This week I read a quote that made me stop and think:

Formal education will make you a living; self-education will make you a fortune.

                                                   ~Jim Rohn

Simple but powerful! Self-education is how people accelerate wealth accumulation (and their life trajectory). As knowledge accumulates, it compounds. This leads to a better understanding of the world, improved decision-making, and unique insights. These benefits lead, in turn, to identifying unique ways to create value. And value creation often leads to wealth.

Self-education is a slow process, but as with any type of compounding, if you stick with it, the backloaded results are outsize when all’s said and done.

You learn a lot about someone who wants to be an entrepreneur when times are tough. Especially when it’s possible they could run out of cash and have to shutter their company. It’s in tough times that great entrepreneurs separate themselves from everyone else. The great ones do their best work when their backs are against the wall. They turn desperation into a superpower. They make the impossible happen.

Over the next six or so months, we’ll see which cash-strapped founders can separate themselves by making the impossible happen.

Instacart’s largest revenue segment is its marketplace and delivery business connecting buyers and sellers and facilitating delivery of purchased items. Instacart gets a percentage of every transaction as revenue; i.e., a take rate. Let’s hypothetically say that Instacart’s take rate is 5%. For every $10 purchase on its marketplace, Instacart generates $0.50 in revenue. The take rate can be charged to the buyer, seller, or both.

The take-rate revenue model allows companies to increase their revenue as the value they provide increases. This is good, but this revenue has an overlooked downside. As a former customer of various marketplaces and software companies that used take-rate revenue models, I’ve experienced it firsthand, and I’ve watched other entrepreneurs have a similar experience.

As a customer’s merchandise volume on the marketplace or software platform grows, the take-rate dollars become larger, even if the percentage is flat. The larger the take-rate fees become, the more visible they are to the customer’s internal decision-makers. Five percent of $1,000 is $50 and may be an overlooked expense. But 5% of $1,000,000 is $50,000, which is less likely to be overlooked.

Imagine that a customer reviews its P&L, and someone asks, why are we paying XYZ Company so much money every month? That amount could materially boost our margins or support growth plans. They do some forecasting and start thinking about ways to replace the marketplace or software provider (if possible) or reduce its fees. The customer’s perspective changes. It no longer views XYZ Company as a partner that provides more value than it charges for. Instead, it sees XYZ as a company whose cost exceeds its value. The customer wants the cost it incurs to better align with or be less than the value it feels it’s receiving.

When the customer’s perspective changes, the relationship and interactions change. When the dollars at stake are high, the relationship can become adversarial. If your biggest customers are constantly fighting you, it takes a toll on your team and in extreme cases can affect the culture of your company. 

The various lawsuits over the years against Visa and Mastercard by retailers, Block, and other partners over take-rate fees are great examples of what I’m describing.

Take-rate revenue models work, but this dynamic is something founders considering them should be aware of. The good news is that take-rate revenue models can be crafted in various ways that prevent some of this tension with your largest customers.

I recently had the opportunity to speak to a group of early entrepreneurs about bootstrapping. One of these founders asked about execution when you’re bootstrapping—specifically, how to execute and move the business forward when you have limited resources and limited help.

My response was simple. Early-stage founders can’t do everything they’re thinking about, especially when they’re bootstrapping. They don’t have the finances and likely don’t have the manpower. Figure out what the most important next milestone is and what actions get you closer to it. Focus intensely on those actions. Don’t worry about the other stuff. Said differently, figure out the 20% of activities that will make 80% of the difference in getting you to your next milestone.

Focus is important when you’re an early-stage company. You have tons of balls in the air, and you’re adding more all the time. Many early-stage founders (myself included) try to keep juggling all those balls, but it’s just not possible. You don’t have enough hands. It’s better to figure out which of the balls matter most (given your stage). Keep the critical balls in the air and let the others drop (for now). 

Homing in on what’s most important is easier said than done, but it can be the difference between success and failure for early-stage companies (especially when they’re bootstrapped).

Klaviyo is a marketing automation software company. Its SaaS platform allows businesses to market to customers via SMS text and email. It’s been a private company since it was founded in 2012 and has raised over $770 million in funding. In 2021, Klaviyo raised $320 million at a $9.5 billion valuation. Friday it filed its draft S-1 IPO filing to become a public company.

