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A JUNIOR VC

Weekly commentary on startups, entrepreneurship and business

Edition 28

“I've never played 
for a draw in my life"
Sir Alex Ferguson

Dear *|HTML:FNAME|*,

The community continues to grow at a steady pace, and you could continue to pass on the love by forwarding this link to interested friends, colleagues and family. Thank you for subscribing!

One of the very intriguing announcements last November was Zomato's Gold. As a concept, Gold is fairly straightforward - you sign up for a subscription that gives you access to a free dish/beverage at a partner restaurant. Its subsequent impact on the food ecosystem and stakeholders is what literally makes it Zomato's Gold.

I was intrigued as to how the subscription was making sense for me, the restaurant and Zomato simultaneously. To understand, you need to first look at Zomato conceptually. Zomato is a matchmaker - matching a person looking for a restaurant with a restaurant willing to serve a customer looking for a restaurant. The core value-add by the matchmaker is information that facilitates the transaction between the customer (demand) and restaurant (supply). As the first of its kind in India, Zomato was adding a lot of value to both demand and supply. But how was Zomato capturing value?

The classic method for an information matchmaker (e.g. Google) to capture value (i.e. monetize) is advertisements. Zomato did attempt the same, but it really does depend on the restaurant to advertise. Most restaurants would likely be happy with their listing, as restaurants are also offline driven, and not pay for ads. That was fairly visible with Zomato's push into delivery - the information matchmaking was working but Zomato was unable to capture value. Food delivery in 2015 flew high and hit nuclear winter by 2016. The space is today incredibly competitive, and Swiggy leads the pack. How could Zomato put its informational advantage to use?

Gold puts Zomato's matchmaking capabilities to full use, and finally monetizes it. It is a beautiful win-win-win for three parties, a unique economic effect due to matchmakers v/s a classic demand-supply context. The user gets a meal at a lower cost, the restaurant gets more demand for its high margin meals and Zomato makes (almost) pure profit via Gold. The network effects of Gold are seen in their new referral program - a new user gets 20% (INR 200) of the INR 999 subscription off while the member gets a month free (INR 300). For a total customer acquisition cost of INR 500 (200+300), this still allows Zomato to pocket INR 499 on each new user immediately, and possibly more in the future. The Lifetime Value (LTV) of the user is therefore far greater than the CAC, making this is a uniquely profitable proposition for Zomato.

To test out how well it is actually doing, I did some snoopy math. To find out transaction volume, I subtracted a couple of my own transaction IDs and divided it by time - resulting in ~10 transactions a minute. Based on Zomato's blog, they have ~150K subscribers over the last 90 days. Assuming 10 transactions per minute for 6 hours a day when people eat, over 90 days this works out to 324K transactions. 2 transactions per customer is good engagement, and 150K customers would bring them a neat $2.25 MM of quarterly revenue! 

Engaged customers, strong revenue and more utilized restaurants are truly Gold.

This week, I look at Fixel, Biology and Pamela Anderson et al. 
  1. [Large Startups]: How Lee Fixel changed the Indian startup ecosystem
  2. [Work Culture]: Continuous development will change organizations*
  3. [Growing Startups]: How Setapp found its customers and product market fit
  4. [Buzzwords]: Biology will be the next big computing platform*
  5. [Life x Startups]: To innovate like startups, make decisions like VCs*
  6. [The New Monopolies]: The Moat Map and monopoly protection
  7. [Data!]: AI will spell the end of capitalism
  8. [Modern Economics]: The black hole that sucks up Valley's money
  9. [Classic Economics]: Crypto pioneers head to Brooklyn to reshape finance
  10. [Business is Entertainment]: Pam Anderson's journey from Playmate to Politico
Based on an excellent recommendation by members of the community, I now asterisk* paid articles. I have started adding India focused content as well. Please do drop in reads that you found interesting this week here and I would love to accommodate them. You can pass on the love by sharing this with your friends and colleagues who can sign up here, and these are all the previous editions

I started this with the belief that there is a whitespace on conversations by venture capitalists in the entrepreneurial and startup ecosystem in India. This is my small way of starting a conversation. In case you have any feedback on the structure, design or content please feel free to reach out to me in reply to this email. 

Cheers,
Aviral
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