May 22, 2023 · 1h 29m · news
Nico Wittenborn: Consumer Subscription Apps; Using Evolutionary Biology to Invest; Solo GP's | E1017 · 20VC with Harry Stebbings
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In this episode of 20VC, venture capitalist Nico Wittenborn of Adjacent discusses his unique thesis-driven approach to seed-stage consumer subscription apps, the strategic benefits of operating as a Solo GP, and how the evolutionary biology concept of the 'adjacent possible' guides his investment decisions.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 16.5% of the talking time here. How this is scored →
Harry as informed peer 4.3 Guest teaching 3.4 Guest disagreement 1.4 Harry pushing back 3.0
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:03:45 Dismissing multi-stage brand threat
Nico firmly rejects Harry's premise that multi-stage funds writing seed checks pose a threat to his strategy, arguing those funds are paralyzed by existential balance sheet issues.
Hardest push from Harry ▶ 57:49 Dismissing AI consumer apps as thin wrappersHarry directly pushes back on AI consumer subscription apps, framing them as uninteresting thin wrappers on OpenAI without proprietary data.
Biggest teaching moment ▶ 14:30 Explaining consumer sub cohort churn mechanicsNico corrects Harry's skepticism regarding high consumer churn by explaining that upfront annual payments cover CAC immediately, while second-year retention mimics SMB SaaS.
Harry holds his own ▶ 41:09 Analyzing podcast monetization and missing RiversideHarry demonstrates deep domain knowledge by detailing his pass on Riverside based on podcast earnings data and static market sizing.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Nico Wittenborn's Career Origin Story | 1 | 0 | 0 | 0 | Harry asks open conversational questions about Nico's career entry, allowing Nico to recount importing iPhones and starting at .9 Capital. | |
| Key Takeaways from .9 Capital and Insight Partners | 2 | 1 | 0 | 0 | Harry interjects with background context on Insight's founding year and .9's deal discipline while Nico outlines his firm takeaways. | |
| The Viability and Thesis of Consumer Subscription Apps | 4 | 4 | 2 | 3 | Harry questions whether consumer subscription apps are a viable sector. Nico reframes the timeline by noting App Store subscriptions only launched in 2011, making the sector just now mature. | |
| Debunking Churn and Managing Customer Acquisition Cost (CAC) | 5 | 6 | 2 | 6 | Harry challenges consumer sub metrics on churn, CAC variability, and low multiples. Nico educates Harry on cohort dynamics, noting year-one upfront payback and year-two retention matching SMB SaaS rates. | |
| Pricing Sensitivity, Paywalls, and Optimizing Conversion | 4 | 5 | 2 | 5 | Harry pushes back on aggressive paywalls and upfront pricing. Nico counters with portfolio data showing paywall frequency directly drives conversion and activation. | |
| Marketing Channel Volatility and Product Horizon Evolution | 4 | 4 | 1 | 4 | Harry asks if marketing channel volatility like Facebook algorithm changes frightens Nico. Nico explains how consumer sub apps expand from mobile into web platforms and enterprise APIs like PhotoRoom. | |
| Venture Valuation Dynamics and the Power of Seed | 5 | 3 | 2 | 3 | Harry references multi-stage fund seed tactics like Andreessen's 5-on-25 rounds. Nico explains why Adjacent focuses on Seed valuation asymmetry and smaller fund sizes. | |
| Adjacent's Fund Model, Portfolio Construction, and Strategy | 5 | 3 | 1 | 3 | Harry drills into Adjacent's fund math and check sizes ranging from $1M to $7M. Nico outlines portfolio construction across 20 to 25 companies with a target 10% ownership. | |
| Philosophy on Governance, Board Seats, and Collaboration | 6 | 3 | 2 | 5 | Harry challenges Nico on co-leading Series A rounds, citing VCs who demand 20% ownership like Ophelia. Nico emphasizes selecting small partner funds like USV that complement his style. | |
