Billion-Dollar Companies


Posted July 18, 2015 by Aileen Lee (this post originally appeared in TechCrunch HERE)

It’s been over a year since we wrote our original post sharing our analysis of the last decade’s most successful U.S.-based, venture-backed tech companies.

As we wrote in our original post – many entrepreneurs, and the venture investors who back them, seek to build big, impactful companies valued at a billion dollars or more. We called these companies “unicorns” because what they had achieved seemed very difficult, rare, and relatively unstudied.

That billion-dollar threshold is important, because historically, top venture funds have driven returns from their ownership in just a few companies that grow to be super-successful. And as most traditional funds have grown in size, they require larger “exits” to deliver acceptable returns (Cowboy Ventures is different – we’re small by design, although we’d be happy to invest in Unicorns).

For example, to return just the initial capital of a $400 million venture fund, that might mean needing to own 20 percent of two different $1 billion companies at exit, or 20 percent of a $2 billion company when the company is acquired or goes public.

The post and term generated more attention than expected. It’s been a nice surprise – it’s a special word for a special thing, and we love it’s not traditional business lingo.

From some, there’s even concern now that pursuit of ‘unicornhood’ is both annoying and may have somehow changed the nature of tech valuations. To that, we’d emphasize two points:

First, our project uses valuation as a filter (an admittedly imperfect one) to identify and learn from the fastest-scaling tech companies of our time. Our goal is learning, not list making. Nor is it to encourage companies to optimize point-in-time paper valuations, which have a lot of downside if they are not sustainable.

Second, as noted, today’s traditional venture firms are sized to need unicorn exits to deliver returns. Some investors may grumble about entrepreneurs wanting ‘unicorn valuations.’ But let’s be honest, most investors want them, too, and are supporting the massive capitalization of these companies. (More on that later.)

So with the big caveats that our data is based on publicly available sources, as well as on a snapshot in time (which has definite limitations), here is a summary of new learning and reinforced lessons from an updated set of companies1:

Summary Of Our Updated Analysis

1) We found 84 U.S.-based companies belong to what we call the “unicorn club,” a jaw-dropping 115% increase from our last post. The increase is driven largely by “paper unicorns” – private companies that have not yet had a “liquidity event.” But, these companies are still a super-rarity: our list is just .14% of venture-backed consumer and enterprise tech startups.

2) On average, eight unicorns were born per year in the past decade (versus four in the 2003-2013 era). There’s not yet a super-unicorn ($100 billion-plus in value) born from the 2005-2015 decade, but there are now nine “decacorns” ($10 billion-plus in value), 3x our last post.

3) Consumer-oriented companies drive the majority of value in our set: more companies and higher average value per company. They raise a lot of private capital.

4) Enterprise-oriented companies are fewer and raise less private capital; and increased enterprise fundraising has reduced their return on private dollars raised.

5) In terms of business models, e-commerce companies drive the majority of value in our set, but have the lowest “capital efficiency.” Enterprise and audience companies have decreased in market share of our set, while SaaS companies have grown in market share significantly. We’ve also added a new category: Internet of Things/consumer electronics.

6) It’s a long journey, beyond vesting periods: it has taken ~7 years on average before a “liquidity event” for the 39% who have ‘exited’ – not including the 61% of our list that is still private. Thecapital efficiency of these “private unicorns” is surprisingly low, which will likely impact future returns for founders, investors and employees.

7) Take heart, “old people” of Silicon Valley: Companies with educated, tech-savvy, experienced 30-something, co-founding teams with history together have built the most successes. Twenty-something founders and successful pivots are the minority; dedicated CEOs who are able to scale their companies for the long haul are not.

8) San Francisco maintains dominance as the new epicenter of the Bay Area’s most valuable tech companies; cities like NYC and L.A. are growing in importance

9) Immigrants play a huge role in the founding and value creation of today’s tech companies.  We wonder how much more value could be created if it were easier to get a work visa.

10) There’s still too little diversity at the top. There is movement in a positive direction on gender from a zero base; and not enough data on race and other underrepresented groups.

Some Deeper Explanation And Additional Findings

1) Welcome to the exclusive, 84-member Unicorn Club: the top .14%

Screen Shot 2015-08-03 at 10.04.52 PM

  • We identified 84 companies for our set (by our definition, U.S.-based, VC-backed software and Internet-oriented companies founded since 2005 and valued at over $1 billion by public or private market investors1). That’s a staggering 115% increase since our last analysis just a year-and-a-half ago.
  • The total value of these companies is $327 Billion – 2.4x our last analysis (excluding Facebook, which was almost half the value of our last list).
  • It’s the number of companies, not their individual valuations, driving the dramatic increase in total value. The average company value on our list is worth $3.9 billion, just an ~8% increase from last time.
  • And it’s the number of “paper unicorns” that has dramatically increased the total value. Private companies are now 61% (vs 36%) of our list, worth $188 billion in total and $3.7 billion on average.
  • Why so many more ‘unicorn’ companies now versus 2013? Some thoughts:

a) Compelling products that are easier than ever to adopt through large and growing global markets, smartphones, and social networks to spread the word faster. This is driving more exciting growth, adoption and engagement numbers than ever before (A16Z’s strong presentation on the underlying fundamentals here.

b) A perception of winner-take-all markets due to branding, scale and/or network effects, and intimidating, growing cash war chests (see here) driving investor FOMO, and demand to invest in ‘winners’ at almost any price (Bill Gurley has great insights about that here).

c) Competitive later stage capital from more sources than ever – late stage funds, public investors investing earlier, and global strategics. These investors often have a low cost of capital which gives them a lower return hurdle than traditional venture investors; and they often receive downside protection as part of their investment that isn’t reflected in valuations (Fenwick’s great analysis of this trend here).

d) Vibrant public markets fueling optimism: the NASDAQ is up 32% since our last analysis.

e) Optimistic private markets sheltering a thicket of “paper unicorns.” When companies are private, founders can share more about their future dreams with investors; report less; and the shares are illiquid, constraining short-term changes in valuation. Those factors, combined with the above reasons, have driven significant ‘multiple inflation’ for private versus public company valuations (giving private companies more value than public ones as a multiple of # of engaged users, revenues, EBIT, growth rate), including from the WSJ;
The VergeJosh KopelmanThomas TunguzCB Insights; and Deepak Ravchanran.

  • Despite the doubling, building one of these companies is still ridiculously difficult and rare.  If 60,000 software and Internet companies were funded in the past decade2, that means only .14% have become unicorns– or one in every 714. The odds of building, working for or backing one are worse than catching a ball at a major league game; but, better than the chance of dying by shark attack – so we’ve got that going for us, which is nice.

2)   On average, eight unicorns were born per year (versus four in the 2003-2013 era) in the past decade. There’s not yet a super-unicorn ($100Bn+ in value) born from 2005-2015, but there are now nine “decacorns” ($10 billion-plus in value), 3x our last post.


  • The best years to start a unicorn were 2007 (27% of companies in our set) and 2009 (18%). During these 2 years, 45% of the companies in our set were started.
  • What happened in 2007 and 20092007: The launch of the iPhone. By the end of the year, the beginning of the worst US economic crisis since the great depression; 2009: Just months previously, Android was launched; and the bottom of the “great recession” occurred  – the lowest point of the NASDAQ, S&P500 and DJIA in the last decade
  • The best times to start a unicorn company could be a) post the launch of a watershed new tech platform; and b) during a prolonged public market downturn. Without many great jobs available, the reduced opportunity cost and related hardship may spawn great innovation and grit.
  • To note, there are some astoundingly young companies in our set including Illumio, Oscar Health and Zenefits, all <3 years young. The combo of great products plus growing global, mobile markets may have accelerated time-to-‘escape velocity’ adoption and correspondingly, time-to-unicorn for some companies. This rapid ramp could also mean a rapid decline for other companies if customers are not super engaged and happy for the long haul.
  • As we wrote previously, every major technology wave has given birth to one or more “super-unicorns” – companies that grow to be worth >$100B over time.
  • Facebook, the super-unicorn of the 2000s, has dramatically increased in value – it is now worth $247Bn, up 102% since we last wrote. Now they are worth more than the sum of all other companies on last year’s list, and all the consumer companies on our current list. (PS: FB has also ‘aged out’ of our analysis, as it’s now 11 years old).
  • There are now 9 “decacorns” (in our lingo, companies worth >$10bn), a 3x increase vs. our last analysis. To note, 5 of the 9 are largely mobile (Uber, Twitter, WhatsApp, SnapChat, Pinterest).
  • History suggests the 2010s will give rise to a super-unicorn or two that reflect the key tech wave of the decade, the mobile web.  Whichever company (or companies) comes to represent this key innovation (Uber?) will likely continue to accelerate in value as FB, Google and Amzn have over the past decade.

