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My First VC Exit. Here Is How It All Started:

Oracle bought LiveLOOK this summer. The acquisition generated a very good return for the investors. This news is significant to me, because LiveLOOK is the first startup I invested in.

I met the LiveLOOK team in 2011 when I was at Robin Hood Ventures. Still finishing up my Master’s degree in Engineering at Penn, I took bus trips to NY whenever I can to meet startups. After each day of first meetings, I took the $10 late night buses back to my dorm with a hand full of business cards. On the bus I organized the notes I took about the startups, and thought on their probability of growing fast. For the first couple of months, I didn’t bring any of the ~100 companies I had met to the Robin Hood. I wanted to make sure my deals were good. I wanted to build a reputation of bringing in good deals.

On one of the trips I met LiveLOOK’s Igor and Linda. The duo had incredible energy working together, and the company’s product is solving a significant problem that none of the co-browsing technology then could solve. I knew this is the startup with a good chance of generating venture-level return. I brought them in Robin Hood to start more serious conversations.

In startup investing a deal brought in is not a deal done. We might find something we didn’t like in the due diligence process. The logistics of investing might just not work out. I wasn’t worrying too much about the due diligence process – I knew LiveLOOK was good. However the timing might be a problem. The startup was eager to close the round soon so they could get back to building the great company, but Robin Hood was so busy with good startups the next chance for LiveLOOK to meet the whole investment team was the next month. Luckily we liked the startup so much that we worked it out.

Robin Hood continued to get involved with the company after investment. We introduced them to a fortune 100 company who later became a major customer. I got in touch with Igor and Linda from time to time just to see how I could help. But just like all other good venture investments, LiveLOOK had found its growth model and didn’t need much handholding.

The rest is history. It’s not often that a young VC successfully brings in a portfolio company. It’s not often that a senior VC successfully exits from a company. I am very happy to have done both, 3rd year into my career, and will continue my hard work. At the same time, I am very thankful for Robin Hood for trusting me, and the LiveLOOK team for their hard work.

Some of the LiveLOOK team members are looking for their next venture – please let me know if your company is interested.

How to fit your 5.5 inch Android phone into Google cardboard

Google cardboard is mind blowing. The virtual reality experience is mind blowing. The $20 price point is even more mind blowing. Frequent readers know that I believe only in cheaper and faster ideas. I'm very excited about the implications of this cheap VR device.

However Google cardboard does not fit large android phones, for example my Samsung galaxy note 2. The phone flap won't close with the phone installed. If you force it to close, the volume buttons will be squeezed, turning the volume and displaying a broken volume bar in your VR vision. The opening for the camera is not positioned for big phones, blocking the camera:

That's not stopping me - I hacked linkedin. I modded warby parker. I automated many things at MentorTech to make our investment process cheaper and faster. So here is how to mod Google cardboard for large android phones:

1. To make the phone fit into the cardboard frames, I made additional fold line on the flap, so it wraps around the phone on the top:

2. To make sure the volume keys are not touched when we hold the cardboard, I opened a slot at the position where the keys are:

However this hole creates a stress concentration, which will in turn make the device break easily:

So I covered the hole with tape, to alleviate some of the stress:

3. The final step is to free the camera. again i cut the blocking parts and taped around it to dissipate stress:

If you have followed the above 3 easy steps, you now have a Google Cardboard compatible with your Samsung Galaxy Note 2, Note 3, Sony Xperia Z2, Xperia Ultra, or Xiaomi Redmi Note.

I recommend starting with the Google Cardboard app - the Tour is really good! To experience the visual impact, try Dive City Rollercoaster. ViewR is a great app to demonstrate augmented virtual reality - you get to see through robocop's eyes!

Enjoy and share your experience with Cardboard by commenting below!

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How do I best structure ownership equity between the founders and prepare a capitalization table for outside investment?

