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Why Engagement Matters to Investors - Sarah Tavel, Partner, Greylock Partners - 2016 Habit Summit

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Sarah Tavel is an investment partner at Greylock Partners.
Her areas of focus include products, platforms, networks, and marketplaces that enable new forms of communication, media, and commerce.
Prior to Greylock, Sarah was the product lead for search, recommendations, machine vision, and pin quality at Pinterest.
As one of the first 35 employees at Pinterest, her first order of business was to launch Pinterest internationally and close the Series C financing. Sarah then moved into product, becoming Pinterest’s founding PM for search and discovery, and launching Pinterest’s first search and recommendations features.
She also led three acquisitions as she helped the company scale through a period of hyper-growth.
Sarah joined Pinterest in 2012 after co-leading the Series A investment while at Bessemer Venture Partners.
She spent six years at Bessemer as a VC, investing in a wide range of businesses many of which went public or were acquired.
In this presentation, Sarah teaches us more about why Engagement and Habits matter to investors.

Published in: Business
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Why Engagement Matters to Investors - Sarah Tavel, Partner, Greylock Partners - 2016 Habit Summit

  1. 1. Why Engagement Matters To Investors Sarah Tavel greylockpartners.
  2. 2. Engagement The Fuel Powering Enduring, Billion Dollar Businesses Sarah Tavel greylockpartners.
  3. 3. Today’s Agenda a Background on Greylock and Me 9 The Hierarchy of Engagement 9 The Most Important Thing to Measure
  4. 4. At Greylock, we obsess over building enduring, multi-billion dollar businesses. greylockpartners.
  5. 5. There are only five I publicly traded tech I companies created since 2000 that are now worth more than $10B. $ | | Greylock backed four of them. greylockpartners.
  6. 6. T Greylock leads Facebook’s ‘ i 2005 Series B when the company had <12M users 2004' 2015 Facebook now Mark Zuckerberg launches has over 1.5B Facebook at Harvard users worldwide
  7. 7. Linked 2002 Reid Hoffman and l team found Linkedln i The world’s largest professional network, 2004' reaches 400M members Greylock leads the Series B, the network had 500K members 2015 T
  8. 8. vifieu" iii 2010 Greylock invests in the Series A 2008 Airbnb is bigger than any hotel 2015 Chain in the world, with 2M+ is launched guests-
  9. 9. Ai: out Me p Joined Bessemer and invested 200° in Convertro, Diapers. com, Yodle, MindBody, and Cornerstone OnDemanoI Led product for Discovery team as Pinterest scaled through period of hyper- growth i 2011 Joined Greylock 2015 Co-led Series A in Pinterest, investment team and joined as their first PM
  10. 10. The Big Question From an investor’s perspective, how do you know if a startup has the potential to become an enduring, $1B+ company? greylockpartners.
  11. 11. |t’s a combination of art and science. o 00 oooo O + Art Science Understanding how Knowing how to productsiNork nweasureit greylockpartners.
  12. 12. The stage of the company matters. Early C0STapgaeny Mature no oooo O The earlier the company is, the more art is involved when evaluating it. As the company matures, it becomes more of a science. greylockpartners.
  13. 13. At the core, it comes down to understanding isrrgagisririsrr'if. greylockpartners.
  14. 14. Tave| ’s Hierarchy of Engagement $1B+ Business Accruing benefits, mounting loss Growing engaged users The Goal An enduring, multi-billion dollar company. Level 3 As users engage, they create virtuous loops in the product. Level 2 Product should get better the more it’s used. Users have more to lose by leaving the product. Level 1 Focus on growing users completing the core action. greylockpartners.
  15. 15. As you’ll see, there are a lot of similarities to Nir Eya| ’s Hook model. 7 ”"r/ ssrwiat‘ 4Crio“': (“IGGE“ “WARD greylockpartners.
  16. 16. Level 1: Growing Engaged Users Level 1 Growing engaged users Focus on growing users completing the core action. greylockpartners.
  17. 17. Trope in Silicon Valley has focused on growth and “growth hacking” growth hacking 5r"r'rlV rr-il'r Interest over time Source: Google Trends greylockpartners.
