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The State of Marketplaces – 2020
Roger Lee, General Partner, Battery Ventures
Justin Da Rosa, Vice President, Battery Ventures
Courtney Chow, Associate, Battery Ventures
March 2020
Disclaimers
The information provided in this presentation is solely intended for the use of entrepreneurs, corporate CEOs and founders. The
information is current as of the date it was published. The contents are not intended to be used in the investment decision making
process related to any product or fund managed by Battery Ventures. No assumption should be made that the investments
identified within were or will be profitable. It should also not be assumed that recommendations made in the future will be
profitable or equal the performance of the companies identified within.
Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy
or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this
presentation nor notify readers in the event that any information, opinion, projection, forecast or estimate included, changes or
subsequently becomes inaccurate.
Battery Ventures provides investment advisory services solely to privately offered funds. Battery Ventures neither solicits nor
makes its services available to the public or other advisory clients. For more information about Battery Ventures’ potential
financing capabilities for prospective portfolio companies, please refer to our website. For a complete list of portfolio companies,
please click here.
The Battery Marketplace Index tracks 40 of the world’s largest marketplace companies. To be included, companies need to be
listed on one of the major global stock exchanges and boast a market capitalization of $500 million or more. You can track the
Battery Marketplace Index here.
This presentation is being provided for informational purposes only. Nothing herein is or should be construed as investment, legal
or tax advice, a recommendation of any kind or an offer to sell or a solicitation of an offer to buy any security.
(As of Nov 2019)
1
2
All Marketplace Conference Profits Will Be Donated to COVID-19 Relief
COVID-19 Solidarity Response Fund
Who is Battery?
Stage
agnostic
$8.9B
Battery’s global offices Capital raised
since inception
3
Note: Contains all Battery Ventures marketplace investments since the firm’s inception. No assumption should be made that the
investments identified above were or will be profitable. For a complete list of portfolio companies, please click here.
Battery Marketplace Investments
E-Commerce
@
Community
& Content
Services Travel Exchange
$375+ million invested
4
Acquired by
Source: Cap IQ (as of Mar 2019) – Refers to Enterprise Values. Battery Marketplace Index is market cap-weighted & pro-rated.
* Denotes a current or former Battery portfolio company. No assumption should be made that the investments identified above were or
will be profitable. For a complete list of portfolio companies, please click here.
Battery Marketplace Index (as of Mar ’19)
5
Marketplaces
(50%)
0%
50%
100%
150%
200%
250%
300%
Mar ’12 Sep ’12 Mar ’13 Sep ’13 Mar ’14 Sep ’14 Mar ’15 Sep ’15 Mar ’16 Sep ’16 Mar ’17 Sep ’17 Mar ’18 Sep ’18 Mar ’19
Battery
Marketplace
Index
+199%
NASDAQ:
+158%
467.5B 34.8B 4.0B 5.9B 0.6B 6.6B 33.3B 8.4B 22.3B 29.0B 7.5B
8.1B2.8B
78.5B 22.5B 10.7B 17.8B 156.7B 1.6B 1.3B 19.1B 8.0B 7.1B 3.0B
25.3B15.0B1.9B 7.8B 7.4B 9.0B 6.7B 2.0B 40.4B
2.2B
11.7B
2.2B
* *
*
4.5B
The Tide Has Turned from “Growth at All Costs” to a Balance of
Growth & Profitability
AUG
19
Shut Down
Permanently
Slashed IPO
Price Range
Restructured
Organization
Laid Off
20-80%
of its Staff
Discontinued Physical
Product Marketplace
Laid Off ~40% of
its Staff
Raised ~$430M in
’19 in Flat Rounds
Raised $100M in
Flat Round Undisclosed
Layoffs
Shut Down 12
Markets
Divested India’s
UberEats to Zomato
Withdrew IPO
Indefinitely
Cut More Than
1K Jobs
Market Cap Down
50% Since IPO
Delayed
IPO
Laid Off 100
Staffers
OCT
19
SEP
19
DEC
19
JAN
20
FEB
20
NOV
19
6
7
“[W]e need to reduce our burn rate to a sustainable level from which we can focus
on pursuing the mission and growing the business over the long term.
