The Only Metric That Matters: User Engagement and Not Boring Capital's Approach

The Only Metric That Matters: User Engagement and Not Boring Capital's Approach

In the world of startups and venture capital, there are countless metrics that founders and investors can obsess over. From user acquisition costs to revenue growth rates, the options are endless. However, according to Josh Elman, a partner at Greylock Ventures, there is only one metric that truly matters: user engagement.

Elman argues that the only thing founders need to think about is whether people are using their product and if they are using it as expected. This metric can be broken down into three key questions: Are people using the product? Are they performing the core action? And, are they performing the core action at the frequency expected?

To further understand user engagement, Elman and his team at Greylock Ventures separated the user base into three buckets: cold, casual, and core users. Cold users are those who try the product but never return. Casual users may come back occasionally, but their engagement is inconsistent. Core users, on the other hand, are highly likely to keep coming back and are considered the most valuable.

This concept of user engagement is not limited to Greylock Ventures. Not Boring Capital, an $8 million venture fund founded by Packy McCormick, also recognizes the importance of user engagement in their investment strategy. Not Boring Capital invests in companies with stories to tell and helps them tell those stories. They primarily invest in Seed through Series B companies, with occasional pre-seed and growth-stage investments.

From a vertical perspective, fintech is the leading industry for Not Boring Capital. They have made six investments in fintech companies, totaling $525k. This focus on investing in fintech aligns with their belief that these companies have the potential to return the fund in the bull case.

Not Boring Capital has a unique approach to allocating their investments. They divide their investments into three categories: Core, Explore, and Growth. The majority of their investment dollars, about 75%, are allocated to Core investments. These are companies that have the potential to return the fund. Explore investments make up 5-10% of invested dollars and are smaller investments made to secure a seat in the next round or increase deal flow. Lastly, Growth investments account for about 20% of invested dollars and are later-stage or safer investments with a lower ceiling but a higher floor.

What sets Not Boring Capital apart is the symbiotic relationship between their portfolio companies and their readers. With a readership of over 60,000 people, there is a vast network of potential supporters for their portfolio companies. The idea is that Not Boring Capital's portfolio companies can benefit from the support of their readers, creating a positive feedback loop.

This concept of combining investing, reading, and writing is not unique to Not Boring Capital. Kei, the founder of Glasp, has long believed in the power of knowledge circulation. By using Glasp to read, highlight, and share insights, Kei hopes to enhance the experience of reading and writing, ultimately benefiting both investors and founders.

In conclusion, user engagement is the only metric that truly matters in the world of startups. Both Greylock Ventures and Not Boring Capital recognize this and have incorporated it into their investment strategies. For founders, focusing on user engagement and ensuring that people are not only using their product but also performing the core action at the expected frequency is crucial. As for investors, allocating investments based on the potential for user engagement and the ability to return the fund can lead to successful outcomes. To maximize the impact of user engagement, it is important to foster a community of supporters who can help spread the word and contribute to the success of portfolio companies.

Actionable Advice:

1. Prioritize user engagement: Make sure that your product is not only being used but that users are performing the core action as expected and at the desired frequency.
2. Focus on verticals with potential: Identify industries or sectors that have the potential to generate high user engagement and allocate your investments accordingly.
3. Foster a supportive community: Build a network of supporters, whether it's through readership or other means, who can help amplify the success of your portfolio companies.

By implementing these three pieces of advice, founders and investors can enhance user engagement and increase the likelihood of success in the startup ecosystem.