3) Consumer-oriented unicorns continue to drive the majority of value in our set: more companies, and higher average value per company. They also raise a lot of private capital.

  • Consumer-oriented companies (companies where the primary customer is a consumer)contribute 72% of the aggregate value on our list (vs 60% last time), and comprise 55% of the companies on our list. They are worth $5.1Bn on average.
  • 8 of the top 10 most valuable companies are consumeroriented; consumer companies seem to reach higher peaks than enterprise companies.
  • They are currently worth about 11x the private capital raised on average (excluding >100x outliers WhatsApp, FitBit and YouTube; also 11x on average in our last analysis. 9x is the current median)
  • When founders start a company aiming to be super successful, they may not realize how many rounds of dilution may be ahead; or how many dollars of liquidation preference might be added (Heidi Roizen wrote an excellent post on this here).
  • Cases in point – the consumer companies on our list have raised on average $535 million in six private rounds (that’s series E or beyond) versus $348 million in our last analysis, a whopping54% increase. Seven consumer companies on our list have raised over $1 billion in private capitaleach.
  • Some amazing exits have been driven from consumer-oriented companies relative to private capital raised (and more than half through acquisition): WhatsApp (325x!), YouTube (144x), Fitbit (132x), Zillow (48x), and Nest (40x)
  • Conversely, 20% of our consumer-oriented companies are valued at <4x the private capital raised: Evernote, FanDuel, Gilt Groupe, Groupon, JustFab, Lyft, SoFi, Tango, and Zynga

4) Enterprise-oriented companies raise much less private capital; but increased fundraising hasseriously reduced their capital efficiency.

  • The average enterprise-oriented company (where the primary customer is a business) is worth$2.5 billion, less than half the average consumer company.
  • To note, their private capital raised is $247 million on average, up 79% versus our last analysis. This increase has reduced their average capital efficiency significantly; from 26x in our last analysis, to 7.6x for the median enterprise company in our set.
  • Some outstanding enterprise-oriented exits relative to private capital raised: Veeva, Workday, and Softlayer (926x!, 87x, 67x respectively)
  • Conversely, 18% of our enterprise-oriented companies’ recent valuation is <4x their private capital raised: AppNexus, Automattic, Box, Cloudera, Lookout, MagicLeap and Simplivity.

5)   E-commerce drives the most value of five primary business models, and SaaS companies have significantly increased their market share since our last analysis. We’ve also added a fifth business model category: Consumer Electronics/Internet of Things.

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  • E-Commerce companies (companies where a consumer pays for a good or service through the internet or mobile; including companies like Uber and Airbnb) continue to drive the most value (36%); they also raise the most private money ($683m on average!), and deliver the lowest multiples (8x average) of valuation over capital raised. This is likely because of increased headcount and marketing costs versus other categories, lower margins, and lower public market comparable company multiples, which drive private valuations lower.
  • Audience companies (the product is free to use for consumers, the company makes money thru ads or leads) drive the second-most value on our list (27%); they are 17% of companies on our list, down from 28% last time; have raised $352m; and are at a 16x multiple of value over capital raised on average.
  • Enterprise software companies (where a business customer pays for larger scale software, often ‘on premises’ vs cloud-based; or hardware with software) have raised $268 million on average, and are down in “market share” of our list to 17% from 26% of companies; they drive 12% the value of our list, and a 17x multiple.
  • SaaS companies (cloud-based software offered often via a ‘freemium’ or monthly model) have grown to 31% of our list (versus 18%), and 20% the value of our list. They are also among the more capital efficient companies on average in our set, raising $267m on average and are at a 18x return on private capital on average (excluding Veeva).
  • We’ve added a new category: Consumer Electronics/Internet of Things, where the consumer pays for a physical product. Five companies make up 6% of list; they have raised $266 million on average and are valued at 18x private capital raised.
  • An important note – 32% of our set has characteristics of broad or local network effects, where the value of the product/service gets better the more people are part of the system.

6)   It has taken ~7 years on average before a “liquidity event” for the 39% who have ‘exited’ –not including the 61% of our list that is still private. The capital efficiency of these “private unicorns” is surprisingly low, which will likely impact future returns for founders, investors and employees.

  • When starting a company, many founders may also not realize the journey ahead is more like an ultra-marathon than just a race. It took 6.7 years on average for 33 companies on our list to go public or be acquired (excluding outliers acquired within two years of founding – congrats Instagram, OculusVR, YouTube – you are outliers of the outliers!). Enterprise companies take one year longer to a “liquidity event” vs consumer companies. It’s a long journey, well beyond traditional vesting periods.
  • Just 19 have gone public (23%). The average public market valuation is $8.9 billion. These companies went public after six private rounds of funding, and $329 million in private capital, delivering a 20x at today’s valuations (excluding Veeva and Fitbit) versus private capital raised.
  • 14 have been acquired (17%). The sweet spot for an acquisition tends to be at ‘lower’ valuations – $1.5 billion on average, delivering ~16x on $102m in private capital raised (excluding WhatsApp and YouTube) on average.
  • Given the valuation premium for private companies today and the increased overhead and quarter-to-quarter pressures of being public, staying private is clearly the preferred option in this market. 51 companies on our list are private; they’ve raised $516m in 6+ funding rounds to date on average, an astonishing 103% increase (vs $254) vs. our last analysis (for context, in the ‘good ol days’, Amazon raised $8m before going public, and Google raised ~$26m).
  • Importantly, valuation vs private capital raised for these private companies is only 8x on average. Unless these companies ‘grow beyond’ their valuations at exit, this will likely drive lower than historical profits at liquidity for founders, employees and investors.
  • When will this happen? Given how much capital our private companies have raised in the past few years, most likely have cash to fund 2-4+ more years of runway.  If private capital is no longer available in the future, these companies will seek a public offering or acquisition. Some will demonstrate strategically justifiable metrics and have fantastic ‘up round’ exits; others may see liquidation preferences kick in which will negatively impact founders and employees; others may fulfill the adage “IPO is the new down round”, which has been the case for more than half of the public companies on our list. Or worse, some may become “Unicorpses” :)).
  • The reduction in private company multiples is also a reflection on how venture capital has changed. Ten years ago, the best investors were praised for achieving a 20x return on their $15 million investment = a $300 million return. Many venture investors and their LPs now invest later, which is perceived to be less risky – and hope to achieve their $300 million by getting a 6x return on a $50 million later-stage investment.

7) Take heart, ‘old people’ of Silicon Valley – companies with clear product visions, and well-educated, tech-savvy teams of thirty-somethings with history together have built the most successes; 20-something founders, changing CEOs, and “big pivots” are a minority.