We do not want to be dependent on outside capital, so self-reliance and careful
management of our resources are crucial to our future.”
— ADAM D’ANGELO, QUORA CEO (JAN 2020)
“We recognize that the era of growth at all costs is over…. investors increasingly
demand not just growth, but profitable growth”
— DARA KHOSROWSHAHI, UBER CEO (FEB 2020)
¹ (Cap IQ) From Mar 19, 2019 to Feb 20, 2020. Data shows market cap % change since Mar 19, 2019.
The Last Twelve Months Has Been Turbulent for Marketplace
Businesses…
8
Marketplace stocks took a turn in 2019 with the Uber & Lyft IPOs and exacerbated by the
WeWork implosion. This took place while the broader indexes were up >10%
(20%)
(10%)
0%
10%
20%
30%
40%
Mar ’19 Apr ’19 May ’19 Jun ’19 Jul ’19 Aug ’19 Sep ’19 Oct ’19 Nov ’19 Dec ’19 Jan ’20 Feb ’20
Battery
Marketplace
Index
+4%¹
NASDAQ:
+13%¹
9
Then, COVID-19 Came Along …
COVID-19 Worldwide: The Pandemic’s Impact on the Economy and Markets
U.S. GDP is collapsing as we enter what is expected to be the worst economic contraction
since the Great Depression…
April 6, 2020
‘The Market’s in Panic Mode.’ Stock Markets Plunge 12% Amid Coronavirus Fears
…The negative superlatives for American stocks are piling up. The S&P wiped out its gain
in 2019 and is now down almost 30% from its all-time high…
March 16, 2020
Stocks Plunge, With Dow in Bear Market: Live Updates
…On Wednesday, World Health Organization officials officially designated the
spread of the Coronavirus as a global pandemic…
March 11, 2020
Note: (Cap IQ) Share price data as of Apr 27, 2020.
10
… And, the Battery Marketplace Index Only Plunged Further
18%Average LTM Share
Price Change of the
Battery
Marketplace Index
LTM Share Price Change of the Battery Marketplace Index
Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the
average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months
of trading history, share price change is measured relative to IPO price.
But, That’s Not the Full Story
11
70%
36%
15%
(18%)
(50%)
(60%)
(65%)
(80%)
(60%)
(40%)
(20%)
0%
20%
40%
60%
80%
Top Decile Top Quartile Top Half Average Bottom Half Bottom Quartile Bottom Decile
12
So, what separated the winners from losers?
13
efficiency.
14
How do I measure efficiency?
¹ Note: Chegg’s 2019 Adjusted EBITDA = $125M (Chegg’s 2019 Annual Report) and Uber’s 2019 Adjusted EBITDA = ($2.7B) (Uber’s
2019 Annual Report) ² Per Cap IQ as of Apr 27, 2020. For Uber, change is relative to IPO share price
The Rule of 40: Explained
15
2019 Net Revenue $411M $14.1B
2019 Net Revenue Growth % 28% 26%
2019 EBITDA¹ $53M ($8.2B)
2019 EBITDA Margin % 13% (56%)
Rule of 40 41 (30)
LTM Share Price Change² +4% (33%)
EV / NTM Revenue Multiple² 10.8x 3.9x
Rule of 40 = Revenue Growth + EBITDA Margin
A
B
A B
70%
36%
18%
(18%)
(47%)
(60%)
(65%)
(80%)
(60%)
(40%)
(20%)
0%
20%
40%
60%
80%
Top Decile Top Quartile Top Half Average Bottom Half Bottom Quartile Bottom Decile
LTM Share Price Change of the Battery Marketplace Index
Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the
average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months
of trading history, share price change is measured relative to IPO price.
The Rule of 40: Efficiency Drives Superior Returns
16
Rule of 40 ~= 50
Rule of 40 ~= 10
Rule of 401 vs EV / NTM Revenue Multiple2
Note: 1 Rule of 40 calculated as LTM revenue growth + LTM EBITDA margin from Cap IQ as of Apr 27, 2020, 2 EV / NTM Rev Multiple
from Cap IQ as of Apr 27, 2020.