Someone asked me this on Quora. This is my answer:

In founder equity split, there are really only 2 things that you need to take care of. 1. Make the ownership proportional to the individual contribution you make to the startup. This will ensure that all the team members are properly motivated. The main metrics to consider are: a. The time you put into the company. Early in a startup's life, many founders are part-time with the company. They should take less equity compared to the full-time founders. b. The relevant skills you have. For example at a social network startup the founder with 10,000 hours of graphic design experience should get more than the one with 10,000 hours as a fighter jet pilot, Ceteris paribus. c. The connections you have. Similarly, for a social network startup connections to ad agencies are more value-adding than those to firetruck drivers. Founders who can bring in the former connections should be compensated. d. The capital you bring in. Some founders make substantial cash investments into their own startups; Some bring in patents, in the case of some hardware companies; Some make cash "investments" by taking less salary than the market. They all should be compensated in equity. 2. Make sure in your operating agreement you have ways to change the split in the future, when the contributions of team members change. Startups change a lot, as they should. Very quickly founders may find that they make more contribution to the company by working more hours, using critical skills, making connections or making capital investments. They should be compensated. If there is no way in the legal docs to change that, a team breakup is almost guaranteed, which puts previous hard-work in vain. So just 2 things - 1. take what you deserve and 2. keep doing so.

A Guide to Warby Parker Glasses for Asians

I love Warby Parker. It’s one of the best performing companies in the MentorTech portfolio, and its glasses rock. Ever since I got Reynold, I have rarely worn my expensive silicone hydrogel contacts and stainless steel Mykita Arthur. I traveled to Iran with them. I fly single engine airplanes with them. I even take naps on my trains and buses to NYC with them.

The only nit I have to pick is the nose bridge fit. I have a small nose, and most acetate glasses in America are designed to fit bigger noses. The glasses were too close to my eyes and my eyelashes constantly brushed on the lenses. Finding perfect glasses is apparently a challenge for many Asian people living in America.

To make it work, I bought these silicon pads on Amazon to make the nose bridge narrower. The finished product looked like this:

They fit well, but broke easily. I had to change them every couple of months.

Just as I thought I had to stock a life-long supply of those pads and live with it, Warby Parker came to the rescue. A few weeks ago when I was visiting my local Philadelphia Warby showroom, I found a new frame that had substantially longer nose bridge extensions, the Northcote. The picture below says it all (from left to right -- Warby Parker Reynold, Warby Parker Northcote, and some frame that I bought in Hong Kong when I studied there).

The Reynold has significantly shorter nose bridge extensions, making them too wide for many Asian noses. The Northcote and the Hong Kong frame, on the other hand, have long extensions and fit me very well.

I got excited, went to the showroom one weekend afterward and found all the glasses that have longer nose bridge extensions. Some I could immediately tell were fit for Asian faces, but others I had to try on; if a frame didn’t touch my eyelashes, I put it on my list of prospects. Below is the final, exhaustive list of Warby Parker acetate frames fit for Asians:

Northcote

Walker

Marcel

Finch

Duval

Dale

Pierce

Thompson

Felton

Watts

Edgeworth

Welty

Burke

Nash

Ames

Get those glasses now by ordering on https://www.warbyparker.com/ or by visiting a Warby Parker store or showroom!

Pitch Your Startup Like John Legend. Here Is How:

John Legend Spoke at Penn's 258th Commencement a few days ago. People loved his speech. You can watch it here.

I was blown away by his structure and pace. All long form presentations, especially startup pitches, should be loosely in this structure. Let me break it down for you:

Always start with a personal story. John was born into a loving family (3:10) but then suffered from a tragic change in the family dynamics. How grasping. The purpose of the personal story is to present the problem. People don’t love enough.

Then present your solution. John said his solution was “[letting] go of fear” (11:26). I wrote about why solving a real problem is important, and discussed with my readers: To startups not solving a problem: Good luck making money

Tell people your market size. John said that letting go of fear could correct social injustice (Trayvon Martin 11:33), stop wars (11:47) and so on. So his solution addresses a “billion dollar market” in social sense.

Tell people your differentiation. Other people have already tried addressing fear and failed, Yoda for example:

John’s idea deserves a chance because his execution is different (12:50).

Introduce the team. John is a consumer-facing star so he put this part in the very beginning (1:40). Startup founders should place this part according to the existing relationship between them and the audience.

At the end make the ask. John simply asked us to love (19:15).

What a master piece. Of course in startup pitches there should be more interaction between the founders and the audience, but sticking to this pattern is a sure way to win.

'Cause all of me, Loves all of you.

What is the range of speaking fees for a C-level executive or successful VC in tech?