  • The companies in our set were generally not founded by inexperienced, high-school dropouts.The average age at founding was 34 years old (same as our last post). Audience-based company founders were 30 at founding; e-commerce founders were 32; SaaS founders were 35; CE/IoT founders were 36; and enterprise founders were 39.
  • To note, the founders of our 10 most valuable consumer companies were 29 on average when they founded their companies; and there are a number of young founders (< 25 years old at founding) in our set: Airbnb, Automattic, Box, DropBox, Lyft, Snapchat, Tumblr. But the founders of the two most valuable enterprise companies were 45 years old on average.
  • Teams win: a supermajority of companies (86%) has co-founders: 2.6 on average. 85% of co-founders had history together – from school, work or being roommates, the majority having worked together previously.
  • If at first you don’t succeed…76% of companies have founders with entrepreneurial history and a track record of founding something else previously.
  • Only 12 companies have a sole founder, and none in the top 15 on our list. Unlike in our last analysis where all four sole-founded companies had liquidity events, only two of these companies (New Relic and Tumblr) have had exits.
  • The overwhelming majority of companies (92%) start with a technical cofounder, and 90% have a founder with experience working in a tech company. It’s extremely rare for one of these companies to be started by someone who hasn’t worked in tech before. The few companies whose founders had no prior experience working in a tech are largely consumer-oriented companies, like Beats Electronics and Warby Parker.
  • Education seems kind of important. About half our list has extremely well educated co-founders who are graduates of a “top 10” U.S. school3; but 19% also have a co-founder who dropped out of college.
  • Most founding CEOs are scaling through the journey: 74% of companies are still led by their founding CEO, or were led by the CEO through a liquidity event. This says a LOT about the talent of these founding CEOs to scale from seed stage through multiple financings, leadership team changes, hundreds or thousands of team members, and in many cases global expansion, to build the most successful companies of the past decade.
  • 26% of companies have made a CEO change along the way (versus 31% in our last post).  Enterprise companies have a higher rate of changing CEO: 32% of enterprise, versus 22% of consumer companies.
  • 83% of companies are working on their original product vision; only 17% significantly changed product focus in a big pivot.
  • Consumer pivots are more prevalent than in enterprise. In our last analysis, there were just four (or 10%) companies who ‘pivoted’ from their original product vision; and all were consumer companies. The “pivot club” now includes enterprise companies like Slack and MongoDB; and consumer companies like FanDuel, Lyft, Nextdoor, Wish and Twitch.

8) San Francisco maintains its dominance as the new epicenter of the most valuable tech companies; cities like NYC and L.A. are growing in importance.

  • SF is home to 40% of the companies in our set (vs 38% in our last post); the SF Peninsula is home to 23%; and the East Bay to 4%, for a total of 67% of companies in the Bay Area (versus 69%)
  • The Big Apple (NYC) is the second-most important geographyhome to 12 (14%) of our list, up from 8%.
  • LA in the house. Los Angeles now has six in our set: Snapchat, Beats Electronics, OculusVR, TrueCar, JustFab, and the Honest Company.
  • Boston, Austin and Seattle are additional hubs with 3, 2 and 2 companies, respectively.

9)   Immigrants play a huge role in the founding and value creation of today’s tech companies.

  • From what we can determine, about 50% of our list has at least one co-founder born in another country. These are remarkable people who in many cases spoke a different language and went to school elsewhere for formative years, then helped create billions in value here in the US. We’re grateful these founders and/or their families figured out how to enter and work in our country – and we wonder how many more jobs and how much more value might be created if it were easier for others with outstanding technical and startup skills to get visas to work here.
  • (In case you were wondering: the most common countries that founders came from start with I: India, Iran, Ireland and Israel, in addition to our wonderful neighbor Canada)

10) There’s still too little diversity at the top in 2015, but there is movement in a positive direction on gender.

  • On our last list, there were no female CEOs. So we welcome the two companies on our list with female CEOs: Houzz and Gilt Groupe. And the 10% of companies with female co-founders (up from 5%): CloudFlare, EventBrite, FanDuel, Gilt Groupe, Houzz, NextDoor, Kabam, and The Honest Company. So while 2.4% of CEOs is little to celebrate, this is an improvement from zero.
  • It is not easy to figure out from publicly available information, but we estimate about 30% of companies in our set have no females on the leadership team. The majority of female senior leaders we could identify are in CFO, VP HR, GC, Sales and CMO roles; we could only find a few companies with female leaders in product or engineering, which seems like a great opportunity for progress. And Kudos to Gilt Groupe, Lending Club, New Relic, and ZenDesk who seem to have among the most gender diverse teams in our set.
  • From what we can tell, ~70% of companies in our set have no gender diversity at the board level. This also seems a huge opportunity to improve outcomes and send an important message from the top. We won’t call out the companies with no diversity on their leadership teams or boards – but they exist, and we hope they are paying attention to this important driver of outcomes and culture.  Efforts like Sukhinder Singh Cassidy’s BoardList will help identify great candidates for these boards.
  • To note: we aren’t able to track racial or ethnic diversity as well as we need to report; this is an important field we hope to track in a future analysis.


So, what does this all mean?

The most striking takeaway for us from this analysis is the growth of “paper unicorns” and their surprisingly low capital efficiency. While we believe some increase is due to fantastic market fundamentals, much seems due to the low incentive to trade publicly, a fiercely competitive environment, and private capital flocking to growth that has caused companies to focus on ‘getting big fast’, and has also pushed valuations out of whack with public markets.

Because many investors have protection through preferred stock, and many founders “take some off the table” in later stage rounds, when paper unicorns become public or acquired unicorns, non-founder employees will likely feel the most pain and disappointment if there is a negative gap between the exit value and today’s private market share prices.

(Which makes us think: While being a unicorn is cool, you know what’s really cool for founders, employees and investors? Making a 20x+ multiple on private capital raised when your super awesome company has an exit.)

There are also many consistent lessons with our last analysis. These companies were largely founded by co-founder teams with clear product visions, history together, experience working in tech, track records of entrepreneurship, and with a technical founder on the team. All haveopportunities to improve their outcomes and cultures by adding diversity to their teams and boards of directors.

And, they were founded by committed leaders who are on a path to scale their businesses for a decade or more. The probability a founder could start with a scrappy dream, then develop the skills to lead through hundreds of product shipments, ups and downs, serial fundraisings and thousands of employees while maintaining the faith of their teams, investors and boards – seems quite unlikely.

It’s really remarkable and this whole analysis could be an ode to these special founders and teams who are going the distance to achieve the improbable.

So we continue to tip our hats to these 84 companies who delight millions of customers with fantastic products, are outstanding at fundraising, and recruit and retain team members in the most brutal recruiting environment we’ve known.

They are the lucky/tenacious/genius few of the Unicorn Club, and we look forward to learning more about them, and their future compatriots.

Many thanks to the Cowboy crew who helped with this: Joanne YuanNoah LichtensteinMichelle McHargue and Athena Chavarria; and Silicon Valley Insights who helped seed our dataset.

1 Our data is based on publicly available information from news articles, company websites, CrunchBase, LinkedIn, Wikipedia and public market data.  It is also based on a snapshot in time (as of 7/16/15) and current market conditions, which were categorized as fairly “hot” in 2013 and now might be considered “steamy.” To emphasize, our dataset includes only US-based, VC-backed software and internet-oriented companies. Impressive, highly valued companies like SolarCity, Tesla, Theranos, SpaceX, FlipKart, XiaoMi, SuperCell, Arista Networks and Shutterstock are not included in our analysis.
2 Figuring out the denominator to unicorn probability is hard.  The NVCA says over over 21,000 internet-related companies were funded since 2005; Mattermark says 24,000; and the CVR says 20,000 companies are angel funded per year. So we assumed a ballpark 60,000 software and Internet companies were funded in the past decade.
3 Our definition of “top 10 school” is according to US News & World Report
We’d like to acknowledge some awesome companies who have graduated from our data set.
  • Formidable companies who ‘aged out’ of our analysis include Facebook, LinkedIn, ServiceNow, Splunk, Palantir, Fireeye, Yelp, Tableau Software, Hulu, and Kayak
  • We missed a few impressive companies when we published this analysis in November 2012; and some also joined in the past 1.5 years, but then aged out; these include Demandware, GrubHub, Indeed, Mandiant, and Trulia.
  • A few companies we were tracking in our set fell below a $1bn valuation before publishing, including Castlight Health,, OnDeck, RocketFuel and Whaleshark Media.

What Studying Students Teaches Us About Great Apps

Posted Aug 15, 2014 by Noah Lichtenstein (reposted from TechCrunch)

With over a million apps in each the Apple App Store and the Google Play Store, there’s an app—or 10—for practically everything a consumer needs.  So why is it in an ever-growing sea of competing apps, some take off like rocketships while most fade into obscurity?  The answer is magic.

Magic—much like Unicorns—may not be real per se, but we use it to describe that intangible feeling of delight we get from our favorite apps when they ‘automagically’ just work.  I push a button, and presto! my ride appears.  I snap a goofy picture and shazam! my friends get a good laugh before it disappears into the ether.  I swipe right on a photo of a cute, smart girl, and abracadabra! I’m chatting with someone who also swiped right.  This is what consumer apps feel like when they work.