| Pricing Sensitivity, Round Structuring, and Founder Alignment | 5 | 4 | 1 | 4 | Harry presents a practical dilemma about round pricing versus fund model constraints. Nico advises prioritizing founder alignment over fund convenience, sharing Jeff Hoering's advice not to be cheap. | |
| Investment Regrets and Betting on Market Evolution | 6 | 4 | 1 | 2 | Harry demonstrates expertise by detailing his pass on Riverside based on podcast monetization metrics. Nico highlights the necessity of betting on market evolution rather than static metrics. | |
| Capacity Management, Conviction, and Breaking Investment Models | 4 | 3 | 1 | 2 | Nico illustrates breaking personal investment criteria by recalling .9's decision to force capital into Revolut's seed round. Harry agrees on the need for elasticity in fund rules. | |
| The Rise, Benefits, and Autonomy of Solo GPs | 5 | 4 | 2 | 4 | Harry questions whether solo GP models can scale across portfolio volume without partner checks. Nico defends solo GPs, noting that consensus models in traditional partnerships often kill non-consensus winning bets. | |
| Decision-Making, Founder Evaluation, and the 'Adjacent Possible' | 4 | 5 | 1 | 2 | Nico details his core investment framework, the 'adjacent possible' in evolutionary biology applied to tech adoption. Harry shares examples of execution-oriented founders like Triple Dot Games. | |
| AI in Consumer Subscriptions: Thin Layers vs. Coded Experiences | 5 | 5 | 3 | 6 | Harry challenges AI consumer sub applications as thin wrappers on OpenAI without proprietary data. Nico counters that coded application workflows historically capture substantial software value. | |
| The Next Decade of Venture: Fund Sizes, Brand Competition, and Seed Inflows | 6 | 4 | 3 | 5 | Harry argues that multi-stage funds writing early seed checks make seed investing tough. Nico counters that large funds are distracted by balance sheet and GP commit issues, leaving room for fast solo GPs. | |
| US vs. European Founder Biases and Investor Caliber | 6 | 4 | 2 | 3 | Harry highlights the discrepancy between US and European venture investor quality and valuation multiples. Nico contrasts public multiples of Duolingo against SaaS companies like build.com. | |
| Personal Background, Motivation, and the Grounding Impact of Fatherhood | 2 | 1 | 0 | 1 | Nico opens up about his personal background, growing up with a single mother, and how fatherhood grounds his long-term perspective. Harry listens empathetically. | |
| Quick-Fire Round: Seed, Series A, and Growth Fund Picks | 3 | 2 | 1 | 1 | Harry runs a quick-fire round on LP fund picks across Seed (.9), Series A (USV), and Growth (Founders Fund). Nico gives crisp justifications for each choice. | |
| Quick-Fire Round: Work-Life Balance and Future Outlook | 3 | 2 | 0 | 1 | Harry highlights Nico's apparent contentment and work-life balance. Nico shares his framework on preparation, performance, and rest, along with board experience alongside Chad Pipkin. |
Statements from this episode (43)
Wittenborn: Tech evolution occurs deterministically through combining existing phenomena
“Evolution happens usually as a combination of the existing phenomena and in a relatively deterministic way.”
Insight Partners Launched in 1996 as a $20 Million Fund
“It was, it's, as you said, a twenty billion dollar fund now, but it was actually started as a twenty million dollar fund in 96.”
Jeff Horing Was 26 When He Founded Insight Partners in 1996
“In 96, Jeff Hoering saw the opportunity in enterprise software. And he was the, one of the first people, maybe the first person to really bet on it. He was 26 years old at the time.”
Wittenborn: Consumer subscription apps can reach $1B to $5B outcomes
“So I think that, yes, today, I believe we're early. However, I have enough confidence based on what I've seen that we can get to multi-billion dollar outcomes, right? I don't know about ten billion dollar outcomes, but I think one, two, three, four, five billi…”
Wittenborn: Consumer App Churn Resembles SMB SaaS After Year One
“The insight that we've had with some of the first companies we invested in is that the churn is usually high in the first year, and then from the second year on, it looks very much like SMB SaaS churn.”