Someone asked this question on quora. Here is my answer:

Influential CEOs and VCs don't charge for speaking. They simply go to events that helps them make money. I get invited to judge startup competitions, speak in panels and guest lecture college entrepreneurship classes. I never get paid, and will never take payment for doing it. I do it because it helps entrepreneurs, helps me network, and adds to MentorTech Ventures' brand equity. For events that seem not helping, I nicely decline. I organize Enterprise Tech Meetup, NYC Chinese Entrepreneurs Organization, and Philly Enterprise Tech. Never have I ever need to pay a CEO or VC to my event. I simply highlight the audience and peer speakers' info, and explain how speaking helps with their business. They come when they see the value in my events, and decline if not. Sometimes as a speaker I do get tokens and souvenirs from the event host, but the market value of those is usually between $10-$70. The theory is that a successful tech businessman should be very busy making money in tech, and no reasonable speaking fees should and could distract him from that. And those tech businessmen who takes money makes you wonder - what's going on with your day job if you have to make money through this?

How do one become a scout for angels and venture capital firms and does it pay well?

Someone asked this question on quora. Here is my answer:

You need other skills and knowledge to be able to scout for VC and angels. No one in the startup investment industry just scouts. Everyone in the industry is interested in finding the next high growth company - from the fresh grads that do cold calling in growth equity firms to the 50-year-old founding partners of VC firms. They all love start-ups, research markets and go to meetups, conferences and hackathons. I personally do even more in scouting. I developed a proprietary algorithm to scrape information of ~1000 new startups/week to find the best ones. I organize Enterprise Tech Meetup, NYC Chinese Entrepreneurs Organization, and Philly Enterprise Tech. I get invited to judge startup competitions, speak in panels and guest lecture college entrepreneurship classes. I blog frequently at Gym Think Laundry and thousands of people in the startup community read it weekly. I bet other good VCs are doing even more things out of their way to get good deal flows. All these activity requires skills and knowledge to back up. The best entrepreneurs come to my events, talk to me at events, read my blog and invite me to speak because I'm good. They know I have founded my own startup and know the startup operation. My engineering education helps me understand their technology. I am good at python (https://github.com/marshyang) and statistics so I act as their first data scientist. I'm relentless in user acquisition (LinkedIn Banned Me for Hacking. Here is Why:) so I help them growth hack. I have executed many VC deals so I know how to best protect founders' interest in a company. Without the above skills and knowledge you'll be making connections at a much lower rate, and that compounds. You'll be ineffective at scouting:

So to scout startup you have to know a few things that are very useful to startups, things mentioned above being examples. VC pay is enough to pay the bills. Of course everyone complains about not being paid enough. But don't tell my partners I'm happy as long as I can pay the bills. I LOVE being a VC.

LinkedIn Banned Me for Hacking. Here is Why:

I like automating things. I used to write computer scripts to message all the girls in Philadelphia on OkCupid. Thank you AutoHotkey, for bringing me SuperHotDates. Automation also goes with my belief that the only way to do big things is to do things faster and cheaper.

So when I started blogging frequently, one of the things I do to market my blog is posting links of marshallyang.com to all the relevant LinkedIn groups. With 50 groups (max number of groups linkedin allows for one account), this task needs to be automated.

I started with my trusted AutoHotkey. It didn’t work because it relied on pixel position to place mouse clicks, and not all the LinkedIn groups have the “post” button at the same position.

After some googling, I found the amazing world of Selenium. It simulates real human interactions with web browsers, in a programmable and rapid way. Originally made to test web-based software, this tool is great for my LinkedIn spamming mission. I quickly made a script with Selenium IDE, a tool that uses Javascript to simulate user input. I uploaded the script to Github.

The script was a blast. Every day around 11:30 am I set it up with the link to my newest blog post, launched it and went for lunch. The script would diligently open all my LinkedIn groups and post the link to each for people to read during lunch break. I sometimes just stared at the automated browser for fun - it looked amazing as if some invisible super video gamer was using his topnotch mouse skills to promote my blog. Traffic increased significantly.

(not my traffic, added for dramatic effect)

However the hay day didn’t last long. In the next few months, LinkedIn groups released some updates. All the updates seemed to aim for making LinkedIn hard for Selenium to access. The “post” button became hard to locate using HTML id. No problem I located it using XPATH. Soon selenium’s click function won’t work on the button. I got around it by inserting a Javascript to simulate clicking. However patches after patches the script was still not working properly and I was losing audience for not posting my blogs as aggressively as I used to.

(again please focus on the dramatic effect)

I decided to connect directly to LinkedIn API to mass post to the Groups. I applied for a developer account. Got all my Keys, Tokens and Secrets. And after a few hours of coding, I got my new program out. I call it the MechanicalLinkedIn. It’s also on GitHub. In the process of doing it I actually contributed to the opensource python-linkedin project – I fixed a bug and my version became the master copy of the current project. I’m very proud of that. Legacy.

