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A weekly(-ish) newsletter on commerce, media, science, tech, investing, & internet culture by Alex Taussig of Lightspeed.

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A weekly(-ish) newsletter on commerce, media, science, tech, investing, & internet culture by Alex Taussig. I am a partner at Lightspeed in Silicon Valley.

Follow along with Alex:

Drinking from the Firehose #119

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The tech industry is drowning in S-1 filings. It's exciting to see so many companies preparing to hit the public markets. For a finance geek like me, that means troves of data to analyze. 

One data trend in S-1s that delights me is the increasing presence of cohort data. Enterprise companies have reported cohort-level metrics like logo retention, dollar based retention, ARR by cohort, and ACV growth for some time now (see filings from Box, ZscalerMulesoftPagerDuty, and most recently Slack). Consumer businesses are newer to cohort-level reporting, but the trend is no less important for them (see filings from Farfetch, Lyft, Blue Apron). As I noted in last week's newsletter, I was disappointed to see that Uber, the biggest consumer IPO in a long time, chose to not disclose any cohort information at all.

I find it incredibly difficult to analyze a tech business without robust cohort-level data extending across multiple years. Take Groupon, for instance. It revealed a single cohort of data in its S-1 filing:

"The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated $61.7 million in gross profit from this group of subscribers over four quarters."

The implied 3.4x LTV/CAC in the first year is impressive and clearly aligns with the platform's breakneck growth rate. Yet Groupon's customers had poor retention. According to data from SecondMeasure, Groupon's 12-month customer retention declined from an already low 13-15% to 6-7% from 2012-2018. Soon after its IPO, growth slowed to a mere 10%/yr and has recently started shrinking. Cohorts matter a lot.   

What the world needs is something like GAAP for cohorts. Then the SEC needs to mandate that standard in financial disclosures. Otherwise, equity investors will be forced to purchase aftermarket consumer data (or services like SecondMeasure that do so themselves) and reverse engineer cohort performance from public data. Daniel McCarthy of Emory and Peter Fader of Wharton have broken ground on a methodology for the latter, but it requires hardcore statistics. Without the time, education, and financial resources to understand cohort performance, retail investors are inherently disadvantaged.

I am curious to hear from corporate finance and legal people in this community how one would structure GAAP for cohorts to create a framework that is extensible over lots of different business models. I'll compile suggestions and send them out in the coming weeks.

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#commerce

Korrecting Kroger.

Sales in fresh food and CPG exceed $1 trillion annually in the U.S., but only 5% of purchases are transacted online. While grocery store comps limp along at low single digits, online grocery sales are growing 40% annually. Wal-mart has made inroads into online ordering via its acquisition of Jet.com. Target has done the same with its acquisition of Shipt. 

The big players in grocery, however, still largely sit on the sidelines. The WSJ dug into Kroger specifically, detailing its plans to embrace technology with a $4 billion innovation budget. 

#media

Dear, internet friend.

My earliest use case of the internet was AOL chatrooms. As a lonely teenager, the possibility of finding connection from behind the keyboard was appealing. I can't say I've kept any connections from that era, but then again the tools were fairly primitive.

Twitter has become my new home for internet friends, and I've had a number of positive experiences over the years meeting people offline that "know me from Twitter." The internet is quickly debunking the conventional wisdom that it's harder to make friends as you age.

An article in The Verge poignantly described how times have changed:

"That it’s now mundane to have and meet internet friends suggests something deeper has changed in American life, something related to how we befriend people now in the first place. A common refrain about getting older is that, as you grow up, it becomes harder to make friends. There are simply fewer spaces where speaking with a new person is sanctioned, and sometimes life can be too busy already to allow people in. Although the internet can be isolating, it has also allowed people of all ages to bond over their shared interests without the burden of having to be in the same place at the same time. It’s a tectonic shift from the old narratives of lifelong friends being neighbors or those college or high school people you’ve kept up with. It’s liberated friendship from the nuclear family narrative."

#tech

A tipping point for renewables.

This month, for the first time ever, renewables (solar, wind, biomass, hydro, geothermal) will generate more electricity on the U.S. grid than coal-fired power plants. Seasonal considerations helped renewables reach this tipping point, but make no mistake: the trendlines were moving in this direction for some time. Coal has even taken a back seat to natural gas, which is now the largest single source of electricity in the U.S. at 35% of the market.

#science

Absurd obsidian (video).

Obsidian is a naturally occurring mineral that forms out of volcanic lava upon rapid cooling. The structure of obsidian is a highly amorphous glass, which is extremely hard and brittle. It shatters easily along razor sharp edges and can be polished all the way down to 3 nanometers! In Stone Age cultures, obsidian was valued for its utility in making blades and arrowheads. In modern times, surgeons have even fashioned obsidian blades on scalpels.

Obsidian scalpels are cool, but you know what's really cool? An obsidian sword. An enterprising YouTuber tried to cast one, and it turns out a glassy substance like obsidian is a bit tougher to handle than steel.

#culture

Une histoire de Notre Dame (video).

In light of the tragic fire at Notre Dame, I wanted to share a short history of Paris and its most famous cathedral. Worth watching in full.

Disclaimer: * indicates a Lightspeed portfolio company, or other company in which I have economic interest. I also own stock directly in AAPL, ADBE, AMZN, CRM, FB, FTCH, GOOG/GOOGL, NFLX, SNAP, SPOT, SQ, TSLA, and TWLO.

Lightspeed Venture Partners, 2200 Sand Hill Rd, Ste 100, Menlo Park, CA 94025 USA Sent to ataussig@gmail.com — Unsubscribe