An Inside Look at the BVP Investment Memos

As the start-up ecosystem bursts, it is difficult to identify a diamond in the coal mine – an opportunity worth the risk, given the high percentage of failed start-ups. Bessemer Venture Partners (BVP), an American venture capital firm, alludes to unique characteristics of fruitful investments in its Investment Memos. So, what is the secret sauce? Isha Joshi shares her insights from the BVP Memos.

Pay attention to consumer tendencies

Many times, a company’s primary offering is not profitable, but a secondary feature may turn out to be a golden opportunity. Twitch and Pinterest, for example, both became successful through popular secondary features that gained popularity among consumers. Until March 2020, I had not heard of Twitch, a website dedicated to live streaming and gamers who can interact with their audiences while playing video games. Over the course of the pandemic and months of home isolation, the name Twitch became increasingly familiar along with the practice of watching others’ gameplay. Twitch alone wasn’t even parent company Justin.tv’s primary offering. To earn better from the existing video streaming infrastructure offered by Justin.tv, the company created Justin.tv gaming – an arm later renamed Twitch.tv. In September 2012, Twitch announced $15m worth of investment in to increase its market share and as of 2019 has captured 73% of the game viewing market.

Pinterest, another user-generated content company and BVP investment, has a similar story. According to the BVP memos on Pinterest, the primary focus of the company’s founders was on totes, a product catalogue for high-end brands that allowed users to browse items and save favourites. Consumers tended to use the favourites feature of the app more frequently than they made purchases – which is how the idea of “pinning” interests onto different category boards was born. The Pinterest IP in 2019 garnered a valuation of $12.7 billion including stocks and options.

Trial and error are part of the process

Many people believe that to succeed, you must get it right on the first go. Founders are often under significant pressure to make their first venture lucrative. However, in reading about the successful companies in the BVP Memos, it is clear that many companies often succeed after several attempts.

For example, Twilio was the fourth company set up by its founder, whose calling was in communications. After a few failed ventures, he managed to scale up a simple solution providing voice application to companies like Uber and Airbnb. Tech start-up SendGrid has a similar story.

Challenges may spark the most opportune ideas

Shopify, for instance, was born after its founders intended to create an online platform to sell snowboarding equipment. The founders were not able to create a strong and simple online store, and realised many people faced the same issue – so they created Shopify. As outlined by BVP, Shopify was easier to use than other software available in the market and was also relatively cheaper. Its payment terms at the time of the investment were far preferable to that of the competition at the time – with Shopify, the customer was charged a nominal monthly recurring fee and a small percentage of the transaction fee of the merchandise sales, compared to the hefty fees charged by its competitors. Shopify was among the few major internet breakthrough companies from Canada in 2006 and hence it also had the early bird advantage.

In conclusion, BVP’s investment memos shed light on how some extremely successful companies came to carve out their own niche areas of expertise. For instance, companies like LifeLock, Fiverr and LinkedIn all gained significant traction rather quickly by following their North Star visions and replicating their offerings worldwide. The full memos are available here.


About the author: Isha Joshi MiM2021 is a sustainability enthusiast from India. She started her entrepreneurial journey with a fruit beverages manufacturing company while studying Business Administration for her undergraduate. She is now planning to diversify her experience in International Business while at London Business School.

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