The Next Wave of Consumer Startups: Why Point72 Ventures is All In
By Ishan Sinha
Is consumer investing dead? A one-way street? We don’t think so. We believe that right now is the greatest opportunity for groundbreaking companies to be built since the advent of smartphones – here’s why.
The Early Days of the Internet
I spent the early part of my life as a nomad of sorts. My father’s career had us moving internationally every one to two years, from India to Germany to Japan and more. In the early 2000s, as someone that was constantly on the move, I found community in an unexpected place: the internet.
For those who are old enough to remember, that era of the internet provided the first opportunity for people to experience the world outside of our immediate physical surroundings. Online forums served as hubs for likeminded people with similar interests to trade ideas, unconstrained by geography. Crowd-sourced and community-edited websites became our new digital encyclopedias to learn about the world around us. And of course, who could forget the early days of instant messaging – and chatbots! While there’s another AI chat interface that we use today, I have fond memories of SmarterChild, a text-based, sassy chatbot messenger that served as my generation’s first interaction with artificial intelligence (we actually met SmarterChild’s founder a few years ago and invested in his new company – but that’s a longer story for another time).
We look back on it with a sense of nostalgia now, but much of the “v1” of the internet was ugly and clunky. The underlying products and services – communication with anyone in the world, file sharing, and e-commerce – were a magical new experience, but it took some time before real businesses were built on the foundations that these early products set. I remember discovering the early versions of Reddit, Soundcloud, and YouTube while I was in middle school; I had no idea that these would become generational companies that were still used by millions of people nearly 20 years later.
What’s Happening Now?
Fast forward to 2024 – the internet has evolved. We acknowledge the challenges of building a net new consumer internet company today:
- The battle for consumer attention is as fierce as it’s ever been…
We are now over 15 years removed from the launch of Apple’s app store. It was far easier to get a user’s attention in 2008 when every new application on your iPhone was relatively novel. Now, ~68% of consumers report that they are actually keen to get rid of applications on their phone. On top of general crowding, getting a user’s attention is hard. Social and entertainment platforms are all fighting for your time; TikTok currently leads the pack with users spending ~54 minutes/day on the app on average.
- …and customer acquisition in a post-IDFA world has never been more challenging
With the introduction of App Tracking Transparency (ATT) in iOS 14.5, which requires apps to obtain explicit user permission to track their activity, the cost of acquiring new customers through traditional mobile advertising channels has increased significantly.
That said, we at Point72 Ventures believe that we are on the precipice of a shift that will result in the next generation of transformational companies like the ones I gravitated towards in the early 2000s. We’re observing the following dynamics:
- Founders are harnessing new technology to build innovative products that are captivating consumers…
Technologies like (but not limited to) generative AI have enabled founders to create captivating products that are cutting through the noise in a challenging attention economy. We all know of success stories like OpenAI’s ChatGPT, whose rise to 100 million users just two months after launch was perhaps the fast app growth in history, but we’re also seeing significant growth across modalities like music, visual art, video, and gaming. This new wave of applications is clearly piquing consumer interest in a way that we haven’t observed in years.
- …and are finding unique ways to build audiences
In the face of customer acquisition challenges, we think savvy founders are leveraging social and community platforms to build audiences from scratch. As advertising budgets shift away from traditional digital marketing channels, we believe platforms like TikTok and Discord will become more important in fueling zero-to-one growth.
We’re big believers that the future of the internet will lean into the idea of digital communities and that large businesses can be built against this theme: People are increasingly organizing themselves online, whether it’s for shared interests, fandoms, or to rally around emerging products or services. Entire businesses – including large ones like Midjourney – have been built within single Discord servers. In 2024, we’ve already seen one IPO of an online community in Reddit; later this summer, we expect to see another one in Webtoon.
Where Are We Spending Our Time?
We pride ourselves in remaining steadfast in our convictions – if we identify a potential opportunity, we’re not going to back away from a challenge. We launched a dedicated Consumer and Media team at Point72 Ventures in October 2023 because we believe that the biggest opportunities are ahead, not behind us.
For example, we’re thinking deeply about the following questions:
- In our view, consumers want products that provide them with either a solution to a problem or truly novel entertainment. Technology that unlocks new experiences is valuable, but we believe it’s simply a building block of a consumer application, not the selling point. Who is building the next great consumer application that meets user’s demands and also harnesses the experiential benefits of today’s technology?
- In a world where there are challenging copyright issues in generative AI, how should we think about creator and IP rightsholder fairness?
- Now that the barriers to entry for content creation are falling, will value in the ecosystem accrue to content creators or content distributors?
Please reach out if you are addressing the above questions or have similar ones – we want to hear from you! Our team is exploring ideas across media & entertainment, sports, education, family technology, commerce, gaming, healthcare, travel/experiences, and more.
The digital nomad in me is excited to learn about what “v2” of the internet will be, and Point72 Ventures excited to invest in the next generation of companies that we believe will create the sense of wonder that I felt in the early 2000s.