Wittenborn: Adjacent Portfolio Companies Must Pay Back CAC Within One Year
“We steer acquisition so that we recover the CAC with the first year, ok? So every time you get a yearly subscriber that pays back your CAC, you don't overspend”
Wittenborn: Consumer Apps Should Target 50% Organic Customer Acquisition
“The guideline I give is 50%.”
Wittenborn: 70% to 80% of App Conversions Are Annual Upfront Subscriptions
“It's like 70, 80% of the conversions that we work with.”
Wittenborn: Consumer app prices will follow SaaS trajectory over 5-10 years
“The price increases that we have seen since, like, let's say, a corn launch to what it charges yearly today and what it will charge in five to 10 years, I think it has a similar trajectory to what we've seen with SaaS companies and their ability to extract val…”
Wittenborn: Paywall display frequency is top driver of subscription conversion
“And so what Superwall is doing is optimizing paywalls. And so one of the learnings that we have from that is that the number one indicator for driving conversion is how often do you see the paywall, right?”
Wittenborn: Paid conversion often drives higher user engagement
“And then paradoxically also, the pay conversion Oftentimes activates the user, right? So it's like, there is some like, it's like maybe the gym membership effect. I'm not sure, but it really often drives higher engagement.”
Wittenborn: Seed-stage consumer subscription apps can reach tens of millions in revenue
“Often with a seed round, you get to tens of millions in revenue.”
Wittenborn: PhotoRoom expanded beyond mobile into six-figure enterprise API contracts
“Take photo room. It's a prosumer product. We started on mobile. It's successful, not just in the US, but also in emerging countries. And now we're bringing the same product to web, to teams, and we have an API that people are paying 600 digits for a year.”
Wittenborn: Seed offers best risk-reward ratio for multi-billion dollar exit targets
“I believe that seed is the best in terms of upside potential, downside risk, and Expected future dilution, especially given that we, I operate under the assumption that we, I have multi-billion dollar exits, not ten billion dollar exit, right?”
Wittenborn: Adjacent Plans for Three-Year Cash Runway in Round Structuring
“At the same time, it enables the founder to have more money so that they have longer runway, which typically now I plan for three years.”
Wittenborn: VCs Dislike Consumer Subscription Until Tens of Millions in Revenue
“Because people don't like consumer subscription until it does tens of millions in revenue.”
Wittenborn: Seed-Stage Startups Do Not Need Formal Board Seats
“At Seed, you don't need a board, I think, because you're chasing product market fit, and so most of the time I'm in your way.”
Stebbings: VC Ownership Targets Will Return to 15-20 Percent
“I think we're going to move back to an era where venture investors go, shit, the outcomes are lower, and so our ownerships need to be higher. And when we did take 10% in bubble times, we now need 15, 20 again.”
Stebbings: Ophelia Brown Demands Minimum 20 Percent Ownership Target
“Ophelia, say, who I had on the show recently, won't go less than 20.”
Insight's Jeff Horing advised Nico Wittenborn not to be cheap
“One piece of advice that Jeff Hoaring, the founder of Insight gave me after working with me at Insight for a while, was that he basically, his only comment was, don't be so cheap.”
Stebbings passed on Riverside because he doubted podcasters would pay
“I really regret Riverside. Oh, fuck me. Ah. Fucking Oran Zeve, who I love. Yeah, he's great. Amazing dude. Brought it to me, and I said, no one will do this. You know why? Because like, 90% of podcasters don't earn more than a hundred dollars a month. It's 50 …”
Wittenborn: Early-stage VCs must bet on market change, not static metrics
“The way that a growth investor looks at is, is that the static, right? They need to understand the size and the benchmarks and make it fit their formulas. And then it has to add up and make sense. We, I think me, thesis driven investors, I think need to unders…”
Stebbings: Passed on investing in Descript across every funding round
“I turned down to script, and I turned them also down every round.”