As mobile software continues on its march to eat the world, we at Cowboy Ventures wondered, are there other untapped or undiscovered apps that have this similar magic?  So, we recently sponsored a survey** of over 1,000 high school and college students, with the help of a team of Stanford undergrads to learn:

  1. What apps are growing in popularity but currently “under the radar”?
  2. What are the most wished-for apps that don’t yet seem to exist?

With big caveats relating to the non-scientific nature of this survey and the methods used for filtering data, here is what we found:

Who’s the Prettiest of Them All?

Sadly, our survey did not uncover any under-the-radar, rapidly growing magical new apps to invest in right before they hit an inflection point.  Instead, we found beyond the established category leaders, students seem to be using a sea of disparate apps.  In fact, of over 3,300 app responses collected, 1,500 unique apps were represented—and no lesser-known app was said to be used frequently by more than 2.7% of respondents.

There are likely several factors behind this.  First, many of the early mobile magic-makers—like Facebook, Instagram, Snapchat, Spotify and WhatsApp—now take up a big chunk of consumers’ active daily hours.  A second reason is that with the declining cost of app development, it is now cheaper than ever to build new apps tailored to serve a particular function.  This has created a massive long-tail of apps to serve practically any consumer need.  And for those apps that have succeeded in delighting users on one platform, many then struggle to translate the experience cross-platform, such as from desktop to mobile phones and tablets.

So Tell Me What You Want, What You Really Really Want

While we didn’t discover any breakout under-the-radar apps, a common wish did emerge from our survey.  To the question: “If you had a magic wand to create an app that you would use every day, what would the app do?” over 20% requested some form of a comprehensive to-do + calendaring + life management app that helps them better organize their lives.  It seems the greatest wish was for a magical “Productivity 2.0” app—something that pulls in all of the information stored on a user’s mobile phone, that intuitively understands their life and working style, and “just works.”

This sentiment might be best captured in the following survey response:

“Push me notifications about everything regarding my calendar–when to wake up [if] I want to workout and my first meeting is at Xam; tell me when to leave for my next meeting and what the best method of transportation is; ping me when someone I am meeting with just emailed me and they are going to be late.  Essentially run my life by pushing instead of me needing to go pull.”

Other examples of requests for an experience that magically weaves together the info on our phone and our digitally-connected environments included: 

  • Context-aware everything — making existing apps smarter based on where you are, what you’re doing, how you’re feeling, etc.
  • What/Where/When to eat — what to eat based on ingredients at home, current diet, current health indicators; where to eat based on location and preferences; when to eat based on health indicators and schedule
  • Aggregate content from across multiple sources — a feed of only your favorite content sources and social networks, weeding out duplicate content and understanding what you’ve already seen
  • Recommend what to wear — based on what you own, what you wore recently, the current weather, where you’re going, how you’re feeling, etc.

To note—while there were no clear rocketships uncovered by our survey, the most popular app listed (2.7%) by students was an education-focused productivity app, Notability.  Notability combines note-taking, lecture recording, document annotations, sketches, worksheets and more into a unified app, and combines this functionality with collaboration and cloud storage features.  So in some ways, Notability delivers what our respondents were requesting – an app that combines multiple features into one app to deliver higher productivity, more magic.

Calling All Magicians

The launch of the iPhone in 2007 was nothing short of magic.  And combined with the commercial launch of the Android platform in 2008, it ushered in a wave of rapid app development so there is now an app for nearly everything.

But, it’s time for a second wave.  If the first wave was all about dedicated apps to do specific things and leverage specific mobile phone features, we think the next wave will be made of new apps that seamlessly pull disparate information on our phones together, and that use multiple capabilities of our devices to deliver new, synthesized mobile experiences that feel like magic.  As early-stage investors, we are in the “searching for magic” business—and we look forward to meeting the entrepreneurs building this next wave of magical apps.

— Aileen Lee contributed to this post


*Many thanks to Daniel LiemRick BarberRyan Hoover, and Wade Vaughn for their help on this project.

**The original survey form can be found here and the complete results can be found here.  To note, 70% of the responses were from California and there was a heavy Stanford influence, which likely skews the data.

***For further reading, you can find a list of our favorite app idea submissions here, along with some of the funnier responses collected.

Why Soma’s Kickstarter Can Help Us Live Our Dreams

Posted Oct 19, 2013 by Kimberly

The future belongs to those who believe in the beauty of their dreams.

– Eleanor Roosevelt

Moving forward with dreams can sometimes be financially challenging. As motivational guru and Soma advisor Tim Ferriss notes in his well-known blog post on how to hack crowdsourcing site Kickstarter, some of the most common issues that can hold us back from living our hearts’ desires include money and fear:

“I don’t have the money to even get started! What if it fails?”

Happily, we can overcome these limiting questions by exploring the reasons why we are thinking them in the first place. With careful planning and a sincere vision for changing the world, Soma managed to fundraise over $145,000 with their Kickstarter initiative; $100,000 of that was raised in the first 10 days of the campaign. Even though co-founder Mike del Ponte and the Soma team didn’t initially have the funds necessary to realize their grand vision, they were able to find a way to make it happen by having faith and working hard.

We can use similar principles used to create Soma’s incredibly successful Kickstarter campaign in our own lives. By making an agenda for reaching our dreams based on thorough research and our gut instincts, we can devise a personalized strategy for moving forward. And we don’t need to have friends in high places like Tim Ferriss in order to do so; fulfilling our hearts’ desires is achievable for anyone. As this one success story of an everyday woman poignantly illustrates, we all have the power to move forward to living more freely, no matter what our financial situation is at this present moment:

“All too often, we let opportunities pass us by because we don’t feel ready, or able, or good enough. But when we take a leap of faith in ourselves, we find out we can do so much more than we ever imagined. Sometimes all we really have to do is believe in our own ability to go after what we want, no matter what our current situation is. When we believe in ourselves, we can recognize the great opportunities in life when they come our way, and trust that now is the time to seize them.”

What I want to emphasize is that this mindset is in no way limited to entrepreneurs; rather, this is a life perspective that can benefit all of us, regardless of our work life or lifestyle.

Confused about the next step to take, and in which direction? When we consider both our intuition and critical planning, it makes it easier to decide where to place our feet, moving forward in our journey.

Accepting what comes and attracting our life’s desires

Having a plan of action and accepting whatever ends up happening along the way are key tools to moving forward successfully. No matter what, always be true to yourself by following through with your intentions. When I’m embarking on a new project or trying to brainstorm alternative, achievable ideas for its execution, it always helps me to remember that there are many different ways for my needs to be met. What I mean is that all of our life’s dreams revolve around meeting our emotional needs — along with our physical needs, too. If I’m planning to write a book and publish my artwork, it might mean that I’m trying to meet my needs for feeling valued, respected, and challenged.

Now, if I have a narrow-minded view that the only way I’ll be able to feel content is if I publish a book in a particular way, through a big-name publishing company, I’ll potentially find myself sorely disappointed. However, if I’m open to the different ways in which I can achieve my goal — such as, self-publishing, making my own, getting a group of friends to help, speaking with local publishers, to name but a few alternatives — then I’m far likelier to not only reach my dream, but also learn a heck of a lot along the way. Which is really what achieving dreams is all about: the life lessons learned during the journey, rather than the actual accomplishment itself.

Had Soma not worked out, I have faith that Mike and the Soma team would have found another way to meet their needs for creating a change-making, sustainable product with strong design and charitable intentions; they simply would have needed to go back to the drawing board and work on some other ideas. But thanks to the clear vision and careful planning that went into their journey toward creating our world’s first all-natural water filter, they’ve experienced a rousing success. Much like the importance of starting with a good story in order to make a good film, it is imperative to begin the process of realizing our dreams with the foundation of a good idea that we’re passionate about. With this approach, we will invariably attract other hardworking, positive people into our lives who can help us to bring our vision to life. At the end of the day, money is just another form of energy, however real a part it may play in our choices.

Remembering that everything is just energy can give us a sense of freedom when we’re exploring opportunities and thinking outside the box.

