Apps as the Emerging Platform

This post was originally published here by Corey Miller, Analyst at Scout Ventures.

Most people have heard of WeChat. Connie Chan recently wrote a great piece on the app and how it has grown into a behemoth in China. Basically, the gist is that what started as a messaging app has grown into a platform of sorts that hosts an abundance of other services within the app. This is the main reason why messaging apps such as Whatsapp, Kik, Viber, and Line have received remarkable valuations. The potential is clear: create an app that can essentially power other services (payments, bookings, chat, social media, etc) within itself and eventually grow into a consumer-centric giant. I’l refer to this strategy from here on out as an Application as a Platform (AaaP).

Although this approach has certainly succeeded in countries such as China, India, Brazil and many others, it hasn’t really taken off in the US. There certainly is the potential for it, though, since the most popular apps are owned/provided by large companies. Basically, as the number of apps continues to grow, so does the noise—and as a result, people continue to turn to established companies to act as gatekeepers for their attention.  So to take that one step further, if people are actively using relatively few apps on a consistent basis,  why not combine the features of many apps into one app that users spend most of their time in.

So, where does this leave us today? In the US, we are definitely starting to see companies attempt to emulate the WeChat model. Facebook should be the first to come to mind. As soon as Facebook launched Messenger as a standalone app, you could kind of see where they were going. Already, they’ve launched payments within Messenger, are testing an AI/Personal Assistant feature, and have continuously lobbied for apps to connect to it as well.  They even refer to Messenger as a platform on their website. In an ideal world, from a Facebook perspective, users could ditch apps such as iMessage, Venmo, Square, gaming apps, SMS, AI’s, etc and use Messenger as their go-to.

Snapchat is another emerging player in this space. The app, which is thefastest growing social network, has a very clear opportunity to monopolize on their wide-reaching user base. Besides ads, their Discover feature aims to be a place where users (who are mostly of the younger demographic) can gather news. You can definitely start to see Snapchat as an emerging AaaP then, especially as it adds potential features such as payments and commerce. Therefore, the potential becomes a scenario where users eventually replace news apps, payment apps, product-discovery apps with Snapchat.

It’s clear that Uber is not stopping at personal transportation. Aiming to be your on-demand solution for basically everything, you could see Uber to start to evolve into an AaaP. In this silo, a user can: order transportation, order food, and send/deliver shipments—thus effectively replacing the Postmates and Shyps of the world.

Although these apps are attempting to become emerging platforms, we should not forget the sleeping giants in the room: Apple and Google. If, one day, Apple decided to open up an iMessage API in the next iOS update, you could see a sort of native AaaP start to emerge. I don’t necessarily envision a scenario like this playing out since Apple likes to control every aspect of the user experience, but it’s worth noting they could do it if they determined the value was there.

In the end, it doesn’t seem that this market will evolve the same way as it has in China. Yes, users will continue to spend time in fewer and fewer silos, but it might not be a winner take all space. Uber could emerge as the on-demand AaaP, Snapchat as a content consumption AaaP, and Facebook as a social AaaP. Or maybe the United States consumer is a different beast altogether, and customers will stay loyal to an abundance of different apps (Venmo, Postmates, Shyp, etc. may very well have a permanent place in the mobile ecosystem).

Regardless of the end result, one thing is clear: as the mobile ecosystem matures, the emergence of new apps is becoming less and less common. As a result, dominant apps are beginning to integrate multiple functionalities into their silos to frame themselves as AaaPs. It certainly will be interesting to see the outcome of these developments in the coming years.

Apps as the Emerging Platform

Brainscape—Portfolio and Founder Spotlight

I recently sat down with Andrew Cohen, CEO and Founder of Brainscape. This is a summary of our conversation, which highlights Andrew’s background, vision, and his company. Answers to these questions are summarized responses.

How would you describe your original vision for Brainscape?

In 2011, I started Brainscape with the ambitious vision to help people study faster and more efficiently than ever before. Often, you’ll see founders’ vision change over time for a variety of reasons such as attempting to find better product-market fit or because his/her original idea simply wasn’t a great business idea. But I’ve remained steadfast in my original vision to alter the learning space for the better.

What is your background? How did you come up with the idea for Brainscape?

