Can consumer subscription businesses produce venture-scale ('mega') outcomes?

Mike Salguero · Apr 5, 2023 · hedged

Consumer subscription is not a VC-backable model

Even the best-in-class player in the category tops out at roughly a $3B outcome

Scope: phrased as 'I'm not sure it's a VC backable model'

55:02 20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox

Harry Stebbings · May 8, 2023

Consumer subscription commerce is not a venture asset class, because even its all-time best outcome tops out at a few billion in enterprise value

ButcherBox is the category's leading brand at $600M of high-quality revenue and projects to only a $3-4B enterprise value in a few years — that's the ceiling for the whole space

Scope: based on the single best-case outcome in the category

42:46 20VC: Why VC Subsidizes the Wrong Type of Business, Why Capital Gains Tax is Crazy, The Biggest Misalignments Between VCs, Founders and LPs, Why Business Model - Product Fit is as Important as Product-Market-Fit with Chris Paik @ Pace Capital

Harry Stebbings · May 22, 2023 · hedged

Looking at the numbers on consumer subscription winners like Calm (~$2B) and Duolingo (~$4-6B), which took decades to get there, it is unclear whether consumer subscription is a good space to invest in.

The only real winners — Calm at ~$2B and Duolingo at ~$4-6B — are few in number and took over a decade to get there.

Scope: stated as a concern he wants disproven; based on looking at the numbers of outcomes to date

6:00 20VC: Why Your Fund Model Should Not Rely on $10BN+ Outcomes, Why the Large Funds Got Too Large, The Rise of Solo GP's; The Pros and Cons & Is Consumer Subscription Even a Good Sector to Invest in with Nico Wittenborn @ Adjacent

Harry Stebbings · Sep 20, 2024

Consumer subscription is not a venture-backable category — very few companies in it will ever reach venture-scale returns

Scope: concedes Nikhil and Jason disagree and are successful; allows for Duolingo and maybe a couple of exceptions

35:09 20Growth: The 7 Core Levers to Win at Consumer Subscription: Growth Loops, CAC + LTV Benchmarks, Pricing, Packaging, Notifications, Discounts, Paywalls | The Breakdown with Phil Carter

Phil Carter · Sep 20, 2024

Consumer subscription is an unattractive asset class for venture capital because only about 30 to 40 companies have ever reached billion-dollar-plus valuations and almost none reach the $10B+ outcomes funds need

His own research for a guest post counted roughly 30-40 such companies, split between public and private, which is very few given how many have been funded

Scope: it's a hard category and unlikely to change soon

35:32 20Growth: The 7 Core Levers to Win at Consumer Subscription: Growth Loops, CAC + LTV Benchmarks, Pricing, Packaging, Notifications, Discounts, Paywalls | The Breakdown with Phil Carter

Nico Wittenborn · May 22, 2023

The best consumer subscription companies will go public, and in the current macro they trade at much higher revenue multiples than comparable SaaS companies

Duolingo is the live example of a consumer subscription business commanding a higher revenue run-rate multiple than comparable SaaS

Scope: only the best ones

47:28 20VC: Why Your Fund Model Should Not Rely on $10BN+ Outcomes, Why the Large Funds Got Too Large, The Rise of Solo GP's; The Pros and Cons & Is Consumer Subscription Even a Good Sector to Invest in with Nico Wittenborn @ Adjacent

Harry Stebbings · May 22, 2023

On a future cash flow basis Duolingo is a more attractive business than a low-multiple SaaS comparable trading at ~1.6x revenue

Comparing the two on future cash flows favours the consumer subscription business

47:43 20VC: Why Your Fund Model Should Not Rely on $10BN+ Outcomes, Why the Large Funds Got Too Large, The Rise of Solo GP's; The Pros and Cons & Is Consumer Subscription Even a Good Sector to Invest in with Nico Wittenborn @ Adjacent

Harry Stebbings · May 19, 2025

Consumer subscription businesses can produce mega outcomes, contrary to his long-held view

Duolingo is a $24B market cap company with 100M monthly active users, which settles the debate against him

0:28 20VC: Duolingo Co-Founder on Why $3M is Harder than $100M to Raise | Why You Should Always Take Tier 1 VCs Even at Worse Terms | Why Europe Can't Win Unless the US Screws Up | How AI Impacts the Future of Work and Education with Severin Hacker

Harry Stebbings · Apr 5, 2023

Consumer subscription revenue quality is materially worse than enterprise revenue, so it deserves a lower multiple

Scope: stated as an aside while framing a valuation hypothetical

54:32 20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox

Harry Stebbings · May 22, 2023 · hedged

Consumer subscription businesses should be valued at roughly a 2x revenue multiple.

