Consumer Investing as Armchair Anthropology
The proper study of mankind is man
Welcome to the fifteenth edition of Black Box. If you missed it, I recently completed a series on generative AI and launched a directory of programs for aspiring VCs and new founders.
There is a general sense among founders and investors that consumer is dead. More than once, I have checked in with a consumer startup that I previously met only to find that it has since pivoted to a B2B or a B2B2C model1. Most VCs actively avoid consumer today, but investor interest in the category has been in decline since at least when the great Forerunner started backing enterprise.
There are real reasons for this, such as rising customer acquisition costs and longer timelines to monetization. Faith in the space also plays a part; for example, several investor friends have told me that they believe TikTok is the highest form, and thus the end, of social. As someone once impacted by a RIF at a consumer startup2, I hear and acknowledge these concerns. But I also want to posit a different way of thinking about consumer.
The conventional approach to building consumer startups and investing in them is based on user and engagement growth. The VC side in particular is like playing whack-a-mole — it almost doesn’t matter what the startup does as long as its metrics are good enough to pop it out of a hole, at which point the job is hitting it with a term sheet before anyone else. The emphasis is therefore on spotting the mole first, which is why many consumer VCs are preoccupied with reading the latest trends coming out of Gen Z (or is it Gen Alpha now?) as if they were tea leaves.
This is the exact opposite of what investors should do. Trends kaleidoscope and generations shift, but human nature is slow to change. Mallet-wielders should take advantage of this. The key to consumer, which I think most VCs don’t realize, is that most consumer startups succeed because of an insight about people rather than tech. Put another way, the tech is simply a way to shape some human element into a different form.
There are many flavors of anthropological insight3, but my favorite is harnessing existing human behavior to build products. These products are more likely to serve real needs and inherently feel more natural to their users. Here are a couple examples of what I mean:
Fourplay is a double dating app based on the insight that women are more comfortable on dates if they are with a friend. Founders Julie and Danielle used this observation about themselves and other women to solve the “too many men” issue that all other dating apps have. In fact, 80% of Fourplay’s 14K users were female when I met them last June. The double date format has the added benefit of a higher k-factor since people have to sign up their friends to use Fourplay and do so for every duo they are part of on the app. This built-in virality opens up B2B channels such as lead generation since a group of four represents meaningful value for bars and other venues. (The team is currently testing the strength of Fourplay’s virality by launching on college campuses.) As is, the concept has really resonated, with almost all Fourplay users signing up organically.
Iago helps people learn languages by watching their favorite foreign shows, starting with Japanese using anime. Iago starts by showing both native and translated subtitles so users inadvertently grow their vocabulary by simply watching episodes as usual. This design leverages the organic fan behavior of imitating words they hear in shows. (It also saves people from having to dedicate time for Duolingo.) The app auto-generates flashcards and quizzes for memorization, tacking on grammar and practical tips as users progress. When a word is mastered, its translation disappears from Iago so users can literally see how much progress they’ve made. And the show communities that Iago hosts double as venues for fans to practice speaking and listening. Everything about Iago shows how deeply Alex and Zero understand their users as immigrant founders who themselves learned English by watching American shows.
Diem is a social search engine that helps women find information from a female perspective. Founders Emma and Divia are basically enabling “girl talk” at scale so women can talk about their health, careers, relationships, etc. and connect with other women. The product is a chatbot that scrapes both Diem’s community conversations and the internet to answer questions through a feminine lens. This provides a channel for women to talk about their experiences and ask about topics that would otherwise be taboo. For example, users have asked questions ranging from how to freeze their eggs to what a prenup should include. (It is easy to see how Diem might go into lead generation for community-recommended services and products.) Best of all, the chatbot includes real-life stories in its responses to validate users and help them meet other women like themselves.
Of course, I am not so idealistic that I believe an astute insight is enough to be a good investment. Execution aside, consumer startups are particularly susceptible to creating more user value than they can financially capture. (I think Diem is most likely to have this problem of the companies above.) But I introduce this “armchair anthropologist” approach to consumer VC to suggest that consumer isn’t dead. Rather, it is the old way of investing in consumer that no longer bears fruit. There are many talented and inspiring founders still building in this space, and I think those who have thoughtfully studied their users with an anthropologist mindset will bring about the next generation of consumer. The investors who understand this are the ones who will harvest the outsized returns that this category is famous for. ∎
How do you think about consumer investing or building consumer startups? I’d love to talk to you about it @jwang_18 or reach out on LinkedIn. See you in two weeks!
The B2B2C pivot often takes the form of an employee benefit, especially for health and wellness and fintech startups.
It may look seamless on LinkedIn, but I believe I am one of the few VCs who can claim they were technically unemployed when they broke into the industry.
For example, I previously observed that Cameo enables regular people to temporarily gain social capital by borrowing some from a celebrity.