Another round of posting spree. Because I now connect directly to the LinkedIn server, without the web interface crap, posting 50 links takes <1min. Every day around noon my linkedin connections will see on their LinkedIn home page 50 almost identical updates about my blog, one immediately after another. That’s the screen real-estate no banner ads or sponsored messages can get.

Then I got banned again. Now EVERY message I post to the LinkedIn groups needs to be approved by the moderators, regardless of the group. And those moderators don’t maintain the group full-time so they can’t help me get on the golden lunch time slot every day. Sometimes I see a comment or a like to my link a couple of weeks after posting.

Born and raised in China, I wasn’t banned yesterday. My next move? I may get someone on Odesk or elance to help me. I may try to improve my Selenium code again. Dare I message all my linkedin connections every post, with opt out options of course.

LinkedIn I’m hacking you.

Fred Wilson’s New Investment Strategy, And Why It’s Not “Fantastic”

Last week Fred Wilson came up with a new investment strategy: invest in every Internet services that China has blocked. He said it was “fantastic”. I wasn’t sure it’s going to work. It’s based on information is so publicly available – if there is an opportunity many people would have arbitraged it. So I ran a simulation on the strategy and found that it only makes OK money – you certainly can’t raise a fund just to do this.

I first started with the Wikipedia page List of websites blocked in China, and picked the top 50 sites by traffic, which represent over 75% the sites there. There are many sites in the list that one just can’t invest: porn sites which usually have secret ownerships, nonprofits and sites that didn’t raise during the period they were blocked. I end up with only 7 companies after the screening: Yahoo, Facebook, Technorati, Google, Twitter, Amazon, and Soundcloud. I documented my process in this google doc (which is blocked in China :D ).

Yahoo, Google and Amazon were already public when they got blocked. I assume the Fund will invest $10M in each when at the time of blocking. The gross IRR of such portfolio is 21%, which is not good. Fred himself budgeted 40% for Union Square Ventures. (see the calculation on the 2nd tab in the google doc)

Now let’s assume the Fund is managed by super influential investors such as Fred, because only when you are super famous/able can you elbow you way into investing in FB in 2008 and Twitter in 2009, when they got banned by China: they were super-hot companies with plenty of investors courting them. However even people like Fred can’t invest in both companies at the same time – they are competitors and one investor investing in both will cause crazy conflict. Compare FB and Twitter’s Crunchbase pages. Only SV angle got to invest in both, and that's very early on, when both companies were not strong.

So if the Fund only invests in FB not Twitter, the Gross IRR is 34%, which is OK. If the Fund got into Twitter instead of FB, the Gross IRR jumps to 51%, which is good. I bet Union Square has comparable performance, since it had Twitter in portfolio. But again it’s very difficult for most investors to invest in Growth-stage FB or Twitter, and it takes 10,000 hours to become a good VC such as Fred.

So Fred’s strategy is a good one if he does it himself, but not a “Fantastic” one. And for most other investors, it’s not going to make money for them.

Why We Need To Learn Industrial Design From Cavemen

My friend bought a heater from Lasko. I picked up its remote control, and loved this remote immediately:

The oval shape fits the contour of my hand perfectly, and all the buttons are easy to reach. It reminds me of the stone tools made by ancient human as far back as 3.4 million years ago:

Having been used and improved millions of years, these tools must evolved to have the best human interface. There is a reason why the ancient human across all continents chose to make tools in this form factor.

A good modern example is Apple iPhone 1st Gen and iPhone 3GS. The round back case feels so good people want to make their iPhone 4 round.

Why are most phones rectangular now? It’s a compromise of good design and reality of economics. Touch screen displays are cut from big rectangular displays in the factory, so by making displays rectangular factories can make the most out of the material.

I wish we live in the future where the displays are cheap and round. Or in the past where we only use ergonomic stone tools.

Why I Am Happy Without Launch Ticker

Launch Ticker has gone from free to $10 - $100 a month. As a startup guy I’m happy that LAUNCH is broadening their revenue sources, and as a former user I’m really happy I don’t see the ticker any more.

