Andrew Chen Archives

Subscribe · Featured · Recent · The Cold Start Problem 📘
Dear readers, I have moved to Substack and I will be writing here from now on:
In the meantime, I will leave up for posterity. Enjoy!

How to tell the difference between eyeball companies

I recently wrote on the difference between Eyeball companies versus revenue companies.

I’ve been thinking about the issue of "eyeball companies" AKA companies with lots of users without any revenue. First off, if you have one right now, good for you :) Right now those companies are worth a lot of money, as old media companies are still trying to figure out what to do with this whole Internet thing.

Ultimately, I’d evaluate the future success of eyeball companies according to the following criteria:

First, the basics..

  • Have they proven users love it? (100k+ users is good)
  • Will additional growth be cheap/viral or expensive? (>50% growth M/M is good)

Then, the interesting strategic questions:

  • Are they doing something for free that someone else is doing for $$$?
  • Are they taking "attention" from another big, ad-based platform?

The first two I won’t address in much detail, except to say that you’re not an eyeball company until you have eyeballs :) But the second two are interesting questions in the sense that the public markets aren’t open right now, so you need someone to step up and pay a LOT of money to take you out, if you’re VC-backed.

Because of this, you basically have the big Internet conglomerates (AOL, Google, Yahoo, Microsoft, IAC, and FIM) and old media companies to turn to, in terms of an exit. You ultimately have to look at their businesses and figure out if you’re doing something strategically interesting enough to them. So to reiterate, if you are doing something related to internet radio, video, calling, etc., you pose a disruptive innovation to big companies. Other people make a  lot of money from that, and they will get nervous if you get really big. They will probably think about buying you if you get really big, either for themselves or to keep you away from a competitor.

However, if you are an eyeball company that has a lot of users that no one cares about – and I don’t want to do any finger-pointing but I have my ideas – then even if you get big, no one will get too excited about what you are doing.

Just my quick theory looking back at Skype, MySpace, YouTube, and such.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see for additional important information.