Atari founder Nolan Bushnell once said that the best video games are easy to learn and nearly impossible to master.

I believe that a related concept holds for building foundational consumer internet companies. Two characteristics that I always look for in startups are the founder’s ability to describe what they do in less than five seconds, and a product or service that’s exceptionally hard to build well. Those two characteristics may sound as though they’re in opposition, but it turns out that the best companies can be simultaneously very easy to understand and very hard to do.

A successful consumer internet company must be easy to understand

“In a world of abundance, the only scarcity is human attention.” — Kevin Kelly, The Inevitable

Humans have short attention spans, and the competition for mindshare has never been greater. Today, the most successful products in consumer internet tend to be those that achieve high degrees of virality. Word of mouth, in particular, is an especially important driver of distribution for world-class products. Only products that are extremely simple to understand — such as DoorDash, Niantic or Coinbase — can thrive in the telephone-chain word-of-mouth distribution channel.

Here’s an example: Imagine talking with a friend about something like Doppler Labs’ Here One earbuds. Though this hardware product had standout features and was unlike other earbuds on the market, it was difficult to explain what made them special. A conversation might sound something like, “They’re kind of like headphones, but really, they’re augmented reality for audio. You can phase in and out background noise. No, it’s not the same as adjusting volume or noise-canceling… but yes, you can use them to listen to music.” It’s not hard to predict that a message like this might not easily catch on.

Compare this to a product like Robinhood. You might say something such as, “It’s an app to buy and sell stocks on your phone without paying commission.” The succinct description instantly showcases the company’s value for consumers, and it’s memorable. Most people can understand how the product works, which makes it clear why Robinhood’s message sticks and can generate strong word-of-mouth distribution.

The less obvious insight is that this phenomenon can also work in startups’ benefit to attract capital. Founders who can quickly articulate their product and business model have the advantage of appealing to a large amount of investors.

Even more, a product or startup must be hard to do

Being able to concisely describe what a company does is just one part of the blueprint for success. While having a message and value proposition that are easy to understand and talk about are critical to growth, to become extremely valuable a startup must also build a product that’s hard to do.

Some verticals, like direct-to-consumer brands, can have a large number of companies that offer a similar product even after some have reached a moderate scale. While it’s never been easier to get to market with a new product in this vertical (good), it’s also a lot less likely for a single, super valuable company to capture the entire market (bad, at least from the perspective of a venture capitalist).

In contrast, when a business builds something that is hard to do well, they effectively construct a moat, or a sustainable competitive advantage. Nearly all startup pitches include a conversation around moats and the barrier to entry, and rightfully so. Building a moat allows a company to become a compounding franchise and accrue outsized profits over the long run.

The blueprint for consumer success

Using this framework, companies can be classified into one of four quadrants when we evaluate whether or not they follow the blueprint for consumer success.

Easy to understand, hard to do

As described, this is the magic quadrant for consumer internet companies. Companies in this quadrant have a simple message that can be explained in five seconds or less, along with a component that’s hard to do. This may be an engineering build, regulatory approvals, cracking a network effect at scale or building a brand that resonates:

• Coinbase: Crypto is a notoriously complex vertical to understand, but the magic of Coinbase is that it doesn’t require a person to have any specific knowledge to use the product. By abstracting away the complexities of safely buying and storing crypto, Coinbase brought crypto to the mass market. Despite the simplicity of Coinbase’s product, the infrastructure that makes it possible is one of the most sophisticated engineering builds I’ve ever seen. For instance, keeping 98%+ of crypto deposits in cold storage while enabling instantaneous transaction ability is not a straightforward feat or something that people think about, but it’s critical to the ultimate product experience. Even more, the security infrastructure is a moving target that requires Coinbase to constantly innovate. Coinbase also remains one of the few scaled crypto exchanges/brokerages that have never been hacked.
• Niantic: Niantic is a mobile game producer and the maker of Pokémon GO and Harry Potter: Wizards Unite. Niantic lands in the “easy to understand, hard to do” category because the best games need little explanation; players simply open the app and start playing. Yet, there are few other companies that could successfully replicate the infrastructure that supports 100 million simultaneous instances in a single shared world geospatial game.
• DoorDash: While DoorDash offers a drop-dead simple value proposition of better food delivery, the company has actually built a highly sophisticated software and operations stack that is really a next-generation last-mile logistics backbone. Much like FedEx or UPS, which were really software companies with trucks and drivers on the front end, DoorDash software controls every step of the process, from order batching, timing of food preparation, traffic analysis and driver availability. DoorDash has largely out-executed competition because they recognized that better software and operations unlock a better product and a better business. For example, they solved reserved parking for dashers, and partnered with national chains to expand to non-urban markets. DoorDash also had to crack sufficient density in a geo-specific three-sided marketplace (restaurants, dashers, consumers), which is no small task.