In 2006, I originally created my own prototype to study foreign languages while abroad. By 2011, after working as an eLearning consultant for a few years, I decided to take the plunge into the startup world and focus on building my vision full-time. At this point in my life, I had gained valuable working experience in the education space that, of course, directly applied to Brainscape.

How many people are on your team? How have you handled expansion?

It originally started with just me. After gaining initial traction and funding, I began to make 1-2 hires per year. Today, we have a total of 8 employees: four engineers and four operations/bizdev.

How did you find your first hire? What kind of position were you looking for?

Looking back, I wish I had spent more time looking for technical hires. Instead, I chose to focus more on finding education leaders who could help me with business and product development. When I realized I needed a full-time CTO, I decided to hire Jeff Holiday by doing an acqui-hire of his flashcard start-up (which was just him at the time). I think if I chose to start with a technical co-founder, the overall process would’ve run much more smoothly.

How did you meet Brad and Scout Ventures?

I actually met Brad at a party, funny enough. As you know, Brad is a sociable guy, and we just hit it off when we met. After a while, we started to discuss Brainscape and it went from there. He really bought into my vision and wanted to dig deeper in the ed-tech space. With his experience in business development and scaling startups, it became a natural fit for Scout to become an investor.

How would you describe your initial fundraising process? What do you wish you knew back then that you know now?

I touched a little bit on this before, but again, I wish I started with a technical co-founder, or at least knew how to write code myself. Originally, I figured that I could outsource building the initial product since it was cheaper to do so. But I quickly realized that outsourcing development takes much longer than building in-house because outsourced developers simply aren’t as committed to the cause as you’d like. So in the end, it costs about the same to develop in-house. I also wish I started with more of a lean-startup approach where I could have put out a minimal viable product and iterated upon that. Instead, I think I took too long developing the initial product.

Who is your customer and how do you go after them?

Our main customers are high school and college students that are trying to study more efficiently. We typically acquire new users through social and organic means such as word of mouth. We get pretty good, unsolicited, media coverage as well, such as being named one of Time’s must have back to school apps (Link Here). One of the main challenges we have is keeping churn relatively low. To combat this, we are consistently iterating on our user experience and developing new initiatives (which are in our development pipeline).

What is your revenue model?

We currently sell individual premium products and lessons. They are developed through partnerships we have with experts in their fields. Long-term, we want to develop a premium subscription model to focus on recurring revenue.

What are you current thoughts on the ed-tech sector?

I think the future really lies in adaptive learning. In my opinion, that combined with advances in cognitive science leads to a future where learning as we know it can be completely altered and developed more efficiently. More specifically, as companies develop faster iteration cycles through direct feedback mechanisms, knowledge will be acquired faster and cheaper than ever before.

This post was originally published here by Corey Miller, Analyst at Scout Ventures.

Brainscape—Portfolio and Founder Spotlight

5 Key Considerations for South Florida Startups Seeking Funding

This post was originally posted in the Miami Herald and can be viewed here

Since we opened our Miami office in the fall of 2014, thus becoming the first institutional venture capital firm in the MagicCity, we’ve met with countless South Florida startups and are incredibly encouraged by the activity we see in the ecosystem. There are plenty of driven entrepreneurs as well as helpful organizations such as eMerge Americas, Knight Foundation, Rokk3r Labs,Wyncode and Carve Communications, all of which provide much needed support to the growing landscape. Needless to say, we are thrilled to be a part of this budding ecosystem, and intend to help entrepreneurs reach their potential.

That being said, after talking with many entrepreneurs over the past 10 months, there are some key aspects to raising capital that founders should be mindful of as they set out on the fundraising trail. Keep in mind the following are not ranked in any particular order of importance:

1. Team and Culture: Many founders believe their product is the most important asset, but at Scout, we look first and foremost at the team and the culture of the company in question. We examine the background of the team, and discuss how these contribute to what the entrepreneur and team are specifically working on. We also explore how the team is structured. At Scout, we make sure every team member has a clear job and is well suited to handle it. We also look to see if a founding team has both a technical and non-technical co-founder, as we have found that this often contributes to a successful team dynamic.