  18. 18. rl‘r”9'tg: n': : iTtTJifif. gr: -1. . Ti. t3I%3$!1lii‘l. *€ . . i, ;i‘i. ‘EM a. n“er <: rl‘y‘irir; ’»: i-r. .. iPhone Downloads zrsm 7/5/It lrsrzs 7/5/15 1/5/16 A’ , i E , u z i . s i i s s / . s i i s u I . / ; s i i / ; . / . s a ; . i .5 Source: AppAnnie greylockpartners.
  19. 19. What matters is not growth of users. lt’s growth of users completing the core action. greylockpartners.
  20. 20. Core Actions Pinning gsnapchat Snapping twibker Tvi/ eeting YOU TUIJS Uploading a video greylockpartners.
  21. 21. Will the trigger succeed for enough users? Level of of motivation and ability determines if action will occur. Emm. mis»ms; ‘ sore ; ; Ii‘ “‘ greylockpartners.
  22. 22. App to User Dialogue User performs core action on the app App rewards user with value greylockpartners.
  23. 23. It can be really hard to tell. Examples of Onboarding 17MM New Users in 7 Days‘! Viddy Monthly Active Users (MAU) and Daily Active Users (DAU) on Facebook Platform, 3/31/12 — 5I29I12 40 u 0 M24 - Facebook Begins Highlighting Viddy in Viddy had incredible -D§. .", Ai. ..Z'"J. ..Z” growth, but no real exchange of value happening. Viddy Monthly 8- Daily Active Users on Facebook (MM) 3i‘31 4i? N14 4i‘21 4i28 5l5 512 5x19 5l2$ KPCB Source: AppData via KPCB greylockpartners.
  24. 24. Signs of growing engaged users In 2011, Pinterest was growing quickly. A few things stood out: - Product with clear value exchange Dally User Vlslts - Users were spending >10mins per visit - >50% of weekly users Q I) ‘Q “Q ox ‘d°“°"g“ W9 of ~"°“‘Q r~“‘° v“? ‘I‘ ‘‘I‘‘‘‘‘‘‘ set“ ~‘I‘‘¢ 9”? ‘ Via? U I n greylockpartners.
  25. 25. Level 2: Accruing Benefits, Mounting Loss _ _ Level 2 Accrumg. beI|1efItS’ Product should get better the more it's used. mountmg 055 Users have more to lose by leaving the product. greylockpartners.
  26. 26. So, we’ve got engaged users. That’s great. Now the question is whether the users will stick. greylockpartners.
  27. 27. Retention Matters 45 4D 35 30 25 20 15 10 5 0 Monthly Active Users (M) 1 Z 3 4 S 6 7 8 S 1011121314151617181920212223Z4252627282930313Z33343536 —Com pa nv A —Com pa nv B Company A: 5M new users per month, 80% monthly retention Company B: 2.5M new users per month, 95% monthly retention greylockpartners.
  28. 28. After 6 Months: 45 40 35 30 25 20 15 10 5 0 Monthly Active Users (M) 1 2 3 4 S 6 7 8 S 1011121314151517181920212223Z4252627282930313Z33343536 —Com pa ny A —-—Com pa ny B Company A: 5M new users per month, 80% monthly retention Company B: 2.5M new users per month, 95% monthly retention greylockpartners.
  29. 29. After 3 Years: Monthly Active Users (M) 45 Company A: ‘“ 5M new users per month, 80% monthly retention 35 30 25 —Company A 20 —CompanyB Company B: ‘S / 2.5M new users per 5 / month, 95% monthly . . retention 1 2 3 4 S 6 7 8 S 1011121314151617181920212223Z4252627282930313233343536 Company A = 25M users Company B = 42M users greylockpartners.
  30. 30. How do you know if engaged users will stick? Investors look for products that have accruing benefits as a user engages, and mounting losses if the user leaves the product. greylockpartners.
  31. 31. Accruing Benefits The more you use the product, the better it gets. This is largely because a consumer adds data to the product, either explicitly or implicitly, and then the company uses this data to improve the experience for the user. greylockpartners.
  32. 32. Mounting Loss The longer you stay with the product, the more you have to lose by leaving. It becomes a product you depend on, an expression of your identity, or it becomes a product on which you’ve accrued value of some sort. greylockpartners.
  33. 33. The product needs to be designed to convert engagement into accruing benefits and mounting loss, and the use case needs to be frequent enough to create sufficient data to power it. greylockpartners.
  34. 34. Q EVE RNOTE” - Evernote’s freemium model is like a drug dealer offering a little “taste” to hook users. - The more notes you add to Evernote, the more value you get and the harder it is to leave. greylockpartners.