The revenue is not enterprise-quality, churn is very high, and customer acquisition costs are highly variable.

Scope: framed as the concerns he wants answered

8:39 20VC: Why Your Fund Model Should Not Rely on $10BN+ Outcomes, Why the Large Funds Got Too Large, The Rise of Solo GP's; The Pros and Cons & Is Consumer Subscription Even a Good Sector to Invest in with Nico Wittenborn @ Adjacent

Phil Carter · Sep 20, 2024

The harsh revenue multiples applied to consumer subscription businesses are fair based on historical performance

There have been very few Duolingo/Spotify/Tinder-scale outcomes, and underlying metrics like churn rates and net revenue retention mean the quality of that revenue really is lower

Scope: based on historical performance to date

37:40 20Growth: The 7 Core Levers to Win at Consumer Subscription: Growth Loops, CAC + LTV Benchmarks, Pricing, Packaging, Notifications, Discounts, Paywalls | The Breakdown with Phil Carter

Nico Wittenborn · May 22, 2023

Consumer subscription is a new model whose first cohort of companies is only now reaching maturity, so the benchmarks are only just emerging rather than absent.

The App Store only launched subscriptions in 2011 and the earliest companies on that model, like Calm in 2012, are eleven or twelve years old — roughly the time it takes a company to reach IPO-level maturity; USV's first fund only wrapped after eighteen years.

6:30 20VC: Why Your Fund Model Should Not Rely on $10BN+ Outcomes, Why the Large Funds Got Too Large, The Rise of Solo GP's; The Pros and Cons & Is Consumer Subscription Even a Good Sector to Invest in with Nico Wittenborn @ Adjacent

Nico Wittenborn · May 22, 2023 · hedged

Generalist multistage investors have not yet internalized that consumer subscription businesses can command premium public multiples, and more examples over the coming years will open the door to smaller but more numerous IPOs

There are few data points today; more public comparables would change how these companies are underwritten

Scope: framed as his hope and belief; would be much more comfortable in five years with four more comparable firms

47:53 20VC: Why Your Fund Model Should Not Rely on $10BN+ Outcomes, Why the Large Funds Got Too Large, The Rise of Solo GP's; The Pros and Cons & Is Consumer Subscription Even a Good Sector to Invest in with Nico Wittenborn @ Adjacent

Phil Carter · Sep 20, 2024

Consumer subscription has low ARPU and very high churn with no real net revenue retention, because most apps have a single tier and nothing to upsell into

Average apps are ~$10/month or $60-80/year versus B2B contracts in the thousands to millions, and RevenueCat data shows the average app loses over 50% of annual subscribers in year one and over 50% of monthly subscribers in three months; with one tier there's no land-and-expand to offset churn with revenue per retained subscriber

21:48 High churn and low arpu with no nrr undermine consumer subscription revenue quality

Phil Carter · Sep 20, 2024

Consumer subscription founders face a binary: either address a very large market so churning lower-intent subscribers still yields a $100M+ business, or skip venture capital and build a $10–20M ARR business with a small team

High churn means you must either have enough volume to absorb it or a cost structure that doesn't require venture-scale growth

34:45 Founders face a binary choice between huge market scale or small non venture business

Harry Stebbings · Sep 20, 2024

Many of the private companies on the list of billion-dollar consumer subscription businesses are overvalued — their shares are available on secondaries at half those marks

36:07 Private consumer subscription valuations are inflated relative to secondary market prices

Aravind Srinivas · Jun 5, 2024

The $20-per-month AI subscription is not actually a good business — margins aren't high enough

It only becomes a great business at YouTube/Netflix scale, 50-100M paying users, and AI isn't yet fundamental enough to people's lives for 100M people to subscribe

30:37 Flat subscription pricing only becomes a great business at hyperscale 50 100m paying users which ai hasnt reached