The Rule of 40: Efficiency Drives Superior Returns
17
8.3x
4.4x
2.4x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
Rule of 40: 40+ Rule of 40: 30-39 Rule of 40: <30
18
How can you improve the rule of 40?
Battery Growth Magic Number > 0
Migrate to subscription pricing
Battery CX Magic Number – 10x ROI
19
Battery’s 3 Rules for an Efficient Marketplace
20
Battery Growth Magic Number > 0
Rule # 1:
21
Battery Growth Magic Number = (Rev Growth %) – (S&M % of Rev)
Battery Growth Magic Number > 0
Battery Growth Magic Number <= 0
¹ Cap IQ as of 2019, 2 Cap IQ as of Apr 27, 2020
Rule # 1: Battery Growth Magic Number > 0
22
2019 Revenue Growth1 28% 28% 8%
2019 S&M % of Revenue1 15% 13% 49%
Battery Growth Magic Number 13 15 (41)
LTM Share Price Change2 +4% +18% (43%)
EV / NTM Revenue Multiple2 10.8x 7.8x 1.6x
A
B
A B
Average Battery Growth Magic Number vs LTM Share Price Change of the Battery Marketplace Index
Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the
average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months
of trading history, share price change is measured relative to IPO price.
Rule # 1: Battery Growth Magic Number > 0
23
22
10
(2)
(14)
(25)
(30)
(20)
(10)
0
10
20
30
Top Quartile Top Half Average Bottom Half Bottom Quartile
+36% +18% (18%) (47%) (60%)
Battery Growth Magic Number
LTM Share Price Change
¹ Forbes. ² Yelp’s Q1 ‘20 Shareholder Letter.
Rule # 1: Battery Growth Magic Number > 0
24
Encourage Organic Traffic & Virality
Consumers as Creators / Contributors
Chegg has a library of 35M user-generated Q&A;
“evergreen” content that continues to compound
in value over time
Deep Content Library
Chegg owns the solutions to textbook questions
of major publishers (34K ISBNs); all indexed in
SEO
Product-Led Growth Human-Led GrowthVS.
Create Less Dependences on Paid
Marketing Acquisition
Data-Driven Decisions
80% of Netflix content watched is influenced by
its recommendation system¹
Unique & Original Content
A massive data set of consumer behavior allows
Netflix to create original content tailored to new &
existing users
Hyper-Local and High
Commissioned Sales Teams
are not Scalable
Headcount Drives Majority of Cost
Yelp is dependent on their 3.5K+ local
sales force² to drive business
development & revenue
25
Rule # 2:
Migrate to Subscription Pricing
Rule #2: Migrate to Subscription Pricing
26
The higher percentage of longer-term plans, the better: increased cashflow,
more predictable revenue, higher retention & lifetime value (LTV)
Transactional Monthly Subscription Annual Subscription
Month 12 Retention Rates: Monthly Subscription vs Annual Subscription Cohorts
Rule #2: Migrate to Subscription Pricing
27
Month 12 retention rates for annual subscribers hover ~50-60%+, which is
~3x higher than Month 12 retention rates for monthly subscribers
20%
15%
55%
50%
60%
45%
0%
10%
20%
30%
40%
50%
60%
70%
Company A Company B Company C Company D
Monthly Subscription Annual Subscription
+ 2.8x + 3.3x
28
Rule # 3:
Battery Customer Experience (CX) Magic Number – 10x ROI
29
Battery CX Magic Number = Net Revenue / CX Cost Per Transaction
Battery CX Magic Number > 10x
Battery CX Magic Number <= 10x
Source: American Express, Forbes, HubSpot Research, Salesforce, Glance
Rule #3: Battery CX Magic Number – 10x ROI
30
The Importance of High-Quality
Customer Service
90% of Americans use customer
experience as a factor in deciding
whether or not to do business with a
company
The Power of Great Customer
Service
Customers are willing to spend 17%
more for a company with excellent
service
93% of customers are likely to make
repeat purchases with companies who
offer outstanding customer service
The Cost of Poor Customer
Service
57% of customers have stopped
buying from a company because one of
their competitors provided a better
experience
62% of customers say they share bad
experiences with other people
78% of customers have backed out of
a purchase due to a poor customer
experience
Note: Based on Battery Venture’s proprietary research of both public and private companies, both within the Battery portfolio and not.