  35. 35. l .5‘ TX’ “ ”1r“. l xl lifi ; y.“! ,W(‘l ‘:3: I - The more you pin, the more you become reliant on Pinterest as a store for your bookmarks and digital images. - As you pin, the discovery experience becomes more personalized. greylockpartners.
  36. 36. ii ii the other liaiici. .. - A lot of anonymity apps look good for E yik Y ; k Level 1 but fail for Level 2. Secret A - Twitter meanwhile has anonymity if you create a profile under a fake name. But because identity is persistent, the app has: Accruing benefit: new to/ lows/ followers Mounting loss: your investment in your identity such as tweet/ like history & your follow graph greylockpartners.
  37. 37. 1 yelpnt - Yelp has mounting loss — if you give up Yelp, you lose the reviews you’ve written. - But, Yelp doesn’t have accruing benefits. The product doesn’t get better the more you use it. greylockpartners.
  38. 38. To Summarize l Products that have . . Give more value to Which makes it : ::](C: lrl: ];2‘cl°7Jr| ]3,[?2:f'ts users over time. .. njtiorle likely they’ll s IC . loss. .. greylockpartners.
  39. 39. Level 3: Virtuous Loops Level 3 virtuous As users engage, they create virtuous loops in LOOP5 the product. greylockpartners.
  40. 40. Okay, so we now have a growing base of engaged users, and a sticky product. greylockpartners.
  41. 41. Now the question is whether the engagement of existing users creates virtuous loops in the product. greylockpartners.
  42. 42. There are different forms of virtuous loops. A/ More content More users pin K i fl l Better discovery expenence Classic Network Effects greylockpartners.
  43. 43. Other virtuous loops: . / / Sends pin _ User _ Notifies U . to friend discovers pin existing user Ser repms Acquires user Re-engages user Growth Re-engagement greylockpartners.
  44. 44. Virtuous loops are really hard to create — most products don’t have them. greylockpartners.
  45. 45. Q EVE RNOTE” - As strong as Evernote is on Level 1 and Level 2, it falls short on Level 3. - Evernote’s product is much more about user value than creating virtuous loops. greylockpartners.
  46. 46. tinder. />R ‘ ll’) the case Of More engaged Successful dating apps like user date Tinder, a successful date is an off-ramp, not an engagement accelerator. Match with someone greylockpartners.
  47. 47. A lack of virtuous loops caps the upside. greylockpartners.
  48. 48. 0. Medium Business Level 3 Virtuous _ _ Loops Medium continues to _ _ move up the pyramid. Accruing benefits, mounting loss Growing engaged users greylockpartners.
  49. 49. The Most Important Thing To Measure
  50. 50. We’ve talked about Over time, investors three things: want to see: 1. Growing Engaged Users —: ~ Growth, New users continuing to be engaged 2. Retaining Users —: » Retention 3. Virtuous LOOpS —I2 Se/ f-perpetuating greylockpartners.
  51. 51. The Ultimate Metric: Cohort performance Number of weekly The dearest Way users completing the to understand a core action company’s engagement is to look at cohorts_ Percentage of weekly active users completing the action greylockpartners.
  52. 52. Cohorts show: Growth —> Size of each cohort _, Ratio of users performing Engagement the core action Cohort performance over Retention —* time greylockpartners.
  53. 53. There are different ways to visualize cohorts: . ... ... ... ... ... ... ... .. m Triangle Heat Charts Line Graphs Maps greylockpartners.
  54. 54. If you track cohorts, you will be in good shape to demonstrate your engagement hierarchy to investors. greylockpartners.
  55. 55. Tave| ’s Hierarchy of Engagement $1B+ Business Accruing benefits, mounting loss Growing engaged users The Goal An enduring, multi-billion dollar company. Level 3 As users engage, they create virtuous loops in the product. Level 2 Product should get better the more it’s used. Users have more to lose by leaving the product. Level 1 Focus on growing users completing the core action. greylockpartners.
  56. 56. Engagement matters to investors because it’s the fuel powering enduring, $1B+ consumer companies. greylockpartners.
  57. 57. Thank you. Follow Greylock: Contact me: Q) www. grey| ock. com Sarah Tavel M medium. com/ @Grey| ockVC E $ y @GreylockVC y @sarahtave| greylockpartners.

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