Here are a few things I noticed in the S-1:

• SaaS platform that “enables business users of any skill level to harness their data in order to send the right message at the right time across email, SMS, and push notifications, more accurately measure and predict performance, and deploy the specific actions and campaigns that drive the highest impact” (page 1)
• 1,548 employees (page 22)
• 77.5% of annual recurring revenue (ARR) derived from customers who use Shopify’s platform (page 24)
• Transitioning from majority month-to-month SMB customers to enterprise customers with longer contractual revenue agreements (page 28)
• Federal and state net operating loss carryforwards of $199.2 million and $118.6 million, respectively (page 39)
• Customer counts (page 77):
  -2014: surpassed 100 customers 
  -2016: surpassed 1,000 customers
  -2018: surpassed 10,000 customers
  -2023: surpassed 130,000 customers
• 1,458 customers each generating over $50,000 ARR (page 78)
• Dollar-based net revenue retention rate of 119% as of June 30, 2023 (page 79)
• Sold 2.9 million shares for ~$100 million to Shopify on July 28, 2022 (page 156)
• Fees paid to Shopify per revenue sharing agreements (page 157):
  -2020: $5.2 million
  -2021: $7.8 million
  -2022: $16.2 million
• 7-year collaboration agreement signed July 28, 2022, with Shopify: Klaviyo is recommended email provider for all “Shopify Plus Merchants” (page 157)
• Shopify issued warrants to purchase an additional 15.7 million shares at $0.01 per share, or $157,000 total—25% vested when collaboration agreement signed, 25% vests when IPO is completed, remainder vests quarterly (page 157)
• Equity ownership (page 164):
  -Andrew Bialecki (CEO/Co-founder/Chairman): 38.1%
  -Ed Hallen (CPO/Co-founder): 13.9%
  -Summit Partners: 22.9%
  -Shopify: 11.3%
  -Accomplice Fund: 5.7%
• Cash, cash equivalents, restricted cash as of June 30, 2023: $439 million (page F-3)
• Accumulated deficit as of June 30, 2023: $2.2 billion (page F-3)
• Revenue (page F-4):
  -2021: $290 million
  -2022: $472 million
  -2023 (through June 30): $320 million
• Net profit/loss before tax provisions (page F-4):
  -2021: $79 million loss
  -2022: $49 million loss
  -2023 (through June 30): $16 million profit
• Free cash flow (pages F-7, F-22, and 94)
  -2021: $36.7 million consumed
  -2022: $41.7 million consumed
  -2023 (through June 30): $53.4 million generated

This is a draft S-1, so some information is missing and will be added before it’s finalized.

Klaviyo is growing quickly, has become free cash flow positive, and is generating a profit. The company fortunes are heavily tied to Shopify. The concentration risk related to Shopify could affect public market investors’ appetite for Klaviyo. I’m curious to see how receptive public market investors are to this IPO and what valuation public markets settle on for Klaviyo.

Instacart is a well-known grocery marketplace and delivery company. It’s been a private company since it was founded in 2012 and has raised almost $3 billion in funding since inception. It recently filed its draft S-1 IPO filing to become a public company.

Instacart is a high-profile tech company that’s raised a large amount of venture capital, so I was curious about its S-1. Here are a few things that caught my attention:

• “Grow the pie” core value focuses on growing their partners’ businesses so entire ecosystem benefits from network effects (pages v and 15)
• Began as a marketplace but now focuses on “powering the future of grocery through technology” (page 2)
• Estimates grocery retailers have spent $14.2 billion on enterprise IT—~1% of their revenue (page 5)
• In addition to being a marketplace, Instacart Enterprise Platform is an end-to-end solution that includes these solutions (page 8):
  -eCommerce allows retailers to have online storefronts
  -Fulfillment API and staffing helps retailers fulfill online orders
  -Connected Stores helps retailers unify online and in-store
  -Ads enable brands to advertise on retailer-owned storefronts and apps
• 3,486 full-time employees (page 54)
• Revenue is made up of transaction revenue (retailer fees, customer fees, etc.), advertising revenue, and fees paid to use Instacart’s technology (page 105)
• Gross transaction volume (page 121)
  -2019: $5.1 billion
  -2020: $20.7 billion
  -2021: $24.9 billion
  -2022: $28.8 billion
  -2023 (through June 30): $14.9 billion
• 590% revenue growth and 4x gross transaction volume growth year-over-year in 2020 due to COVID-19 (pages 131 and 132)
• Gets 74% of online grocery orders that exceed $75 and 56% of orders for less than $75 (pages 134 and 135)
• Cash, cash equivalents, and marketable securities of $1.9 billion (page F-4)
• Revenue (page F-5)
  -2020: $1.4 billion
  -2021: $1.8 billion
  -2022: $2.5 billion
  -2023 (through June 30): $1.4 billion
• Net profit/loss before tax provisions (page F-5)
  -2020: $70 million loss
  -2021: $72 million loss
  -2022: $71 million profit
  -2023 (through June 30): $306 million profit
• Net cash provided by operating activities (page F-12)
  -2020: $91 million consumed
  -2021: $204 million consumed
  -2022: $277 million generated
  -2023 (through June 30): $242 million generated
• PepsiCo, Inc. is purchasing $175 million of stock via a private placement (pages F-66 and 313)