Startup journalists’ don’t think in the benefit of entrepreneurs and investors. Most startup journalists benefit business and are essential to the business community, but they write mainly to be popular among startup people, not to benefit these people. Because of this slight misalignment in interest, for serious businessmen it may not be the best use of time to read the startup press. For example, it’s the best to learn about the Google smart contact lens project through the google blog, instead of this Mashable article: google blog is more detailed and 35% shorter, and free of the wild speculation of contact lens displays. Jason Calacanis, the creator of LAUNCH also made an impractical speculation that Internet will be free. I wrote a post to disagree with that.

I am just happy now I don’t read the fun but impractical press coverage on startups daily.

Why I Like DataSift, And Its Biggest Risk

I was talking with a friend about DataSift, a company that I really like. Here is why:

Being a DataSift prospect, I know the company has a focused sales and marketing plan. The sales guys were trained to sell use cases that the software is the best at. Once realized I was not a validated prospect, they moved me to email marketing. Very efficient.

Being one of the two twitter firehoses in the world, DataSift has the unfair advantage of proprietary data source.

Company is taking the right direction of making the software easy to use, so it can capture the fast growing class of new Chief Information Officers, data scientists and social app developers. It also helps the company lower the sales/marketing cost – the more self-service the software, the less in-person meetings are needed to close deals and support the products.

One risk is that the company is working with a giant public company Twitter. As big data technology gets cheaper, Twitter could change its firehose access policy and take away DataSift’s data source advantage. The company is doing the right thing to mitigate this risk by developing more social data sources.

Overall DataSift is taking advantage of the prominent data analytics trend with the right tools under its belt. I envy the their investors, Insight Venture Partners, Scale Venture Partners, Upfront Ventures, IA Ventures, Northgate Capital, Daher Capital and Cendana Capital.

Nest Revenue, Growth, Revenue Multiple and Projection

Google is to Buy Nest Labs for $3.2 Billion. How fast have the company been growing? What’s their revenue multiple? How well will the company do in the future? Let’s speculate.

Nest started pre-order Oct 2011. Jan 2013 word on the street was that the company is shipping 40K to 50K thermostats per month. At $249 per unit, That’s about $11.2M Monthly revenue. In December 2013 the thermostat was in “almost 1% of U.S. homes.” According to the U.S. Census Bureau, there were 113.9 million occupied homes in the U.S. in 2012, 1% of which is 1.14M. At $249 per unit, that’s $284M total revenue, from Oct 2011 to Nov 2013.

If we assume the company grows in an exponential manner, in which most high-growth companies do, we can easily solve for the growth. Click here to download the excel workbook. Turns out the company grows at around 2.6X year-over-year in revenue. Nest is at roughly $353M run rate now, which gives the company a 9X revenue multiple. Not too shabby for a hardware company. Ideally at this rate, in January 2015, the company will be at just shy of $1B run rate. However bigger companies grow slower, so I expect a discount on this number.

Fun video: see Bloomberg TV guest Cory Johnson does wrong math on Nest's revenue. He actually said confidently on TV “according to my math”. He must thought that he had dodged a bullet when nobody noticed it, but the Nest acquisition helped me dig this out!

Other posts in this series:

Bonobos’ revenue, growth and projection.

Spotify unit economics - Paying user ratio, gross margins and more.

Dropbox Revenue, Growth, and Projection

Find Startup Jobs On mentortechventures.com/jobs

At MentorTech we chat with Penn students and alums every day. Among them are college seniors, 2nd year Wharton MBAs, and people who have worked in the industry for a few years. They are at an inflection point of their careers and often interested in career opportunities in the startup world. In conversation we used to scratch our heads and try to remember companies in our network that are hiring. Well we wouldn’t remember everything that’s a fit to the person. In my case, because I practice Mind Zero, I probably wouldn’t be able to come up with anything and had to look up after the conversation and follow up with the person.

So we decided to refer startup jobs faster and cheaper. We built a jobs page that MentorTech and companies in our network maintain together: http://www.mentortechventures.com/jobs. When we emailed the companies about the page, they were excited. I saw submissions of jobs to our system almost immediately. Now we can direct the talents we know to the page, and be sure that they see every job opportunity.

Please share this page with your friends if they are looking for startup jobs, and let me know if you are a Penn company and want to have your jobs displayed there.

Let A Business Guy Tell You Why Engineers Don’t Like MBAs Looking For Tech Cofounders

Wharton MBAs complain that it’s difficult to get a tech cofounder. Penn Engineers complain that these MBAs “sound like jerks”, and refuse to work with them. Same thing happens in Harvard. To be honest, I had always supported MBAs although I got my degree from Penn Engineering and made a living by coding. “How could you be a jerk looking for partners?” I thought. Last week changed my view.