Rule #3: Battery CX Magic Number – 10x ROI
31
A
B
A B
Company
A
Company
B
Company
C
Company
D
Company
E
Company
F
Company
G
Company
H
Industry Services Hospitality Fashion Mobility Mobility Hospitality Services Mobility
Net Revenue
Per
Transaction
$100 $30 $20 $2 $4 $12 $4 $6
CX Cost Per
Transaction
$3 $2 $3 <$1 <$1 $2 $2 $3
Battery CX
Magic Number 33.3x 15.0x 6.7x 6.7x 6.0x 6.0x 2.0x 2.0x
Source: Zendesk Survey, Coleman Parkes Research, Based on Battery Venture’s proprietary research.
Rule #3: Battery CX Magic Number – 10x ROI
32
Product-Led Growth
Company A
Battery CX Magic Number: 33.3x
Company G
Battery CX Magic Number: 2.0x
Comprehensive Knowledge Base / FAQ’s
67% of respondents preferred self-service vs speaking to a
support agent, while 91% of consumers would use an
online knowledge base if it were tailored to their needs
Providing an easily accessible and reliable knowledge base
will be sufficient for customers’ easier-to-answer questions,
while allowing agents to focus on tougher, more nuanced asks
Collaborative Community Forum Vetted by Moderators
Customers can engage with one another and company
representatives – ask & answer questions, search topics,
socialize, and get product updates
Mature chatbots can answer 50%+ of customer questions
Best in class CX can address 80-90% of customer
questions through automated, no touch self-service platforms
High Dependency on Customer Phone Support
For this particular company, 80% of their customer support
contacts are serviced via phone
This heavy reliance on phone support becomes time
consuming and less productive for agents. Agents must
spend more time on each interaction and phone calls limit the
number of customers they can help at once
Additionally, there’s significant cost associated with
maintaining a skilled team of live support, especially those
seeking 24/7 support
Human-Led Growth
Rule #3: Battery CX Magic Number – 10x ROI
33
Service Level Agreement (SLA) on Wait Time: Phone (<2 Min), Chat (<2 Min), Email (<4-8 Hours)
First Resolution Rate: 80-85%
Manager : Agent Ratio = 1 Manager: 12-15 Agents
Contacts Per Issue: 1.2 - 1.3
1
2
3
4
Contact Rate (Out of Every 100 Transactions): 15 - 30%
5
Battery Growth Magic Number > 0
Migrate to subscription pricing
Battery CX Magic Number – 10x ROI
34
Battery’s 3 Rules for an Efficient Marketplace
35
The Great Recession Launchpad
Founded 2008Founded 2007 Founded 2009 Founded 2009
Source: Cap IQ Market Cap ($USD) as of Apr 27, 2020 | * Denotes a current or former Battery portfolio company. No assumption should
be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here.
We’re Just Getting Started …
EquityValue
$10B
$36B
1998 2008 2020
Time
$1.3T
*
*
*
36
*
*
*
Source: Cap IQ Market Cap ($USD) as of Apr 27, 2020 | * Denotes a current or former Battery portfolio company. No assumption should
be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here.