Exploring the real reasons holding us back

I find myself constantly drawn to role models who have overcome major financial challenges in their lives, like business expert Marie Forleo, who used her significant financial woes as a jumping off point for completely re-making her life. If I’m thinking about holding back on a personal or professional project, people like Marie inspire me to explore what the real issues behind the hold-up are. Am I scared? Do I doubt that I can pull it off? Am I using my lack of money as an excuse for not moving ahead with my dreams?

By committing to working through any psychological and emotional issues that my be attached to my ambitions, I can start to look at the many ways through which I can achieve my goals. When I’m investigating alternative funding options, I usually ask myself these questions: is there anyone in my life willing to lend me the money? Can I do a crowdsourcing campaign? Can I take on extra work? And, my favorite option — is it possible to execute a similar concept using less money or cheaper materials?

Thinking outside the box and making a plan

Sometimes, as with the Soma filter, it is simply not possible to skimp on the quality of our materials and people we work with: the beauty of the Soma water filter lies as much in its high-quality materials as it does in its good intentions. However, for art projects and other more abstract ambitions, often working-on-the-cheap actually fuels creative innovation, like in the case of Scrap Arts Music. Similar to what artist Swoon teaches us about possibilities, finding ways to live our dreams is all about exploring all of the myriad possibilities, and thinking outside the box. Start small, dream big, and keep persevering no matter what. 

Planning is also essential, as we learn from almost everyone’s success stories. Like Soma’s victorious Kickstarter campaign, making a strategy for how we’re going to go about accomplishing our dreams is vital. Consider breaking down your dream into smaller, achievable weekly goals. When we see that something is actually manageable, we are far more likely to actively move forward with it. Do research in your area of passion, while starting to network with as many people as you can with shared interests and values. Devote energy to manifesting the financial and practical aspects of your vision. It’s amazing how direct an effect that positive thinking has on our life’s course.

Creating a thought-through plan and breaking down our goals into smaller, achievable steps will help us to pro-actively reach for our dreams.

What is your big dream in life? Are money issues holding you back? Try thinking of three alternative ways that you could begin moving forward with your vision today. And then, get to it!

 To accomplish great things, we must not only act, but also dream; not only plan, but also believe.

– Anatole France

– See more at:

The Next Chapter for Librato

Posted July 25, 2013 by Fred van den Bosch


I’m thrilled to announce that we have raised $3.8M in a Series A round of funding that was led by Baseline VenturesHarrison Metal and Cowboy Ventures. The group of angel investors that supported us with $1.25M of seed funding also participated. Steve Anderson of Baseline has joined our board.

Since we launched in March of 2012 we’ve grown to over 500 customers, processing billions of data points each day. Along the way we’ve also learned a great deal from our customers and have a solid list of expansions and improvements that will allow us to cover even more use cases, and make our service even easier to use. With this infusion of capital we will accelerate the pace at which we build out our service and also add more turn-key solutions, like our successful AWS CloudWatch integration.

Baseline, Harrison Metal and Cowboy have backed some of the most successful technology companies in Silicon Valley and we’re excited that they are supporting us in our quest to change the way companies monitor and manage their operations.

All of this also means that we’re growing our team. If you, or anyone you know, is interested in working with smart and passionate people to change the world of operations monitoring, check out our open jobs.

Welcome To The Unicorn Club: Learning From Billion-Dollar Startups

Posted Nov 2, 2013 by Aileen Lee

Many entrepreneurs, and the venture investors who back them, seek to build billion-dollar companies.

Why do investors seem to care about “billion dollar exits”? Historically, top venture funds have driven returns from their ownership in just a few companies in a given fund of many companies. Plus, traditional venture funds have grown in size, requiring larger “exits” to deliver acceptable returns. For example – to return just the initial capital of a $400 million venture fund, that might mean needing to own 20 percent of two different $1 billion companies, or 20 percent of a $2 billion company when the company is acquired or goes public.

So, we wondered, as we’re a year into our new fund (which doesn’t need to back billion-dollar companies to succeed, but hey, we like to learn): how likely is it for a startup to achieve a billion-dollar valuation? Is there anything we can learn from the mega hits of the past decade, like FacebookLinkedIn and Workday?

To answer these questions, the Cowboy Ventures team built a dataset of U.S.-based tech companies started since January 2003 and most recently valued at $1 billion by private or public markets. We call it our “Learning Project,” and it’s ongoing.

With big caveats that 1) our data is based on publicly available sources, such as CrunchBase, LinkedIn, and Wikipedia, and 2) it is based on a snapshot in time, which has definite limitations, here is a summary of what we’ve learned, with more explanation following this list*:

Learnings to date about the “Unicorn Club”:

  1. We found 39 companies belong to what we call the “Unicorn Club” (by our definition, U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors). That’s about .07 percent of venture-backed consumer and enterprise software startups.
  1. On average, four unicorns were born per year in the past decade, with Facebook being the breakout “super-unicorn” (worth >$100 billion). In each recent decade, 1-3 super unicorns have been born.
  1. Consumer-oriented unicorns have been more plentiful and created more value in aggregate, even excluding Facebook.
  1. But enterprise-oriented unicorns have become worth more on average, and raised much less private capital, delivering a higher return on private investment.
  1. Companies fall somewhat evenly into four major business models: consumer e-commerce, consumer audience, software-as-a-service, and enterprise software.
  1. It has taken seven-plus years on average before a “liquidity event” for companies, not including the third of our list that is still private. It’s a long journey beyond vesting periods.
  1. Inexperienced, twentysomething founders were an outlier. Companies with well-educated, thirtysomething co-founders who have history together have built the most successes
  1. The “big pivot” after starting with a different initial product is an outlier.
  1. San Francisco (not the Valley) now reigns as the home of unicorns.
  1. There is very little diversity among founders in the Unicorn Club.

Some deeper explanation and additional findings:

1) Welcome to the exclusive, 39-member Unicorn Club: the Top .07%

  • Figuring out the denominator to unicorn probability is hard. The NVCA says over 16,000 internet-related companies were funded since 2003; Mattermark says 12,291 in the past 2 years; and theCVR says 10-15,000 software companies are seeded each year. So let’s say 60,000 software and internet companies were funded in the past decade. That would mean .07 percent have become unicorns. Or, 1 in every 1,538.
  • Takeaway: it’s really hard, and highly unlikely, to build or invest in a billion dollar company. The tech news may make it seem like there’s a winner being born every minute — but the reality is,the odds are somewhere between catching a foul ball at an MLB game and being struck by lightning in one’s lifetime. Or, more than 100x harder than getting into Stanford.
  • That said, these 39 companies have shown it’s possible  – and they do offer a lot that can be learned from.


2) Facebook is the super-unicorn of the decade (by our definition, worth >$100B). Every major technology wave has given birth to one or more super-unicorns

  • Facebook is what we call a super-unicorn: it accounts for almost half of the $260 billion aggregate value of the companies on our list. (As such, we excluded them from analysis related to valuations or capital raised)
  • Prior decades have also given birth to tech super-unicorns. The 1990s gave birth to Google, currently worth nearly 3x Facebook; and Amazon, worth ~ $160 billion. The 1980’s: Cisco. The 1970s: Apple (currently the most valuable company in the world), Oracle, and Microsoft; and Intel was founded in the 1960s.
  • What do super-unicorns have in common? The 1960s marked the era of the semiconductor; the 1970s, the birth of the personal computer; the 1980s, a new networked world; the 1990s, the dawn of the modern Internet; and in the 2000s, new social networks were built.
  • Each major wave of technology innovation has given rise to one or more super-unicorns — companies that could change your life to work at or invest in, if you’re not lucky/genius enough to be a co-founder. This leads to more questions. What is the fundamental technology change of the next decade (mobile?); and will a new super-unicorn or two be born as a result?

