The B2C Investing Framework

Julianne Brands - Nov 2017

What: B2C Investing Workshop - What are the early predictive indicators of success for a venture fundable consumer-facing startup?

Why: Develop a framework for investing in early-stage, consumer-facing businesses & what to look for as leading indicators of scalability, defensibility, and exitability.

When: November 2017

Who: Guest discussion leaders:

Anarghya Vardhana, Maveron Ventures

Ryan Metzger, Madrona Venture Group

Key Takeaways:

A few considerations from the workshop and from our investing experience…


Invest in experienced teams: No amount of investor/board coaching can overcome team gaps or issues.  Look for relevant experience, a history of working well together, and their ability to hire A players in key leadership & advisory roles.

Invest in CEO’s with a superpower: Understand what superpower the CEO brings to the market that’s unique, valuable, and difficult for others to replicate. CEOs who are self-aware, have shown evidence of grit, with a demonstrated learning mind set are better positioned for success. It should go w/o saying: they should know their market better than anyone. 

And invest in their fatal flaw:  Everyone has a fatal flaw, even (or especially!) the CEO – first, understand what it is, and second how self-aware the CEO is investing in resources (i.e., team members, executive coaching) to help overcome that near-fatal flaw. 

Product-Market Fit

Products conducive to scale: look for elements of virality (how many potential new users does one new user bring?), network effects (greater value in the product with more people using it), and/or social sharing (people are talking about it!).

Depth of customer engagement: Engaged consumers are often the best early indicators of product value & product market fit early on. Look for signs of consumer passion, raving fans on social media, and the number of customers that repeat over time.

Customer retention more important than customer growth. Look at cohort retention rates & NPS data. Look for cohort (e.g., a group of customers acquired in the same period) – retention rates increasing over time.  NPS (Net Promoter Scores) can be effective leading indicator of retention, especially for early stage companies with just a few months of cohort data.

Repurchase frequency: Are customers coming back to use and repurchase the product? Repurchase rates are key to driving high lifetime values. Look for high velocity products with repurchase frequencies of daily or weekly, and avoid repurchase frequencies > 1 month. Avoid highly seasonal products.

Evidence of consumer pull: Look for consumers seeking the product/service, rather than the other way around.  Evidence of organic growth (e.g., from earned media) much more important than paid growth as a signal of product market fit, however…

…Experimentation with different acquisition channels (e.g., free PR vs. paid Facebook ads vs. Instagram influencers). Organic, unpaid growth is a strong signal of consumer interest, especially in the early stage, but companies need to demonstrate a portfolio of acquisition models for Series A investors.  Drive toward customer acquisition cost (CAC) payback within 9 months by increasing customer value over time and using efficient & unique channels to decrease costs of acquiring customers.


Broad market appeal? Invest in LARGE markets  - multi $billions, even $trillions.  Most consumer business models need many millions of customers to be successful and generate a venture type return, especially low-margin, high-volume business models. 

Business model

Direct to consumer businesses are more attractive to acquirers (and therefore investors) – non-traditional acquirers are looking to compete with Amazon. Be sure to nail D2C before scaling with Amazon.

Unit economics today & in 2 years must be attractive:  Little investor appetite for “negative margin” business models…outside of the Bay Area. 

Sales efficiency – the return on sales and marketing investments:  Target startups that can reasonably generate a customer lifetime value to customer acquisition ratio (LTV:CAC) of at least 3:1.  Remember, CAC tends to go up, not down, over time. 

Potential for $500M to $1B+ exit outcome within 10 years: Especially if a startup is planning on raising many millions of dollars from large funds.