2. Roadmap and Timeline: As investors, we like to know what you’ve built and accomplished since the inception of your business. But at Scout, we are just as interested in what you’re planning on doing next. As an entrepreneur, you should be able to confidently and succinctly discuss items such as: the benchmarks and KPIs that your business needs to hit, your product roadmap, who your key hires will be and when you plan on hiring them. If your company is sales-driven, be able to discuss who your target customer is and the typical sales cycle associated with your business. Understanding the future path to success is even more important than the path you took to get a meeting with an investor. Entrepreneurs should be thinking about revenue milestones, key hires, sales pipeline and the key performance indicators that are going to drive your business to the next level.

3. Product: As an entrepreneur, there are many distractions that you can get caught up in, including fundraising. While it is easy to get lost in the noise, successful entrepreneurs will be able multitask fundraising and building the product and sales pipeline. Of course, fundraising will take a good chunk of your time, but effective leaders delegate efficiently. Thus, we like to see teams who continue to improve their product during the fundraising process. We see that as a positive signal that teams will be able to successfully iterate on their product over the long run, even with the inevitable distractions that a startup will encounter over its life.

4. Revenue: At Scout we are revenue focused because we aim to build sustainable companies that have a clear path to monetization. Although there are many VC firms that tend to invest in companies that focus on user growth before monetization, we do not subscribe to that mindset. As a result, we ask our entrepreneurs to have realistic revenue models as well as plans to achieve those revenue targets. These plans will not just please your investors, but they will set you up for long-term success, making your life much easier down the road.

5. Reporting: Although reporting can feel like an onerous task, it is a crucial aspect of your business. We’ve found a natural correlation between efficient reporting practices and successful startups. A company report should be sent to investors on a monthly basis and should include metrics such as monthly revenue, cash on hand, monthly burn, and other relevant KPIs. Founders should give these metrics context by describing how the business has evolved over the past month, and by giving any relevant news updates. Finally, founders should outline where they expect the company to be in the next month, and ask investors for any assistance reaching these goals

Hopefully, these tips are helpful to all the entrepreneurs based in Miami.  We’re very excited to be here, and we believe South Florida is on the verge of becoming a household name in the tech-ecosystem. Over the past year, we have seen local entrepreneurs make meaningful strides, and we believe the space will generate strong returns not only for us, but for any investors who are starting to build a thoughtful,strategic allocation to venture capital.

5 Key Considerations for South Florida Startups Seeking Funding

MAKING THE FOUNDER’S TOP FIVE

This article was originally posted by Brad Harrison on August 5, 2015. The original can be viewed here.

Yesterday morning I read a blog post from a colleague, Hunter Walk, where he talks about competition in the seed stage. Essentially, he concludes that seed stage investors should focus on seeing great deals and being in the founder’s Top Five. It’s something we firmly believe in here at Scout. And every summer, when the office is full of fresh minds with new team members and interns, we spend our time talking about how we make ourselves more valuable to founders. How can we leverage our relationships and operational experience to help alleviate their pain points so they can focus on building a great company?

And as we continue to grow our portfolio, now 58 strong, I realize more and more, that our focus after we make an investment needs to be on helping our founders execute on their vision. This means a few things:

(1) Capital: If the business is consistently under capitalized then the founder will always be distracted by fundraising. The more you can provide leadership pulling together a round and/or making introductions to investors, the more you’re delivering real value. It also doesn’t hurt to make sure they raise enough money.

(2) Stress Management: Being a founder can be lonely and very stressful. At Scout, this means “being present” for your founders. It’s important to let them know they are not alone and that you understand how difficult some of their decisions will be around product, technology and personnel. The more you can share personal experiences to help them think through some of these difficult decisions, the more valuable you can be.

(3) Operations: Most great founders are not focused on operations, so they need help. If you provide advice, guidance and service providers, you will enable them to focus on building their business.  A great founder needs a great team – so help them recruit people on the operations side to give them the confidence to focus on other areas of the business.

Of course, we realize that many founders will fail; some founders will have an exit; some of these founders might even make money on the exit, and a few founders will build unicorns and become investors. But by helping founders execute, we like to think we are helping more and more founders and companies reach their full potential.

MAKING THE FOUNDER’S TOP FIVE