Wittenborn: VC regret requires better decision-making, not more deal volume
“I think, I mean, this is actually a good also, I mean, so I think most regrets that we have as investors are the companies we didn't invest in. And so what does it mean? Does it mean that we have to see more companies? It usually means we have to be better at …”
Point Nine broke its rules to invest in Revolut's seed round
“When I was with .9 and reinvested in Revolut, it was both outside of the focus, right? It's a mobile consumer app. It was actually had just closed the seat round with Balderton. So there was no actionable opportunity and the only way to get in was actually for…”
Wittenborn: Investment frameworks exist to test conviction when breaking them
“I think that part of the frameworks that we set for ourselves are litmus test for the conviction to break them.”
Stebbings: Partnership breakups are the primary killer of venture firms
“Number one killer of partnerships is actually partnership breakups.”
Wittenborn: Solo GP model fits early-stage VC better than consensus partnerships
“I think solo GP is, For the right person, a very good fit for the early stage. And I think most consensus driven models at the early stage, unless it's a very aware and mindful partnership that really supports each other and, you know, can all see the complexi…”
Stebbings: Triple Dot founders are unmatched execution machines
“It's Lior and Akin at Triple Dot Games in London or Triple Dot Studios. I've never seen execution machines like it. Speed of execution never missed their fucking numbers. They are just execution oriented like no one else.”
Wittenborn: Backed founders who initially aimed for $10M scale
“So I do, like, I've invested in founders that told me, we want to scale to ten million and then we'll see. Right? Like, which nobody else would do that.”
Wittenborn: Macro growth drivers matter far more than execution
“And so I believe that those companies benefit from growth drivers that are much more meaningful than any execution.”
Wittenborn: Application layer verticalization drives most software value creation
“A lot of the value that has been built in software over the last 20 years has actually been in the application layer that takes these breakthroughs and just verticalizes them for a specific use case or a specific customer demographic and monetizes them.”
Wittenborn: Existing consumer subscription apps will win most value from AI
“The way I think about it from an adjacent perspective is we're going to have companies that are already consumer subscription companies that are implementing this to make their products even more sticky, more functional and give features that were not possible…”
Wittenborn: Venture capital fund sizes will shrink in coming years
“It's certainly hard to make a blanket statement, but I think that fund sizes will go down.”
Stebbings: $2 billion venture funds will fail to hit 3x returns
“Trust me, you ain't shooting three X on that two billion dollar fund.”
Stebbings: Multi-stage VC funds are moving downstream into seed deals
“All the multi-stage funds just don't want to put cash out the door, but they all want to be in market. So they're all moving earlier and earlier to seed.”
Wittenborn: European founders prioritize US venture investors over local funds
“One thing I've actually noticed is that the European founders care about having a US investor.”
Wittenborn: The US has a higher caliber of venture investors than Europe
“That being said, I've met many more investors that I'm impressed with in the U.S. Than in Europe, right?”
Wittenborn: Duolingo commands higher revenue multiples than comparable SaaS companies
“There's now a Duolingo that's, I would just want to stress this, in this current macro, they have a much higher multiple on their revenue run rate than comparable SaaS companies.”
Wittenborn: Consumer subscription apps will trigger a wave of smaller IPOs
“And so my hope is that in a few years we have more examples. And so it will open the door for smaller IPOs, but more IPOs. And so I think that will happen. The best of them will do that.”
Wittenborn: Founders respect VCs who built their own firm over hired partners
“And I think that is something, by the way, that I think founders respect, right? Because you're not an associate or principal, even a partner that was hired into a firm with a cushy salary, but you took a risk, you built something, and you're trying to, you kn…”