1.
Why Engagement Matters
To Investors
Sarah Tavel
greylockpartners.

2.
Engagement
The Fuel Powering Enduring, Billion Dollar
Businesses
Sarah Tavel
greylockpartners.

3.
Today’s Agenda
a Background on Greylock and Me
9 The Hierarchy of Engagement
9 The Most Important Thing to Measure

4.
At Greylock, we obsess over building
enduring, multi-billion dollar businesses.
greylockpartners.

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.
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.
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.
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.
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.
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.
|t’s a combination of art and science.
o
00
oooo
O +
Art Science
Understanding how Knowing how to
productsiNork nweasureit
greylockpartners.

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.
At the core, it comes down to
understanding isrrgagisririsrr'if.
greylockpartners.

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.
As you’ll see, there are a lot of
similarities to Nir Eya| ’s Hook model.
7
”"r/ ssrwiat‘ 4Crio“':
(“IGGE“ “WARD
greylockpartners.

16.
Level 1: Growing Engaged Users
Level 1
Growing engaged users Focus on growing users completing the
core action.
greylockpartners.

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.
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.
What matters is not growth of users.
lt’s growth of users completing the
core action.
greylockpartners.

20.
Core Actions
Pinning
gsnapchat Snapping
twibker Tvi/ eeting
YOU TUIJS Uploading a video
greylockpartners.

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.
App to User Dialogue
User performs
core action on the
app
App rewards
user with value
greylockpartners.

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.
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.
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.
So, we’ve got
engaged users.
That’s great. Now the
question is whether the
users will stick.
greylockpartners.

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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Level 3: Virtuous Loops
Level 3
virtuous As users engage, they create virtuous loops in
LOOP5 the product.
greylockpartners.

40.
Okay, so we now have a growing
base of engaged users, and a
sticky product.
greylockpartners.

41.
Now the question is whether the
engagement of existing users
creates virtuous loops in the
product.
greylockpartners.

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.
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.
Virtuous loops are really hard to
create — most products don’t have
them.
greylockpartners.

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.
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.
A lack of virtuous loops caps the
upside.
greylockpartners.

48.
0. Medium
Business
Level 3
Virtuous _ _
Loops Medium continues to
_ _ move up the pyramid.
Accruing benefits,
mounting loss
Growing engaged users
greylockpartners.

49.
The Most Important
Thing To Measure

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.
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.
Cohorts show:
Growth —> Size of each cohort
_, Ratio of users performing
Engagement the core action
Cohort performance over
Retention —* time
greylockpartners.

53.
There are different ways to visualize
cohorts:
. ... ... ... ... ... ... ... .. m
Triangle Heat Charts Line Graphs
Maps
greylockpartners.

54.
If you track cohorts, you will be
in good shape to demonstrate
your engagement hierarchy to
investors.
greylockpartners.

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.
Engagement matters to investors
because it’s the fuel powering
enduring, $1B+ consumer
companies.
greylockpartners.

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.