Only four unicorns are born per year on average. But not all years have been as fertile:

  • The 38 companies on our list outside of Facebook are worth about $3.6 billion on average. This might feel like a letdown after reading about super-unicorns, but remember, startups generally start as ideas that most people think are crazy, dumb, or not that important (remember when people ridiculed Twitter as the place to share that you were eating a ham sandwich?). Only after many years and extraordinary good fortune, a few grow into unicorns, which is extremely rare and pretty awesome.
  • Unicorn founding was not front-end-loaded in the past decade. The best year was 2007 (8 of 36); the fewest were born in 2003, 2005 and 2008 (as far as we know today; there are none yet founded in 2011 to today). From this snapshot in time, it’s not clear whether the number of unicorns per year is changing over time.
  • It would be interesting to plot the trajectory of unicorns over time  — which become more valuable and which fall off the list — and to understand the list of potential unicorns-in-waiting, currently valued at <$1 billion. Hopefully for a future post.


3) Consumer-oriented companies have created the majority of value in the past decade

Venture investing into early-stage consumer tech companies has cooled significantly in the past year. But it’s worth realizing that:

  • Three consumer companies — Facebook, Google and Amazon — have been the super-unicorns of the past two decades.
  • There are more consumer-oriented than enterprise unicorns, and they have generated more than 60 percent of the aggregate value on our list outside of Facebook.
  • Our list likely seriously underestimates the value of consumer tech. Of the 14 still-private companies on our list, 85 percent are consumer-oriented (e.g.TwitterPinterestZulily). They should see a significant step up in value if/when a liquidity event occurs, increasing the aggregate value of the consumer unicorns.

4) Enterprise-oriented unicorns have delivered more value per private dollar invested

  • One reason why enterprise ventures seem so attractive right now: the average enterprise-oriented unicorn on our list raised on average $138 million in the private markets – and they are currently worth 26x their private capitalraised to date.
  • The companies that seriously improved this metric are NiciraSplunk andTableau, who all raised <$50 million in private markets and are worth $3.8 billion today on average.
  • Plus Workday, ServiceNow and FireEye who are currently worth >60x the private capital raised. Wow.
  • Contrary to conventional VC wisdom about enterprise companies requiring more early-stage capital, we didn’t see a difference in Series A dollars raised by enterprise versus consumer unicorns.

Consumer companies have delivered less value per private dollar invested

  • The consumer unicorns have raised $348 million on average, ~2.5x more private capital than enterprise unicorns; and they are worth about 11x the private capital raised.
  • Companies who raised lots of private money relative to their most recent valuation are FabGilt GroupeGrouponHomeAway and Zynga.
  • It may just take more capital to build a super successful consumer tech company in a “get big fast” world; and/or, founders and investors are guilty of over-capitalizing consumer Internet companies at too-high valuations in the past decade, driving lower returns for consumer tech investors.

5) Four primary business models drive the value and network effects help

  • We categorized companies into four business models, which share fairly equally in driving value in aggregate: 1) E-commerce: the consumer pays for goods or services (11 companies); 2) Audience: free for consumers, monetization through ads or leads (11 companies); 3) SaaS:Users pay (often via a “freemium” model) for cloud-based software (7 companies); and 4) Enterprise: Companies pay for larger scale software (10 companies).
  • None of the e-commerce companies on our list hold physical inventory as a key part of their business models. Despite that, e-commerce companies raised the most private dollars on average — delivering the lowest valuations vs capital raised, and likely driving the recent cool down in e-commerce investing.
  • Only four of the 38 companies are mobile-first. Not surprising, the iPhone was only launched in 2007 and the first Android device in 2008.
  • Another characteristic almost half of the companies on our list share: network effects. Network effects in the social age can help companies scale users dramatically, seriously reducing capital requirements (YouTube and Instagram) and/or increasing valuations quickly (Facebook).

6) It’s a marathon, not a sprint: it takes 7+ years to get to a “liquidity event”

  • It took seven years on average for 24 companies on our list to go public or be acquired, excluding extreme outliers YouTube and Instagram, both of which were acquired for over $1 billion in about two years since founding.
  • 14 of the companies on our list are still private, which will increase the average time to liquidity to eight-plus years.
  • Not surprisingly, enterprise companies tend to take about a year longer to see a liquidity event than consumer companies
  • Of the nine companies that have been acquired, the average valuation was $1.3 billion; likely a valuation sweet spot for acquirers to take them off the market before they become less affordable

7) The twentysomething inexperienced founder is an outlier, not the norm

  • The companies on our list were generally not founded by inexperienced, first-time entrepreneurs. The average age on our list of founders at founding is 34. Yes, the founders of Facebook were on average 20 when it was founded; but the founders of LinkedIn, the second-most valuable company on our list, were 36 on average; and the founders of Workday, the third-most valuable, were 52 years old on average.
  • Audience-driven companies like Facebook, Twitter and Tumblr have the youngest founders, with an average age at founding of 30 (seemingly eminent unicorn Snapchat will lower this average). SaaS and e-commerce founders averaged aged 35 and 36; enterprise software founders were 38 on average at founding.

Co-founders with years of history together have driven the most successes

  • A supermajority (35) of the unicorns on our list have chosen to blaze trails with more than one founder — with three co-founders on average. The role of co-founders varies from Co-CEOs (Workday) to technical co-founders who live in a different country ( Looking at co-founder equity stakes at liquidity might be another interesting way to look at founder status, which we have not done.
  • Ninety percent of co-founding teams comprise people who have years of history together, either from school or work; 60 percent have co-founders who worked together; and 46 percent who went to school together.
  • Teams that worked together have driven more value per company than those who went to school together.
  • Only four teams of co-founders didn’t have common work or school experience, but all had a common thread. Two were known and introduced by the investors at founding/funding; one team was friends in the local tech scene; and one team met while working on similar ideas.
  • That said, the four unicorns with sole founders (ServiceNow, FireEye, RetailMeNot, Tumblr — half enterprise, half consumer) have all had liquidity events and are worth more on average than companies with co-founders.


Most founding CEOs scale their companies for the long run. But not all founders stay for the whole journey

  • An impressive 76 percent of founding CEOs led their companies to a liquidity event, and 69 percent are still CEO of their company, many as public company CEOs. This says a lot about these founders in terms of their long-term vision, commitment and their capability to scale from almost nothing in terms of money, product, and people, to their current unicorn company status.
  • That said, 31 percent of companies did make a CEO change along the way; and those companies are worth more on average. One reason: about 40 percent of the enterprise companies made a CEO change (versus 25 percent of consumer companies). And all CEO changes prior to a liquidity event were at enterprise companies that added seasoned, “brand-name” leaders to their helms prior to being bought or going public.
  • Only half of the companies on our list show all original founders still working in the company. On average, 2 of 3 co-founders remain.

Not their first rodeo: founders have lots of startup and tech experience

  • Nearly 80 percent of unicorns had at least one co-founder who had previously founded a company of some sort. Some founders showed their entrepreneurial DNA as early as junior high. The list of prior startups co-founded spans failure and success; and from tutoring and bagel delivery companies, to PayPal and Twitter.
  • Only two companies were founded by leaders without prior experience working in tech/software; and only three of 38 did not have a technical co-founder on board (HomeAway and RetailMeNot, founded as industry rollups; and Box, founded in college).
  • The majority of founding CEOs, and 90 percent of enterprise CEOs have technical degrees from college.

An educational barbel: many “top 10 school grads” and dropouts

  • The vast majority of all co-founders went to selective universities (e.g. Cornell, Northwestern, University of Illinois).  And more than two-thirds of our list has at least one co-founder who graduated from a “top 10 school.”
  • Stanford leads the roster with an impressive one-third of the companies having at least one Stanford grad as a co-founder. Former Harvard students are co-founders in eight of 38 unicorns; Berkeley in five; and MIT grads in four of the 38 companies.
  • Conversely, eight companies had a college dropout as a co-founder. And three out of five of the most valuable companies (Facebook, Twitter and ServiceNow) on our list were or are led by college dropouts, although dropouts with tech-company experience, with the exception of Facebook.

8) The “big pivot” is also an outlier, especially for enterprise companies

  • Few companies are the result of a successful pivot. Nearly 90 percent of companies are working on their original product vision.
  • The four “pivots” after a different initial product were all in consumer companies (Groupon, Instagram, Pinterest and Fab).