We’re Just Getting Started …
EquityValue
$10B
$36B
1998 2008 2020
Time
$1.3T
$6T
*
*
*
2025
37
The Team
Roger Lee
rlee@battery.com
Justin Da Rosa
jdarosa@battery.com
Courtney Chow
cchow@battery.com
Download slides here: https://www.battery.com/powered/
38

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The State of Marketplaces - March 2020

  • 1. The State of Marketplaces – 2020 Roger Lee, General Partner, Battery Ventures Justin Da Rosa, Vice President, Battery Ventures Courtney Chow, Associate, Battery Ventures March 2020
  • 2. Disclaimers The information provided in this presentation is solely intended for the use of entrepreneurs, corporate CEOs and founders. The information is current as of the date it was published. The contents are not intended to be used in the investment decision making process related to any product or fund managed by Battery Ventures. No assumption should be made that the investments identified within were or will be profitable. It should also not be assumed that recommendations made in the future will be profitable or equal the performance of the companies identified within. Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this presentation nor notify readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate. Battery Ventures provides investment advisory services solely to privately offered funds. Battery Ventures neither solicits nor makes its services available to the public or other advisory clients. For more information about Battery Ventures’ potential financing capabilities for prospective portfolio companies, please refer to our website. For a complete list of portfolio companies, please click here. The Battery Marketplace Index tracks 40 of the world’s largest marketplace companies. To be included, companies need to be listed on one of the major global stock exchanges and boast a market capitalization of $500 million or more. You can track the Battery Marketplace Index here. This presentation is being provided for informational purposes only. Nothing herein is or should be construed as investment, legal or tax advice, a recommendation of any kind or an offer to sell or a solicitation of an offer to buy any security. (As of Nov 2019) 1
  • 3. 2 All Marketplace Conference Profits Will Be Donated to COVID-19 Relief COVID-19 Solidarity Response Fund
  • 4. Who is Battery? Stage agnostic $8.9B Battery’s global offices Capital raised since inception 3
  • 5. Note: Contains all Battery Ventures marketplace investments since the firm’s inception. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. Battery Marketplace Investments E-Commerce @ Community & Content Services Travel Exchange $375+ million invested 4 Acquired by
  • 6. Source: Cap IQ (as of Mar 2019) – Refers to Enterprise Values. Battery Marketplace Index is market cap-weighted & pro-rated. * Denotes a current or former Battery portfolio company. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. Battery Marketplace Index (as of Mar ’19) 5 Marketplaces (50%) 0% 50% 100% 150% 200% 250% 300% Mar ’12 Sep ’12 Mar ’13 Sep ’13 Mar ’14 Sep ’14 Mar ’15 Sep ’15 Mar ’16 Sep ’16 Mar ’17 Sep ’17 Mar ’18 Sep ’18 Mar ’19 Battery Marketplace Index +199% NASDAQ: +158% 467.5B 34.8B 4.0B 5.9B 0.6B 6.6B 33.3B 8.4B 22.3B 29.0B 7.5B 8.1B2.8B 78.5B 22.5B 10.7B 17.8B 156.7B 1.6B 1.3B 19.1B 8.0B 7.1B 3.0B 25.3B15.0B1.9B 7.8B 7.4B 9.0B 6.7B 2.0B 40.4B 2.2B 11.7B 2.2B * * * 4.5B
  • 7. The Tide Has Turned from “Growth at All Costs” to a Balance of Growth & Profitability AUG 19 Shut Down Permanently Slashed IPO Price Range Restructured Organization Laid Off 20-80% of its Staff Discontinued Physical Product Marketplace Laid Off ~40% of its Staff Raised ~$430M in ’19 in Flat Rounds Raised $100M in Flat Round Undisclosed Layoffs Shut Down 12 Markets Divested India’s UberEats to Zomato Withdrew IPO Indefinitely Cut More Than 1K Jobs Market Cap Down 50% Since IPO Delayed IPO Laid Off 100 Staffers OCT 19 SEP 19 DEC 19 JAN 20 FEB 20 NOV 19 6
