Periscope Venture Capital Investment Memo from Bessemer
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Tl;dr: Bessemer invested in Periscope at the seed round in 2014. They shared their comments on the investment memo on a blog. It’s not the full investment memo. Read to understand how a venture capital investor thinks about investing in a company and how they communicate it to their partners and potentially their limited partners.
About the VC investment memo
In 2016, Ethan Kurzweil wrote a blog and shared some thoughts on both Twitch and Periscope. I shared the info on Twitch on Twitch Investment Memo from Bessemer Venture Partners.
This is not a full investment memo. There’s just a smattering of the investment memo, but given the dearth of memos shared, this is better than nothing.
About Periscope
About Bessemer Venture Partners
Bessemer Venture Partners is a $4B venture capital firm that funds consumer, enterprise, and healthcare startups around the world, from seed stage to growth. Their partners help founders lay enduring foundations to create companies that matter, starting with seed and Series A investments and sticking with our companies at every stage of their growth. BVP funded the early stages of Pinterest, Blue Apron, Skype, Skybox Imaging, Twitch, and Periscope and helped build 117 IPOs including Twilio, Yelp, LinkedIn, Shopify, and Wix.
Usual caveats
No investment memo made voluntarily public will ever be 100% as it was. The pressure is just too high for VCs to look smarter, and not make founders uncomfortable, etc. I highly praise the VCs that share their thought leadership so we can all learn.
If you’re learning to make a VC investment memo, don’t assume the memos are what you exactly need to do. Information will be redacted. Assume anything “delicate” or sensitive is not in the memos.
The only memo that is 1 to 1 is the Youtube memo because it was in a lawsuit.
Venture Capital Investment Memo
To quote our first investment recommendation, we considered Periscope “an audacious concept”…. whose time may have come. Recognizing elements of JustinTV (the failed predecessor that spawned Twitch), we felt that now both the technology and the market were ripe for Periscope.
What We Saw That We Liked
The Team: As with Twitch, we respected and liked the founders of Periscope. Both teams were scrappy and focused on executing.
As with Emmett at Twitch, Kayvon, Joe and the team turned out to have very prescient vision for future forms of online social interaction and be strong product designers and scrappy operators. I didn’t have as much time to observe their execution, but from the tremendous growth in Periscope (10 million registered users and 40 years of video watched per day, according to a Q&A Periscope stream that Kayvon held), they’ve clearly managed the dual challenges of generating awareness and scaling the technical infrastructure required to support a massive user load.
Total Addressable Market: Periscope had broad appeal. Sure, it was audacious, but given the proliferation of social media access on smartphones, it seemed conceivable. And in this case, there wasn’t as big a concern about only appealing to one particular type of user. As Facebook and Twitter have shown, the inclination to share — either broadly or with a limited set of friends — is pretty ubiquitous if given the right environment and context.
What We Got Wrong
When investing in Periscope’s seed round, I expected them to launch the app, take some time to iterate to get to a compelling product and eventually refine their approach to distribution over the following year. I was surprised (and amazed) by how quickly all of this happened.
Within five months of our investment, they were on the radar screen of large Internet companies like Twitter, and had nailed the interaction and distribution model so cleverly that Twitter was interested in an acquisition even before they had launched a product. Had I known this, I certainly wouldn’t have waited to try to lead the Series A!
Our Conclusion
Again this was a very early investment — much earlier than in the case of Twitch — but the idea and founding team were so compelling that we invested as much as the team would let us. In fact, when I first circulated this investment memo, my colleagues at BVP told me that the idea and timing were so compelling and the team so well-suited to building a great product that I should ask Kayvon to let us invest more. Fortunately, he relented and I was able to more than double our investment.
In reviewing these memos, some of the conclusions are obvious.
The team is critical to ultimate success. The timing must be right (e.g., JustinTV wasn’t able to capture the broader Periscope opportunity back in 2007; there weren’t ubiquitous smartphones back then). Having a revenue model that will ultimately fund the operation of the business shouldn’t be an afterthought. But some of the interesting pieces lie in the nuances and patterns.
Both teams thought about the appeal and incentives for all of the various constituents — broadcasters, viewers and game developers/publishers in the case of Twitch, and broadcasters and viewers in Periscope. They thought up front about incentives and rewards (social, financial and otherwise) for being on the platform and how those mechanics differed as the products grew up and the online behavior became more mainstream.
Both teams also thought about the fundamental mechanics of social interactions in the offline world — and how best to bring those into new media in the most natural way possible. This didn’t necessarily mean replicating existing behaviors without any behavior change, as the Internet and mobile affords an opportunity to re-invent and reshape cultural norms.
But each successful social product has to tap into an innate desire to be social in the first place — an obvious statement in hindsight, but not always considered up front. And finally, both teams had tried it before and persisted — with the result being that they were driven to have a bigger impact this time around.
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