This is a draft S-1, so some information, such as equity ownership, is missing and will be added before it’s finalized.

Instacart has built a massive business that benefited tremendously from COVID tailwinds. In the last eighteen months, it appears to have focused on profitability. Growth appears to be slowing.

In early 2021, the company raised $265 million at a $39 billion valuation. In late 2022, it reportedly was internally valued at $13 billion. I’m curious to see how Instacart is received by public market investors and how they value the business.

This is my one-hundred-seventy-eighth weekly reflection. Here are my takeaways from this week:

• Determining value – I’ve noticed a trait common to successful entrepreneurs who happen to be investors—I call them “investor entrepreneurs.” They can confidently value what they’re investing in—often in a way that differs from the rest of the market. When buying anything, they make sure to pay significantly less than what they’ve determined it’s worth, regardless of what others are doing and regardless of the asset type (real estate, start-ups, public companies, etc.).
• IPOs – I noticed, this week and last, an uptick in the number of tech-related firms planning to go public. Instacart, Klaviyo, and Arm are a few examples. I’m curious to see how the market receives these companies. I’m also curious to review their IPO filings to find out if they’re generating or burning cash.
• Emulate what you admire – Habitually emulating the positive qualities you admire in others is a life hack that compounds. Everyone can do it, but most people won’t.

Week one hundred seventy-eight was another week of learning. Looking forward to next week!

OnlyFans is a social media company that’s surged in popularity since the pandemic. The company has a less-than-stellar reputation because of the type of content creators post on the site. I’ve never used the site and don’t know a lot about it, but I read an article about the financials that caught my attention.

The parent company, Fenix International Limited, is based in the UK, so its financial statements are public. I looked at its latest financial report covering 2022 and noted the following:

• Creators on the platform grew 47% to 2.16 million
• Fans (i.e., users) on the platform grew 27% to 187.9 million
• $1.09 billion in total annual revenue
• ~67% of annual revenue is generated in the US
• ~48% of revenue is subscription
• ~52% of revenue is transactional (take rates from purchases)
• Net profit (after taxes) of ~37% or $403 million
• Dividend of $338 million paid in 2022
• Dividend of $310 million paid in 2021

Bloomberg says the company is owned by a single individual, to whom all dividends are paid.

Again, I don’t know anything about the platform and haven’t used it, but its financial performance is something to take note of. The revenue, net profit, and dividend figures surprised me.

I’ve been learning about successful entrepreneurs who happen to be investors—I call them “investor entrepreneurs.” I heard about Stanley Druckenmiller and have been learning about his journey as an investor.

Druckenmiller is a hedge fund manager, which I’m less familiar with. I’m still learning about that investing style and about hedge funds, but one thing has stood out to me from learning about Druckenmiller: there are many creative ways to deploy capital and achieve outsize returns. There’s no set path that all investors must follow. Some investors like to invest in what others might consider unorthodox ways, and they can still be successful. 

I’m excited to continue to learn more about Druckenmiller, his approach, and why he was successful. 

I’ve been chatting with several founders who put off raising in 2022 and earlier this year in hopes that fundraising conditions would improve. They’re now at the end of their runway—they must raise new capital. It’s a tough spot to be in, and I suspect it may be more common than not for early-stage founders who raised in 2020 or 2021. 

Summer vacation season is over, and public markets rebounded through July (August has been a down month so far). The optimal window before year end in which these founders can raise capital opens in September and closes around Thanksgiving. This two-and-a-half-month window could be make or break for many early-stage start-ups this year.

I’m curious to see how many early-stage founders begin fundraising in September and how the number of investments completed in this year’s window compares to last year.