9) The Bay Area, especially San Francisco, is home to the vast majority of unicorns

  • Probably not a surprise, but 27 of 39 on our list are based in the Bay Area. What might be a surprise is how much the center of gravity has moved to San Francisco from the Valley: 15 unicorns are headquartered in San Francisco; 11 are on the Peninsula; and one is in the East Bay.
  • New York City has emerged as the No. 2 city for unicorns, home to three. Seattle (2) and Austin (2) are the next most-concentrated cities for unicorns.

10) There is A LOT of opportunity to bring diversity into the founders club

  • Only two companies have female co-founders: Gilt Groupe and Fab, both consumer e-commerce. And no unicorns have female founding CEOs.
  • While there is some ethnic diversity on founding teams, the diversity of founders in the unicorn club is far from the diversity of college grads with relevant technical degrees. Feels like some important records to break.

So, what does this all mean?

For those aspiring to found, work at, or invest in future unicorns, it still means anything is possible. All these companies are technically outliers: they are the top .07 percent. As such, we don’t think this provides a unicorn-hunting investor checklist, i.e. 34-year-old male ex-PayPal-ers with Stanford degrees, one who founded a software startup in junior high, where should we sign?

That said, it surprised us how much the unicorn club has in common. In some cases, 90 percent in common, such as enterprise founder/CEOs with technical degrees; companies with 2+ co-founders who worked or went to school together; companies whose founders had prior tech startup experience; and whose founders were in their 30s or older.

It is also good to be reminded that most successful startups take a lot of time and commitment to break out. While vesting periods are usually four years, the most valuable startups will take at least eight years before a “liquidity event,” and most founders and CEOs will stay in their companies beyond such an event. Unicorns also tend to raise a lot of capital over time — way beyond the Series A. So these founding teams had the ability to share a compelling company vision over many years and rounds of fundraising, plus scale themselves and recruit teams, despite economic ups and downs.

We tip our hats to these 39 companies that have delighted millions of customers with fantastic products and generated so much value in just 10 years despite a crowded startup environment. They are the lucky/genius few of the Unicorn Club – and we look forward to learning about (and meeting) those who will break into this elite group next.

Social Proof Is The New Marketing

Posted Nov 27, 2011 by Aileen Lee

As I’ve written about before, we’re in an amazing period of the consumer Internet.  Despite a shaky economy, many web companies are in hypergrowth.  This is reminiscent of the five-year period over a decade ago when companies like Amazon, Netscape, eBay, Yahoo, Google and PayPal were built.

One challenge, which isn’t new, is the battle for consumer attention.  If you’re looking to grow your user base, is there a best way to cost-effectively attract valuable users?  I’m increasingly convinced the best way is by harnessing a concept called social proof, a relatively untapped gold mine in the age of the social web.

What is social proof?  Put simply, it’s the positive influence created when someone finds out that others are doing something.  It’s also known as informational social influence.

Wikipedia describes social proof as “a psychological phenomenon where people assume the actions of others reflect the correct behavior for a given situation… driven by the assumption that the surrounding people possess more information about the situation.” In other words, people are wired to learn from the actions of others, and this can be a huge driver of consumer behavior.

Consider the social proof of a line of people standing behind a velvet rope, waiting to get into a club.  The line makes most people walking by want to find out what’s worth the wait.  The digital equivalent of the velvet rope helped build viral growth for initially invite-only launches like Gmail, Gilt Groupe, Spotify, and

Professor Robert Cialdini, a thought leader in social psychology, has many examples. In one study, his team tested messages to influence reusing towels in hotel rooms.  The social proof message – Almost 75% of other guests help by using their towels more than once” had 25% better results than all other messages.  And adding the words “of other gueststhat stayed in this room” had even more impact (also an example of how A/B testing of small details matters). 

In another study, a restaurant increased sales of specific dishes by 13-20%just by highlighting them as “our most popular items”.  SP also works on your subconscious – it’s the reason why comedy shows often use a laugh track or audience; people actually laugh more when they can hear other people laughing.

Five Types of Social Proof

If you’re a digital startup, building and highlighting your social proof is the best way for new users to learn about you.  And engineering your product to generate social proof, and to be shared through social networks like Facebook, Twitter, Google+, Tumblr, YouTube, Pinterest and others, can multiply the discovery of your product and its influence.  Think of it as building the foundation for massively scalable word-of-mouth.  Here’s a “teardown” on various forms of social proof, and how some savvy digital companies are starting to measure its impact.

1) Expert social proof – Approval from a credible expert, like a magazine or blogger, can have incredible digital influence.  Examples:

  • Visitors referred by a fashion magazine or blogger to designer fashion rentals online atRent the Runway drive a 200% higher conversion rate than visitors driven by paid search.
  • Klout identifies people who are topical experts on the social web. Klout invited 217 influencers with high Klout scores in design, luxury, tech and autos to test-drive the new Audi A8.  These influencers sparked 3,500 tweets, reaching over 3.1 million people in less than 30 days – a multiplier effect of over 14,000x.
  • Mom-commerce daily offer site Plum District also reached mom influencers thru Klout, and found customers referred by influential digital moms shop at 2x the rate of customers from all other marketing channels.

2) Celebrity social proof – Up to 25% of U.S. TV commercials have used celebrities to great effect, but only a handful of web startups have to date.  Some results:

  • In 1997, was one of the first web startups to use a celebrity endorser –William Shatner – not a travel expert, but seemingly obsessed with saving consumers money.  It has been a huge win; Priceline now has a $23 billion market cap, and the fee Shatner took in shares is estimated to be worth $600 million.
  • Trendyol, the fastest-growing fashion ecommerce company in Turkey, regularly launches merchandise campaigns with the endorsement of celebrities. This practice increases site traffic by 2.5x and product sell-through by 30%.
  • ShoeDazzle launched with celebrity Kim Kardashian as chief stylist. Her involvement helped leapfrog the company to an estimated $25m in 2010 and $70 million in 2011 sales, plus a recent $40m financing.  Celebrity endorsement by Jessica Simpson and aesthetician Nerida Joy recently helped Beautymint attract 500,000 visitors in the first 24 hours of its launch.
  • The most authentic (and cost-effective) celebrity social proof is unpaid. Forhome décor site One Kings Lane, a 2010 unpaid mention in Gwyneth Paltrow’s influential blog GOOPprovided a 90% lift in daily sign-ups vs. the previous 4 days’ average.  Celebrity use by Sir Mix-A-Lot and producerDiplo generated viral buzz, helping the company skyrocket to 140,000 active users in just 4 weeks.

3) User social proof  – Direct TV marketers are masters at sharing user success stories. (fascination with this was actually the inspiration for this blog post).  Companies mastering this digitally include:

  • More than 61 million people visit Yelp (working on an upcoming IPO) each month to read user reviews.  And reviews drive revenue; a recent HBS study showed that a 1-star increase in Yelp rating leads to 5-9%growth in sales.
  • User-generated videos (UGVs) are a growing and important social proof phenomenon.  Early visitors to Shoedazzle watched more than 9 UGVs on average, helping catapult sales; and user testimonials on YouTube drove a 3x conversion rate vs. organic visitors for Beachbody, the makers of P90x fitness.
  • Negative user social proof is also important to track. The first negative user review oneBay has been shown to reverse a seller’s weekly growth rate from 5% to -8%. It also hurts pricing; a 1% increase in negative feedback has been shown to lead to a 7.5% decrease in sale price realized.

4) Wisdom of the crowds social proof – Ray Kroc started using social proof in 1955 by hanging an “Over 1 Million Served” sign at the first McDonald’s.  Highlighting popularity or large numbers of users implies “a million people can’t be wrong.”  Some digital examples:

  • Fashion e-tailer Modclothenables its community to “Be the Buyer” by voting on which styles they think Modcloth should sell in the future.  Shoppers take strong cues from the community; styles with the “Be the Buyer” badge sell at 2x the velocity of un-badged styles.
  • Callaway Digital Arts finds that when any of their kids’ iPad apps is listed as a top 10 most popular app in the iTunes App Store “Top Charts,” daily downloads vault 10x over the prior week – but being the No. 1 most popular app drives 30-50% more daily downloads than being No. 2.
  • Greentech company Opower uses social proof to help reduce electricity consumption. It works: Opower sees an 80% response rate to e-mails citing how a household’s use compares with the neighborhood, which has driven more than 500 million kilowatt hours of savings so far.

