What's the story behind the RavingFans™ Model?
Believing that successful ventures "leave tracks in the mud" on their road to success, we've tried to understand: why do some companies receive remarkable "unicorn" valuations (higher than US$1 billion)?
Where it all began?
Believing that successful ventures “leave tracks in the mud” on their road to success, we’ve tried to understand: why do some companies whose product and business models are easy to replicate (Instagram, for example), receive remarkable “unicorn” valuations (higher than US$1 billion)?
Our questions lead us to research among our friends in some of the most successful companies in the world (Facebook, Google, Amazon, etc.), and from there we came to realize that traditional thinking is missing the boat on this one. The investment community is, for the most part, going in the wrong direction.
We’ve applied (and then developed further) various approaches in the field of behavioral psychology. For example, in the field of mobile application, instead of just examining traditional aggregate data such as DAUs (Daily Average Users) and growth in the number of installs of the application, we decided to test usage data in an innovative way, and searches for patterns that typically go unnoticed, but are prevalent and characterize leading application users’ behavior.
We’ve modelled these “tracks in the mud” into an analytical framework we call “The RavingFans™ Model”.
What is that?
Well, for every company we test, it tracks over 40 data points across 5 different time frames, seeking answers to questions like “what % of active users are using the [product] between 7 am to 8 am?”. The results also take into account category benchmarks: obviously, we don’t expect banking applications to show the same metrics as music applications.
We believe that “average users” usually create average companies. Raving fans, who are obsessed with, addicted to and compulsively use products and services often create unicorns.
We’re looking for 3 things:
- The existence of a critical mass of Raving Fans
- Continuous growth of this group
- Higher than category average retention rates
Of course, it does not mean that if a business has its share of raving fans, its future is set and success guaranteed. But it does mean that these entrepreneurs have found a recipe that few others before them have found. They typically don’t understand it, but it doesn’t matter – you don’t necessarily need to know why users are infatuated with your service to create a US$ Billion enterprise.
We consider the Raving Fans a great filtering tool. World class leading investment companies are probably approached 30,000-40,000 times a year for investments – and most of them are impossible to analyze. Due diligence is such an expensive undertaking, and it should be better focused on deserving candidates. But what rules would you use? “You must be a seasoned entrepreneur”? That would mean you’d reject the founders of Facebook, Google and Amazon. Not a wise choice.
RavingFans™ gives investment companies the opportunity to spend their most precious resources- the time of partners and associates – on ventures with high probabilities of success. In other words, the model helps augmenting the traditional decision making process, which emphasizes the quality of the team; its ability of execution; competitive landscape; business model; the size of the market; and the market need that is being addressed.
Follow[the]Seed, the fund that’s introducing the RavingFans™ Model, is often working in partnership with others (i.e. co-investments). Selected partners can refer deals for screening. In the case that the deal receives a “green light”, Follow[the]Seed is then allowed to co-invest typically 20% of the allotment of the referring partner.
In other words, Follow[the]Seed puts its money where its mouth is!
A truly win-win arrangement.
If you’re an investment company and interested in find more about Follow[the]Seed, please let us know and we’ll send you our partners introduction package.