I was working on a scraping software to collect analytical data for one of our portfolio companies. Originally I thought about doing in on eLance or oDesk, or both, to ensure quality. But the anti-scrapping mechanisms of the data sources made it necessary for someone experienced in web development to do it. That was my first time coding a substantial project since my last SaaS startup.

I was amazed by how short of a time-to-value I can achieve with all the modern tools available. Knowing squat about modern web development, I needed to learn a modern language – C# and Silverlight are not the epitome of web frameworks anymore. I read up on Python vs. Ruby for an hour and realized the topic is a troll heaven. Well that’s for nothing. Picked Python because it looks pretty. Sorry for subjectifying codes. And I spend a few hours setting up the compiler, IDE and the libraries I needed. Then I pressed a button in Eclipse, google app engine immediately started hosting my hello world program, now available for all the world to see. There was zero language learning. Python syntax is very logical. There was zero server setup. Google did that for you. So all the work I actually did is just to connect some systems together in a few hours. Again, I was amazed by how fun and fast it was.

And I realized how a coder would feel when a business guy tries to recruit him/her as a tech cofounder: I made myself learn the business side – why don’t you learn some web development so we can talk in harmony? Imagine a CTO who doesn’t know “acquisition cost”. It’ll take a lot of time for them to understand the business needs. Same for a business guy who doesn’t know the difference between the server side vs. the client side. Now hundreds of hours can be saved in communication if you spend a few hours to read up and practice on your computer, because it’s so fun and easy now. However because most MBAs' education promotes the concept of extreme specialization, they think they don’t need to learn coding. Approaching a potential partner with little tech knowledge makes you look, kind of like a jerk.

So I say go do it. Wright Brothers learned building planes and they had a good run. This short article is how I got started last week. Comment if you have question implementing it. I'll help you.

Like this post? Share it with your friends. Explore more posts from Gym Think Laundry here: http://www.marshallyang.com/archive

Dropbox Revenue, Growth, and Projection

The first one in the series is here: Bonobos’ revenue, growth and projection.

The second: Spotify unit economics - Paying user ratio, gross margins and more.

And today we’ll talk about Dropbox’s revenue, growth and projection. Business Insider has the company’s 2010, 2011 and 2012 revenue as $12M, $46M and and $116M. This checks out with TechCrunch. And according to the same articles, the 2013 revenue is over $200M. We can almost sure that it’s under $250M, otherwise the company would announce it. let’s say it’s $225M.

The company is not growing exponentially anymore. As we can see in the figure below, Dropbox’s revenue growth doesn’t fit in the orange exponential function. I guess it’s been 6 years since the company’s founding, and the early stage exponential growth that Warby Parker, Bonobos and Spotify are having is hard to achieve now. The company is growing in a predictable way through – the data of the last four years fit perfectly into a quadratic function. We know it’s perfect because the R-squared is one in the blue quadratic function.

I anticipate Dropbox’s 2014 revenue to be 400 Million, and 2015 revenue to be $550M. It’s not very impressive considering the $257M raised. The company is seeking to raise another $250M VC funding, and nearly double the total fund raised. As we can see in the figure above, when the company raised $250M in 2011 the money didn't lift the company's growth from the quadratic trajectory at all. Do they have special growth tactics this time?

The calculation is here.

Spotify unit economics - Paying user ratio, gross margin and more

Spotify is one of my favorite PC and mobile applications. However I couldn't find many financial and operational figures of the company. As a VC I'm very interested. Last week my colleague sent me an article of the company from wall Street journal, and it's full of good data. It has good numbers such as the number of total and paying users, which is a good benchmark for cosumer SaaS startups. I will summarize below. I also made some speculations based on those numbers. Here is my summary:

Spotify 2013 Ad revenue is about $400M, and the subscription revenue may reach $1B.

Paying/total user ratio is 25% - they hope to increase it to 30%.

On average a user listens to 19 songs in 2013. Sounds low but we are probably the most active users of Spotify.

Gross margin on the free song + ads model is 5% - it’s a cost center.

Gross margin on subscription can be as high as 88%.

As we can see Spotify's free portion of the fremium model is not making money at all. Maybe that's why they keep pushing users to the ad free and premium subscription.

you can see my calculations and assumptions in this open-edit google doc:

Spotify Speculation

To let us know how you can improve the speculation, please edit directly the google doc or leave comments in the comments section.

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