Easy to understand, easy to do

Companies that are easy to understand may be able to get widespread, frictionless distribution, but those that are easy to do fall usually short when it comes to building a moat, or genuine competitive advantage. Brilliant marketing is not enough to prevent duplication, and business models that can be copied with something as simple as contract manufacturing may soon find themselves sidelined by competitors:

• Juicero: No example comes to mind more quickly than Juicero. The Juicero Press was an expensive Wi-Fi-connected device that utilized single-serving, pre-juiced fruit and vegetable packets sold via an exclusive subscription model. Juicero was easy to explain, but its technology wasn’t truly hard to do. Customers caught on to the fact that they didn’t actually need their device or Wi-Fi to make juice with the packets — they could do it with their hands by squeezing the packs. And there were significant alternatives in the market. The company shut down after 16 months in business.
• BlueSmart: BlueSmart, a smart luggage company, serves as another good example of a company that was easy to understand and had a clear use case. Unfortunately, there was little about the product that was hard to do — it faced stiff competition from other smart suitcase companies as well as incumbents. Away, for example, came to market at a similar time and was able to out-execute on brand. The final blow came when airlines began banning lithium batteries, which the company decided they wouldn’t be able to sufficiently differentiate without.

Hard to understand, hard to do

Companies that are hard to do — perhaps they offer multiple products or elaborate models — can be difficult to articulate, which often causes the message to become distorted. As a result, these companies often have low virality. They can experience the same fate when it comes to attracting capital, as only a narrow set of investors will feel comfortable understanding the scope of what they do:

• Doppler Labs: As mentioned, Doppler Labs headphones were hard to explain. They were different than any other headphones on the market and needed to be distinguished as such, but people failed to understand what set them apart and why they were valuable. While the technology to build the product may have been hard to do, that alone was insufficient to create a valuable company.
• Cryptocurrency projects: “Crypto projects” are those where the core of the product (and often the investment security) requires at least some understanding of the cryptographic math and token economics to grasp what’s special about what they’re doing. Crypto projects are naturally harder to do because the nuts and bolts of crypto are complicated. That said, some of the most articulate founders in crypto can communicate their projects as easily as one can communicate a consumer marketplace.

Hard to understand, easy to do

Companies that are hard to understand and easy to do are the least appealing to investors, as they have a message that’s hard for consumers to grasp and low virality. They will struggle to build a moat. Put simply, they lack a real competitive advantage and are difficult to grow:

• Consumer lending companies: Undifferentiated consumer lending companies often have models, investment criteria or loan requirements that are hard for investors to understand. Though there may be moving parts, many lending companies rely on a simple funding and underwriting model that does the same thing: Checks a borrower’s credit score and/or bank account, connects to sources of capital and then originates the loan. Without anything special to differentiate it, a lending company may be easily forgotten in a crowded space.
• Theranos: Theranos marketed itself as a new kind of healthcare company that could run lab tests with smaller amounts of blood in a shorter period of time; a paradigm shift in healthcare diagnostics. The various testing devices and panels made it difficult to understand exactly what the company did — and it turned out that they were doing something that was actually quite easy. Despite claims that it had created disruptive technology, the company was running standard blood tests (and doing so poorly) that lacked innovation. While it may have been fraud that brought down the company, the reality is that even if Theranos had told the truth about what they were actually doing, it’s unlikely they would have attracted significant capital to begin with.