  • 8. 7 “[W]e need to reduce our burn rate to a sustainable level from which we can focus on pursuing the mission and growing the business over the long term. We do not want to be dependent on outside capital, so self-reliance and careful management of our resources are crucial to our future.” — ADAM D’ANGELO, QUORA CEO (JAN 2020) “We recognize that the era of growth at all costs is over…. investors increasingly demand not just growth, but profitable growth” — DARA KHOSROWSHAHI, UBER CEO (FEB 2020)
  • 9. ¹ (Cap IQ) From Mar 19, 2019 to Feb 20, 2020. Data shows market cap % change since Mar 19, 2019. The Last Twelve Months Has Been Turbulent for Marketplace Businesses… 8 Marketplace stocks took a turn in 2019 with the Uber & Lyft IPOs and exacerbated by the WeWork implosion. This took place while the broader indexes were up >10% (20%) (10%) 0% 10% 20% 30% 40% Mar ’19 Apr ’19 May ’19 Jun ’19 Jul ’19 Aug ’19 Sep ’19 Oct ’19 Nov ’19 Dec ’19 Jan ’20 Feb ’20 Battery Marketplace Index +4%¹ NASDAQ: +13%¹
  • 10. 9 Then, COVID-19 Came Along … COVID-19 Worldwide: The Pandemic’s Impact on the Economy and Markets U.S. GDP is collapsing as we enter what is expected to be the worst economic contraction since the Great Depression… April 6, 2020 ‘The Market’s in Panic Mode.’ Stock Markets Plunge 12% Amid Coronavirus Fears …The negative superlatives for American stocks are piling up. The S&P wiped out its gain in 2019 and is now down almost 30% from its all-time high… March 16, 2020 Stocks Plunge, With Dow in Bear Market: Live Updates …On Wednesday, World Health Organization officials officially designated the spread of the Coronavirus as a global pandemic… March 11, 2020
  • 11. Note: (Cap IQ) Share price data as of Apr 27, 2020. 10 … And, the Battery Marketplace Index Only Plunged Further 18%Average LTM Share Price Change of the Battery Marketplace Index
  • 12. LTM Share Price Change of the Battery Marketplace Index Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months of trading history, share price change is measured relative to IPO price. But, That’s Not the Full Story 11 70% 36% 15% (18%) (50%) (60%) (65%) (80%) (60%) (40%) (20%) 0% 20% 40% 60% 80% Top Decile Top Quartile Top Half Average Bottom Half Bottom Quartile Bottom Decile
  • 13. 12 So, what separated the winners from losers?
  • 15. 14 How do I measure efficiency?
  • 16. ¹ Note: Chegg’s 2019 Adjusted EBITDA = $125M (Chegg’s 2019 Annual Report) and Uber’s 2019 Adjusted EBITDA = ($2.7B) (Uber’s 2019 Annual Report) ² Per Cap IQ as of Apr 27, 2020. For Uber, change is relative to IPO share price The Rule of 40: Explained 15 2019 Net Revenue $411M $14.1B 2019 Net Revenue Growth % 28% 26% 2019 EBITDA¹ $53M ($8.2B) 2019 EBITDA Margin % 13% (56%) Rule of 40 41 (30) LTM Share Price Change² +4% (33%) EV / NTM Revenue Multiple² 10.8x 3.9x Rule of 40 = Revenue Growth + EBITDA Margin A B A B
  • 17. 70% 36% 18% (18%) (47%) (60%) (65%) (80%) (60%) (40%) (20%) 0% 20% 40% 60% 80% Top Decile Top Quartile Top Half Average Bottom Half Bottom Quartile Bottom Decile LTM Share Price Change of the Battery Marketplace Index Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months of trading history, share price change is measured relative to IPO price. The Rule of 40: Efficiency Drives Superior Returns 16 Rule of 40 ~= 50 Rule of 40 ~= 10
  • 18. Rule of 401 vs EV / NTM Revenue Multiple2 Note: 1 Rule of 40 calculated as LTM revenue growth + LTM EBITDA margin from Cap IQ as of Apr 27, 2020, 2 EV / NTM Rev Multiple from Cap IQ as of Apr 27, 2020. The Rule of 40: Efficiency Drives Superior Returns 17 8.3x 4.4x 2.4x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x Rule of 40: 40+ Rule of 40: 30-39 Rule of 40: <30
  • 19. 18 How can you improve the rule of 40?
