@andrewchen

Get the newsletter · 2018 essays (PDF) · Featured · Recent

How to fool VCs into thinking you have traction, Part 2

In my last blog, I argued that that web stats are often meaningless, and can be used to fool people (in particular VCs) into thinking that you have traction when you really don’t.

In this first blog, I’m going to talk about Widget pageviews versus destination site pageviews.

Here’s what you say
When people ask you what kind of traction you have, this is what you say:

"Last month, we got 30 million pageviews and 5 million unique users."

These are great numbers! You can then show them a graph that looks like a hockey stick, and have people multiplying CPMs by the pageviews to get big revenue numbers.

The reason why this argument is so incredibly compelling is that it’s easy to think that big numbers equals big traction. Between that and showing them a hockey stick graph, it’s easy to get seduced into thinking you have a huge company right away.

What’s weird with these stats?
Although these numbers can look great on paper, they represent a potential landmine for people who aren’t doing their math.

What’s misleading?
Ultimately, a widget pageview is not the same as a pageview on your site.

When you tell someone that you have 30 million pageviews on your site, it’s valuable for a number of reasons:

  • It shows that users are engaged with your property
  • You own real estate on your property where you can place ads
  • Normal "comps" to calculate value, like multiplying against a CPM or calculating a $/user value, all sounds great

The problem is that for a widget site, you have the opposite reaction:

  • Users may not be engaged with YOUR property, they are engaged with MySpace’s
  • You don’t own any real estate to place ads – and if you did, they might cut you off
  • You can’t multiple the pageview numbers by standard revenue multiples, since the pageviews and users may not really be yours in the first place

That sucks! That means that the % of users that exist in widget form may never be monetized – or if it is, it will be at a substantial discount to your CPMs. For more on widgets ad impressions, I wrote a previous blog on the topic called "Widgets = Ad Networks".

How do you figure out the truth?
To avoid being seduced by the huge numbers, just ask the simple question:

How much of the 30 million in traffic comes from widget pageviews versus pageviews on your destination site?

If you get them to answer that breakdown, then you can ask a couple follow-on questions to show that you get how widgets fit into their marketing strategy:

  • How well are you retaining users on your destination site? How often are they coming back?
  • Where are the widgets placed? Are you concentrated on one partner? (uh oh!)
  • How much of your destination site traffic comes through links on your widget?
  • What happens if your widgets all go away? Does your destination site still survive?
  • What are the CPMs on your destination site?
  • Do you have ads on your widget? If not, do you plan to? How will the underlying platform respond to you monetizing their traffic?

Ask these questions, and you’ll figure out how dependent they are on their potentially hostile partners. Furthermore, you’ll figure out a bunch on how smart they are about "quality of traffic" and the difference in monetization rates between their destination sites and their widget business.

Conclusion

Overall, this is a very effective way to fool people into thinking you have a lot more traction than you really have. A lot of social networking sites have between 50-150 pageviews PER SESSION. If you can pass these pageviews off as your own, you are probably going to inflate your valuation by 3-5x. Pretty sweet.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments (and certain publicly traded cryptocurrencies/ digital assets) for which the issuer has not provided permission for a16z to disclose publicly. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.