Consumer internet companies can set themselves up for success early on by ensuring they can clearly speak to what they do, making it easy for people to understand and share the product and its value. A thoughtful approach to building something that’s difficult to do will go a long way when establishing a competitive advantage. This will also set a startup apart, attract investors and customers and help the company thrive in a crowded space for the long run.

Special thanks to Steve Mullaney, the CEO of our portfolio company Aviatrix, for sparking this topic. He recently brought up this great concept (easy to understand, hard to do) when we talked about enterprise, and it inspired me to explore how the idea applies to consumer internet.

Source: Tech Crunch Startups | Consumer internet companies are easy to understand, but hard to create

Raising venture capital isn’t easy; for some, it’s impossible.

Clearbanc offers startups a fundraising alternative, and in just a few short years, it’s become a household name in Silicon Valley circles. The company disrupts the startup funding process by providing companies cash to buy ads in exchange for a revenue share so those companies aren’t forced to give up equity to venture capitalists. 

2019 has been Clearbanc’s year. It was only natural to invite Romanow to join us onstage at Disrupt SF. Romanow will discuss the funding landscape for startups, Clearbanc’s plans to deploy billions of dollars, as well as a breakdown of when to raise equity cash versus non-dilutive capital. Alongside Brex CEO Henrique Dubugras, Romanow will also talk through serving startups as customers.

This year alone, the company, under Romanow’s lead, launched a campaign to back 2,000 businesses with $1 billion in non-dilutive capital by the end of 2019, raised $120 million across three different equity rounds and, just this week, announced a $250 million fund to continue backing startups through its rev-share model.

Romanow’s career took off as an angel investor on the Canadian version of Shark Tank, Dragons’ Den. Together with co-founder Andrew D’Souza, she started Clearbanc in 2015 with a goal of helping more founders maintain control of their company through larger equity stakes. In conversation with TechCrunch earlier this year, she and D’Souza explained that some 40% of VC dollars end up going to Facebook and Google for digital ad campaigns. That capital, they said, should be put into hiring and other scaling efforts. 

“We are essentially a non-dilutive co-investor,” Romanow said. “VC takes time; it’s a lot of nos and you’re really giving up equity that you can never get back.”

“A lot of founders in the early days don’t calculate what their equity could be worth,” she added. “Like the first $250,000 in Uber is worth $1 billion now.”

Clearbanc, founded less than four years ago, has already put hundreds of millions of dollars in its pockets and, like Brex, has ambitions to support each and every startup out there. Brex and Clearbanc’s leaders will undoubtedly provide a conversation on the state of startups and fintech that can’t be missed.

Disrupt SF runs October 2-4 at the Moscone Center in San Francisco. Tickets are available here.

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Source: Tech Crunch Startups | Clearbanc co-founder and president Michele Romanow is coming to Disrupt SF

That company disrupting venture capital just raised more venture capital.

Clearbanc has attracted $300 million, including a $50 million equity investment led by Highland Capital with participation from Arcadia, iNovia and Emergence Capital, and another $250 million from limited partners for its third fund. Clearbanc declined to disclose its valuation, but noted the company was not “forced to raise” and therefore “raised on terms that [they] liked.”

The Canadian business, headquartered in Toronto, offers startups an alternative to VC in the form of non-dilutive revenue-share agreements. Coupling data and machine learning technology, Clearbanc is quick to make decisions about potential investments, driven by a lofty goal of backing 2,000 companies by 2020.

Through its latest campaign, the “20-Min Term Sheet,” Clearbanc invests between $10,000 to $10 million in e-commerce upstarts with positive ad spend and positive unit economics. Charging 6% on its capital, Clearbanc collects a portion of a company’s revenue until they’ve paid back 106% of the original investment.

Clearbanc has invested in 791 online brands so far this year, including Le Tote, UNTUCKit, Leesa Sleep and Public Goods. The company says its investments have generated an average of $121 million in monthly revenue.

“The 20-minute term sheet was our take on showing the market how fast we could get startups access to capital,” Clearbanc co-founder and president Michele Romanow tells TechCrunch. Their method, she explained, saves both VCs and founders a lot of time.