  • 20. Battery Growth Magic Number > 0 Migrate to subscription pricing Battery CX Magic Number – 10x ROI 19 Battery’s 3 Rules for an Efficient Marketplace
  • 21. 20 Battery Growth Magic Number > 0 Rule # 1:
  • 22. 21 Battery Growth Magic Number = (Rev Growth %) – (S&M % of Rev) Battery Growth Magic Number > 0 Battery Growth Magic Number <= 0
  • 23. ¹ Cap IQ as of 2019, 2 Cap IQ as of Apr 27, 2020 Rule # 1: Battery Growth Magic Number > 0 22 2019 Revenue Growth1 28% 28% 8% 2019 S&M % of Revenue1 15% 13% 49% Battery Growth Magic Number 13 15 (41) LTM Share Price Change2 +4% +18% (43%) EV / NTM Revenue Multiple2 10.8x 7.8x 1.6x A B A B
  • 24. Average Battery Growth Magic Number vs LTM Share Price Change of the Battery Marketplace Index Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months of trading history, share price change is measured relative to IPO price. Rule # 1: Battery Growth Magic Number > 0 23 22 10 (2) (14) (25) (30) (20) (10) 0 10 20 30 Top Quartile Top Half Average Bottom Half Bottom Quartile +36% +18% (18%) (47%) (60%) Battery Growth Magic Number LTM Share Price Change
  • 25. ¹ Forbes. ² Yelp’s Q1 ‘20 Shareholder Letter. Rule # 1: Battery Growth Magic Number > 0 24 Encourage Organic Traffic & Virality Consumers as Creators / Contributors Chegg has a library of 35M user-generated Q&A; “evergreen” content that continues to compound in value over time Deep Content Library Chegg owns the solutions to textbook questions of major publishers (34K ISBNs); all indexed in SEO Product-Led Growth Human-Led GrowthVS. Create Less Dependences on Paid Marketing Acquisition Data-Driven Decisions 80% of Netflix content watched is influenced by its recommendation system¹ Unique & Original Content A massive data set of consumer behavior allows Netflix to create original content tailored to new & existing users Hyper-Local and High Commissioned Sales Teams are not Scalable Headcount Drives Majority of Cost Yelp is dependent on their 3.5K+ local sales force² to drive business development & revenue
  • 26. 25 Rule # 2: Migrate to Subscription Pricing
  • 27. Rule #2: Migrate to Subscription Pricing 26 The higher percentage of longer-term plans, the better: increased cashflow, more predictable revenue, higher retention & lifetime value (LTV) Transactional Monthly Subscription Annual Subscription
  • 28. Month 12 Retention Rates: Monthly Subscription vs Annual Subscription Cohorts Rule #2: Migrate to Subscription Pricing 27 Month 12 retention rates for annual subscribers hover ~50-60%+, which is ~3x higher than Month 12 retention rates for monthly subscribers 20% 15% 55% 50% 60% 45% 0% 10% 20% 30% 40% 50% 60% 70% Company A Company B Company C Company D Monthly Subscription Annual Subscription + 2.8x + 3.3x
  • 29. 28 Rule # 3: Battery Customer Experience (CX) Magic Number – 10x ROI
  • 30. 29 Battery CX Magic Number = Net Revenue / CX Cost Per Transaction Battery CX Magic Number > 10x Battery CX Magic Number <= 10x
  • 31. Source: American Express, Forbes, HubSpot Research, Salesforce, Glance Rule #3: Battery CX Magic Number – 10x ROI 30 The Importance of High-Quality Customer Service 90% of Americans use customer experience as a factor in deciding whether or not to do business with a company The Power of Great Customer Service Customers are willing to spend 17% more for a company with excellent service 93% of customers are likely to make repeat purchases with companies who offer outstanding customer service The Cost of Poor Customer Service 57% of customers have stopped buying from a company because one of their competitors provided a better experience 62% of customers say they share bad experiences with other people 78% of customers have backed out of a purchase due to a poor customer experience
  • 32. Note: Based on Battery Venture’s proprietary research of both public and private companies, both within the Battery portfolio and not. Rule #3: Battery CX Magic Number – 10x ROI 31 A B A B Company A Company B Company C Company D Company E Company F Company G Company H Industry Services Hospitality Fashion Mobility Mobility Hospitality Services Mobility Net Revenue Per Transaction $100 $30 $20 $2 $4 $12 $4 $6 CX Cost Per Transaction $3 $2 $3 <$1 <$1 $2 $2 $3 Battery CX Magic Number 33.3x 15.0x 6.7x 6.7x 6.0x 6.0x 2.0x 2.0x
