The curse of VC money and unsustainable growth in consumer startups

The curse of VC money and unsustainable growth in consumer startups

1) Economics of scale: When a company's average cost decreases with each additional customer. 2) Network effect: When a company's product increases in value with each new customer. Network effects (almost inexistent) An additional customer buying a Casper Mattress does not improve the experience of other Casper users.. Economies of scale is a tricky one: Although traditional consumer companies have high fixed costs and enjoy such scale economics, D2Cs do not.. A new customer is not always beneficial for D2Cs, and founders should keep in mind the 'peak customer' point (see graph 3 of the image below) beyond which serving an additional customer is worse for your company (typically when Average Customer Cost exceeds Lifetime Value).. D2C founders found themselves chasing growth at all costs, which meant spending most of their cash on Facebook and Google ads.. Venture Capitalists did not see this as an issue as long as future investors were willing to come in at higher valuations, and as long as strategic buyers were willing to acquire consumer startups.. Profitability > Growth: Don't build a brand without a clear path toward profitability.. Head of Ventures at HB Investments, a newly established Dubai-based venture capital fund focused on building