“[Founders] don’t need to go and pitch their life story,” Clearbanc co-founder and chief executive officer Andrew D’Souza tells TechCrunch. “They don’t need to spend hours and hours on due diligence and they don’t need to get on a flight and meet VCs in person, we’ve automated all of that.”

The $50 million investment will be used to expand into new verticals beyond e-commerce and to launch a venture partner program, which will give its portfolio of founders access to experienced investors and operators, a resource a traditional venture capital fund typically provides its entrepreneurs.

Clearbanc has signed up Jack Abraham, the founder and managing partner of Atomic, Hubble co-founder Jesse Horwitz, Product Hunt founder Ryan Hoover and more to support the new venture partner network.

D’Souza and Romanow say Clearbanc’s revenue-share model could become a larger asset class than equity in the long term. Bullish about their prospects, D’Souza compares Clearbanc to SoftBank, the Japanese telecom giant behind The Vision Fund.

“I have no doubt we will raise billions and billions for funds in the coming years and I think we can be bigger than SoftBank,” he said. “If we aren’t aiming to do that, then we aren’t aiming to solve the problems that exist for entrepreneurs globally.”

Clearbanc’s third fund, a $250 million effort, is five times larger than its second fund. The company wouldn’t disclose the size of its debut fund.

Clearbanc has raised $120 million in equity funding to date.

Source: Tech Crunch Startups | Investors bet another M on Clearbanc’s revenue share model

It seems obvious that the best way to advertise a game is to let people play the game itself — and we’ve covered other startups tackling this problem, such as AppOnboard and mNectar.

But Luna Labs co-founder and CEO Steven Chard said that for most developers, the creation of these ads involves outsourcing: “It might take weeks to make an ad, and the quality of the content at the end could be limited.”

The problem, Chard said, is that most games are built on the Unity engine, while the ads need to be in HTML5, which means that developers often have to build playable ads from scratch — hence the outsourcing.

“There’s this huge demand for playables, but the tech hasn’t caught up with it,” he said. “Our view — and I think why it’s really resonating with developers — we’re saying to developers: Use that same [Unity] editor to create a playable ad. You’re going to give the user a playable ad which genuinely feels like the game.”

In fact, while Luna is officially launching its service to developers this week, it’s already been working with a few partners like Kwalee and Voodoo. Luna says that in Kwalee’s case, the results were good enough that the company spent 60% more than they did on other playable ads, and the Luna playables drove more than 250,000 installs per day.

“Luna is solving a real pain point for our studio, and the initial results have been tremendous,” said Kwalee COO Jason Falcus in a statement. “Integrating the Luna service has allowed us to significantly scale our campaigns by a comfortable margin, to the best results so far.”

Luna’s investors include Ben Holmes (formerly of Index Ventures, backer of King and Playfish) and Chris Lee (who also invested in Space Ape and Hello Games).

Chard said the startup is currently focused on providing tools to developers, rather than getting involved in the ad-buying process. More generally, he said the company has been focused on the technology rather than the business model.

“We’re an early company with a very, very complex piece of technology — it’s taken a lot of time to get where we are,” he said. “We’re not doing it for free, but the focus isn’t on short-term profitability. It is, in the longer term, on creating a scalable product which can be used by developers.”

Chard added that eventually, he’s hoping Luna can become more involved in “at the content creation level.” For example, he suggested that developers could use the technology to test out playable concepts and see what resonates, before building a full game.

You can test it out for yourself on the Luna Labs website.

Source: Tech Crunch Startups | Luna Labs creates playable ads, directly from Unity

Leveraging new remote sensing and monitoring technologies and the willingness of corporate insurance programs to provide more preventative treatment to reduce long-term costs, Hello Heart has raised $12 million in new financing to further develop its business.

The money came from Khosla Ventures and previous backer Blue Run Ventures. The company said it will use the financing to expand its business.

Hello Heart tackles high blood pressure and heart disease with early monitoring coming from an at-home sensing system to track blood pressure and an integrated smart phone application providing prompts on behaviors to reduce high blood pressure.

According to a retrospective study paid for by Hello Heart and conducted by researchers at UCLA and Harvard Medical School, 70% of Hello Heart users managed to reduce their blood pressure an average of 22mmHg.