5) Wisdom of your friends social proof – Learning from friends thru the social web is likely the killer app of social proof in terms of 1:1 impact, and the potential to grow virally.  Some examples:

  • Friends inviting friends to play through Facebook and other social networks helped Zyngagrow from 3 million to 41 million average daily users in just one year, from 2008 to 2009.
  • Moms, arguably the most valuable demographic on the social web, rely heavily on friends and family recommendations.  A recent Babycenter study showed moms rely on the wisdom of their friends 67% more than average shoppers; and they rely on social media 243% more than the general population.
  • Friends referred by friends make better customers.  They spend more (a 2x higher estimated lifetime value than customers from all other channels at One Kings Lane); convert better (75% higher conversion than renters from other marketing channels atRent the Runway); and shop faster (they make their first purchase after joining twice as quickly than referrals from other channels at Trendyol)
  • They also make better contributors.  People who see content from their friends onTripAdvisor contribute personal content to the site at 2x the rate of others, and are 20% more engaged than other users.

Building Your Social Proof

Will one form of social proof work best for your company? Maybe, but companies likeLegalZoom have found that a “mixed salad” of various types of social proof is most effective.  The beauty of the web is you can test, learn and iterate quickly to find what works best.

To note, I don’t think a social proof strategy will be effective if you don’t start with a great product that delights customers, and that people like well enough to recommend.  How do you know if you have a great product?  Track organic traffic growth, reviews, ratings and repeat rates.  And measure your viral coefficient – if your site includes the ability to share, what percentage of your daily visitors and users share with others? How is the good word about your product being shared outside your site on the social web?  Do you know your Net Promoter Score, and your Klout score?

In the age of the social web, social proof is the new marketing.  If you have a great product waiting to be discovered, figure out how to build social proof around it by putting it in front of the right early influencers.  And, engineer your product to share the love.  Social proof is the best way for new users to learn why your product is great, and to remind existing users why they made a smart choice.

P.S.  FOMO, or the psychological phenomenon known as “Fear Of Missing Out,” is also a form of social proof.  As people are wired to learn from others, they are also wired to want things in short supply.  FOMO is a great forcing function on decision-making, as evidenced by the incredible growth of ecommerce flash sales. A friend at another venture firm has posted on his office wall “Is it FOMO, or is it real?” because it also happens in venture financings.  Maybe a topic for a future post.

Why Women Rule The Internet

Posted Mar 20, 2011 by Aileen Lee

It feels like we’re in a Golden Age of the web, led by consumer internet services and e-commerce.  Just consider these stats: Facebook—over 600 million users.  Twitter—25 billion tweets last year. Tumblr—1 billion page views a week.  Zynga—100 million users on Cityville in just 6 weeks.  We’re witnessing a generation of consumer web companies growing at an unprecedented rate in terms of both user adoption and revenue.

But here’s a little secret that’s gone unnoticed by most.  It’s women.  Female users are the unsung heroines behind the most engaging, fastest growing, and most valuable consumer internet and e-commerce companies.  Especially when it comes to social and shopping, women rule the Internet.

Consider some more data. Comscore, Nielsen, MediaMetrix and Quantcast studies all show women are the driving force of the most important net trend of the decade, the social web.Comscore says women are the majority of users of social networking sites and spend 30% more time on these sites than men; mobile social network usage is 55% female according toNielsen.

In e-commerce, female purchasing power is also pretty clear.  Sites like Zappos (>$1 billion in revenue last year), Groupon ($760m last year), Gilt Groupe ($500m projected revenue this year), Etsy (over $300m in GMV last year), and Diapers ($300m estimated revenue last year) are all driven by a majority of female customers.  According to Gilt Groupe, women are 70% of the customer base and they drive 74% of revenue.  And 77% of Groupon’s customers are female according to their site.

Women even shop more on Chegg, which offers textbook rentals on college campuses across the country. Males and females attend college at an almost even rate. Renting would seem an equal opportunity money saver, plus it’s better for the planet.  But according to Chegg, females are 65% of renters.  Why? Renting requires a little more advanced planning.  Chegg’s research shows women are more inclined to plan ahead than men. And, they seem to care more about saving money, and are more likely to be influenced by a friend’s recommendation.

It’s no accident launched a program called “Amazon Mom” last year, or that they bought both Zappos and Quidsi (parent company of, and for almost $1.8 billion in total.  According to the US Census Bureau, women oversee over 80% of consumer spending, or about $5 trillion dollars annually. Women control the purse strings when it comes to disposable income. That’s long been the case.

But what’s different now is that there is an exciting new crop of e-commerce companies building real revenue and real community, really fast, by purposefully harnessing the power of female consumers.  One Kings LanePlum DistrictStella & DotRent the Runway,ModclothBirchBoxShoedazzleZazzleCallaway Digital Arts, and Shopkick are just a few examples of companies leveraging “girl power.”  The majority of these companies were also founded by women, which is also an exciting trend.

And take a look at four of the new “horsemen” of the consumer web—FacebookZynga,Groupon and Twitter.  This may surprise you, the majority of all four properties’ users are female.  Make that “horsewomen”.

Sheryl Sandberg, COO of Facebook, has talked about how women are not only the majority of its users, but drive 62% of activity in terms of messages, updates and comments, and 71% of the daily fan activity.  Women have 8% more Facebook friends on average than men, and spend more time on the site.  According to an early Facebook team member, women played a key role in the early days by adopting three core activities—posting to walls, adding photos and joining groups—at a much higher rate than males.  If females had not adopted in the early days, I wonder if Facebook would be what it is today. (Why do you think all the guys showed up?)

How about gaming, seemingly a bastion of men in their man caves?  The titan of social gaming, Zynga, says 60% of players are female.  And a survey by PopCap shows females are the majority of social and casual game players. In fact, they note the average social gamer is likely a 43-year-old woman.

And more women use Twitter, which has a reputation for being a techie insider’s (i.e., male) product.  Women follow more people, tweet more, and have more followers on average than men, according to bloggers Dan Zarella and Darmesh Shaw’s analyses.

Brian Solis’s analysis shows females are the majority of visitors on the following sites, which he calls “matriarchys”:  Twitter, Facebook,, Docstoc, Flickr, Myspace, Ning,, uStream,, Bebo and Yelp.  The one “patriarchy” site he notes, where males > females:  Digg.

Yes, women also rock sites like Opentable and Yelp. According to Yelp, while half of their traffic is male, the majority of contributors and ecommerce purchasers are female.  And according to OpenTable, the majority of bookings are overwhelmingly made by females.  Why?  Likely because women drive most decisions about where to go and where to eat.

Perhaps none of this is surprising.  Women are thought to be more social, more interested in relationships and connections, better at multi-tasking.  There is also anthropological research to back this up.  Dave Morin of Path introduced me to Dunbar’s Number, proposed by the anthropologist Robin Dunbar.  The number is the theoretical limit of how many people with whom one can maintain stable relationships (thought to be 150).  But Dunbar’s most recent research shows there are different numbers for women than men—that women are able to maintain quantitatively more relationships within every ring of closeness than men.  Knowing that is an important factor if you want to build and stoke social network effects.  More female users will likely help your company grow faster.

So, if you’re at a consumer web company, how can this insight help you.  Would you like to lower your cost of customer acquisition?  Or grow revenue faster?  Take a look at your product, your marketing, your customer base.  Maybe you would benefit from having a larger base of female customers.  If so, what would you change to make your product/service more attractive to female customers?  Do you do enough product and user interface testing with female users?  Have you figured out how to truly unleash the shopping and social power of women?

You could also take a look at your team.  Do you have women in key positions? If you’re planning on targeting female customers, I can’t imagine why you wouldn’t want to have great women on your team.

If you are already targeting female customers, have great women working in your company, and are seeing strong commerce and social network effects, congratulations.  You are likely trying to figure out how to handle hypergrowth right now.  Plus your office probably smells pretty good.

Women are the routers and amplifiers of the social web.  And they are the rocket fuel of ecommerce.  The ongoing debate about women in tech has been missing a key insight. If you figure out how to harness the power of female customers, you can rock the world.