10 Million Users Is Not The New 1 Million - Business Insider

Yesterday, one of New York's most active angel investors Chris Dixon wrote: "ten million users is the new one million users."

Dixon said there is too much competition in the consumer startup space. So unless entrepreneurs show investors truly staggering numbers, they're going to struggle to land Series A financing.

(Dixon says transaction-based startups, like e-commerce companies, can afford to have fewer than 10 million users because revenue figures trump traffic.)

Since Dixon is the one cutting startups checks, founders should probably listen to him.

But is that 10 million milestone pre-Series A even possible to achieve?

Let's look at traffic figures and funding milestones for some of the most funded, hot startups over the past few years.

Social Media Companies

Tumblr:

• Founded: 2007
• Funded: Raised $750,000 Series A in December 2007.
• Traffic: In January 2008 Tumblr had 180,000 users and was growing by about 17,000 users per month.? Founder David Karp told us then that he wanted to hit 1 million users by the end of that year.
• Raised Series A years before hitting 10 million milestone

Twitter:

• Founded: March 2006
• Funded: Raised $5 million Series A in July 2007
• Traffic: It took nearly 2 years for Twitter to reach 10,000,000 users
• Raised Series A about 1 year before 10 million milestone

Facebook:

• Founded: Early 2004
• Funded: May 2005 raised $12.7 million Series A
• Traffic: Reached 1,000,000 users 10 months after launch. It reached 10 million in about 2 years.
• Raised Series A about 8 months before 10 million milestone

Pinterest:

• Founded: 2008
• Funded: $500,000 angel round in January 2010; $10 million Series A closed in May 2011.
• Traffic: It only had 418,000 uniques in May 2011. It grew to 7.5 million uniques in December 2011 and nearly 18 million in February 2012.
• Raised Series A 8 months before 10 million unique milestone

Mobile

Foursquare:

• Founded: March 2009.
• Funded: $1.35 million angel round in September 2009 ($20 million Series B closed in June 2010)
• Traffic: It took 13 months for Foursquare to get its first 1,000,000 downloads. In June 2011 it hit 10 million users. Now it has about 20 million users.
• Raised angel round about 21 months before 10 million milestone

Path:

• Founded: Late 2010; Relaunched late 2011
• Funded: $8.65 million Series A raised February 2011; $30 million Series B raised post-relaunch in April 2012
• Traffic: 1 year to get first 1 million; 2 weeks to reach additional 1 million post-relaunch. Hasn't reached 10 million milestone yet; currently has about 3 million users.?
• Raised $41.2 million and still hasn't reached 10 million milestone

Instagram:

• Founded: March 2010
• Funded: $7 million Series A closed February 2011.
• Traffic: 1 million downloads in 2.5 months; 10 million in 14 months. Now more than 80 million downloads.
• Raised Series A about 3 months before 10 million milestone

OMGPOP/Draw Something*:

• Founded: OMGPOP in 2007; Draw Something mobile app launched January 2012
• Funded: Series A in 2008; Didn't raise since Draw Something launched but was acquired by Zynga 2 months later for ~ $200 million
• Traffic: Draw Something exploded to 50 million users in 50 days.?
• * Draw Something's freemium model actually generates significant revenue, so it could be considered more of a transactional startup than a consumer startup
• Acquired after it reached 10 million users in just a few weeks

Media:

Bleacher Report:

• Founded: 2006
• Funded: $1.5 million Series A closed November 2007
• Traffic: In February 2008, BR had about 400,000 monthly unique visitors. Now it has about 22 million monthly uniques.
• Raised Series A years before hitting 10 million milestone

BuzzFeed:

• Founded: 2008.
• Funded: $3.5 million Series A closed in July 2008.
• Traffic: It's unclear when BuzzFeed hit 10 million users but it was sometime in the past 2 years. In May 2010 when it raised $8 million (and Dixon invested) it had 3 million monthly uniques in the US. Today it has about 30 million monthly uniques, up from 20 million in April.
• Raise Series A years before hitting 10 million milestone

From the above, it looks like Dixon's 10 million user number is most feasible for mobile app companies. Draw Something reached 50 million users at warp speed. Instagram's growth was slower but it still grew at an explosive rate that any investor would be happy to financially back.

For other startups, particularly media companies, the 10 million figure is almost impossible to hit pre-Series A. Pinterest has experienced the most explosive growth but even then its success was four years in the making. The company raised outside capital long before it hit the 10 million user mark -- it just exploded from almost no traffic to about 10 million users very quickly, in about 8 months.

But for news-driven sites like BuzzFeed and Bleacher Report, there's no way to achieve Dixon's magic number without Series A financing first.

That said, the overall message behind Dixon's post rings true:

Times have changed.

Investors are falling out of love with consumer startups. They see too many of them and not enough of them live up to the hype. Consumers are getting tired of hearing about new ones too. Their time is limited and so are their attention spans.

Dixon is also right that companies are able to scale faster now than ever, so if you can't get those staggering numbers with little initial capital, it could be the end of the road for your startup.

So what should you do if you want to found a consumer Internet startup but haven't raised money?

Heavily consider bootstrapping, at least until you have proven your idea has legs. Then you can try to raise a small seed round and scale quickly.

But most importantly, don't start a company without seriously considering Dixon's words of caution:

"If you are thinking of starting a non-transactional consumer startup, be aware that you are entering what is perhaps the most competitive sector in tech in the last decade."

Source: http://www.businessinsider.com/10-million-users-is-not-the-new-1-million-2012-8

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