“Delivering clinical outcomes at the scale of population health requires strong patient engagement across a variety of patient types. Hello Heart’s ability to drive engagement is what led to these unprecedented results,” said Dr. Eyal Zimlichman, a Harvard medical school faculty researcher and the chief medical and innovation officer of Sheba Medical Center.

The company collects all the data on its patients in a randomized and anonymized fashion in order to provide information on population health, according to a statement. In an interview, Maayan Cohen, the chief executive officer of the company, said that Hello Heart did not sell any data to third parties.

“Our mission is to empower patients to understand and improve their health, and we’re very proud to be able to help them do it so effectively in heart health — [the number one] cause of death in the world.”

Source: Tech Crunch Startups | Hello Heart raises million for at-home monitoring and behavioral treatment for hypertension

Porsche Digital, the subsidiary of car maker Porsche, is opening its second U.S. location after launching its first in 2017 in Silicon Valley. The second North American office for this software and digital product-focused wing of Porsche will open in Atlanta, which is also the seat of Porsche’s North American car business. Porsche Digital cited proximity to their auto business headquarters as one reason they picked Atlanta, but also pointed to Atlanta’s “local tech talent” and “robust and constantly growing startup and tech sector” as key factors in its selection.

The need for a second office is specifically about serving the U.S. market, Porsche Digital notes, and the company expects to have 45 employees total in the U.S. across both offices within the next year. The subsidiary overall has 120 employees worldwide, with offices in Berlin, Shanghai and Tel Aviv, as well as the U.S.

Porsche Digital focuses on creating software and digital products for the automaker’s customers, but it’s actually probably more valuable to its parent company as a sort of distributed tech talent scouting and business development arm of the company. Its offices definitely occupy global hotspots when it comes to startup tech companies, and having a permanent presence in these locations has got to come in handy when looking to attract engineering talent and potential acquisitions of complementary early-stage companies.

Source: Tech Crunch Startups | Porsche Digital expands US presence beyond Silicon Valley with new Atlanta office

Jamf has been widely known as an enterprise Mac deployment and management tool company, but it has been looking for ways to expand beyond those core capabilities. One thing it heard from customers was that there was a dearth of native Mac security tools. It checked that box today, announcing it has acquired Digita Security, a startup with a native Mac security suite. The two companies did not reveal the purchase price.

Digita, a two-year-old startup, was founded by a team of security experts led by Patrick Wardle, whose background includes a decade as a Mac security researcher seeking vulnerabilities on the Mac, and time at the NSA, where he honed his security research skills.

Wardle says that because of the relatively low Mac market share, many traditional security vendors haven’t paid close attention, which can lead to trouble. “Mac market share is somewhat limited, maybe around 10%. So the average company is not going to spend a lot of time and resources developing Mac-specific capabilities,” he said.

“From the hacker’s point of view, this is great news, because their backdoor implants are generally not going to be detected by traditional tools. What I’ve been working on the last few years, and then most recently at Digita Security, is creating a system that is Mac-specific, that leverages Mac-specific and Apple-specific frameworks and technologies,” he added.

The Digita Suite consists of three main tools. It takes advantage of and enhances XProtect, the Mac’s built-in malware detection system, with a tool called UXProtect, which provides a valuable missing front end to the tool. It also offers a Mac laptop security tool called Do Not Disturb that sends you a message if someone tries to access your laptop without permission. Finally, it offers a tool called Gameplan, a heuristic-based malware detection system.

Jamf plans to continue to market the Digita toolset as a standalone package for the time being, while taking advantage of the Jamf policy engine when it makes sense, according to company CEO Dean Hagar. “With Digita, we’re going to be able to bring a whole solution to our customers. In addition to leaving Digita as a solution that can be offered on its own, we will be able to complete that journey for our customers by being able to monitor and hunt for threats and apply security policy,” Hagar told TechCrunch.

The deal has closed and the five Digita Security employees are now part of the Jamf security team. Having a security tool like this in the fold could help make companies more comfortable deploying Macs by giving security teams the tools they need to monitor and defend them, which could in turn expand Mac usage in the enterprise.

Source: Tech Crunch Startups | Jamf acquires Digita Security to gain native Mac security