  • 33. Source: Zendesk Survey, Coleman Parkes Research, Based on Battery Venture’s proprietary research. Rule #3: Battery CX Magic Number – 10x ROI 32 Product-Led Growth Company A Battery CX Magic Number: 33.3x Company G Battery CX Magic Number: 2.0x Comprehensive Knowledge Base / FAQ’s 67% of respondents preferred self-service vs speaking to a support agent, while 91% of consumers would use an online knowledge base if it were tailored to their needs Providing an easily accessible and reliable knowledge base will be sufficient for customers’ easier-to-answer questions, while allowing agents to focus on tougher, more nuanced asks Collaborative Community Forum Vetted by Moderators Customers can engage with one another and company representatives – ask & answer questions, search topics, socialize, and get product updates Mature chatbots can answer 50%+ of customer questions Best in class CX can address 80-90% of customer questions through automated, no touch self-service platforms High Dependency on Customer Phone Support For this particular company, 80% of their customer support contacts are serviced via phone This heavy reliance on phone support becomes time consuming and less productive for agents. Agents must spend more time on each interaction and phone calls limit the number of customers they can help at once Additionally, there’s significant cost associated with maintaining a skilled team of live support, especially those seeking 24/7 support Human-Led Growth
  • 34. Rule #3: Battery CX Magic Number – 10x ROI 33 Service Level Agreement (SLA) on Wait Time: Phone (<2 Min), Chat (<2 Min), Email (<4-8 Hours) First Resolution Rate: 80-85% Manager : Agent Ratio = 1 Manager: 12-15 Agents Contacts Per Issue: 1.2 - 1.3 1 2 3 4 Contact Rate (Out of Every 100 Transactions): 15 - 30% 5
  • 35. Battery Growth Magic Number > 0 Migrate to subscription pricing Battery CX Magic Number – 10x ROI 34 Battery’s 3 Rules for an Efficient Marketplace
  • 36. 35 The Great Recession Launchpad Founded 2008Founded 2007 Founded 2009 Founded 2009
  • 37. Source: Cap IQ Market Cap ($USD) as of Apr 27, 2020 | * Denotes a current or former Battery portfolio company. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. We’re Just Getting Started … EquityValue $10B $36B 1998 2008 2020 Time $1.3T * * * 36
  • 38. * * * Source: Cap IQ Market Cap ($USD) as of Apr 27, 2020 | * Denotes a current or former Battery portfolio company. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. We’re Just Getting Started … EquityValue $10B $36B 1998 2008 2020 Time $1.3T $6T * * * 2025 37
  • 39. The Team Roger Lee rlee@battery.com Justin Da Rosa jdarosa@battery.com Courtney Chow cchow@battery.com Download slides here: https://www.battery.com/powered/ 38

Editor's Notes

  1. Bird’s CEO and founder Travis VanderZanden acknowledged in the company’s funding announcement that the market had changed: “Gone are the days when top line growth was the leading KPI for emerging companies. Positive unit economics is the new goal line.” https://www.forbes.com/sites/bizcarson/2019/10/03/bird-raises-275-million-series-d-funding/#5e107605318e
  2. https://techcrunch.com/2020/01/23/layoffs-hit-qa-startup-quora/
  3. Marketplace stocks took a turn in 2019 with the Uber & Lyft IPOs and exacerbated by the WeWork implosion. Burn was high and the market crushed many companies. This all takes place while the broader indexes are up 25%+ so on a relative basis, it was extraordinary poor performance.
  4. Add current multiple?
  5. FYI: The companies with higher Rule of 40 have either (1) negative EBITDA margin, and/or (2) negative LTM share price change. Chegg is the best option.
  6. Add current multiple?
  7. Include voiceover on annual plan vs monthly plan for Rule #2
  8. Netflix’s hyper-focus on data makes marketing less subjective. Data is everything. Spending efficiency = content development, reduces churn
  9. Evidence of this is shown on this slide where the best performing companies spent the least amount on sales and marketing. It is counter-intuitive because you would think that the more you spend, the faster you grow and the more you are worth What is much more important is how you spend your sales/marketing budget and get the biggest bang for the buck
  10. Evidence of this is shown on this slide where the best performing companies spent the least amount on sales and marketing. It is counter-intuitive because you would think that the more you spend, the faster you grow and the more you are worth What is much more important is how you spend your sales/marketing budget and get the biggest bang for the buck
  11. Include voiceover on annual plan vs monthly plan for Rule #2
  12. Or, we can do +536, +79, +130
  13. Or, we can do +536, +79, +130