All else being equal, the second example would be a more attractive company to us because it is starting from a better base. With such high retention it would be worth trying to push harder on the top of funnel with new users to drive growth (more aggressive sharing/referral mechanisms, paid acquisition, etc.). For the first example it’s harder to justify pushing on new users as you would end up losing many of them. It’s easier to fill the top of funnel than it is to fix some underlying churn problem.
Diligence is designed to help us understand both what currently exists and what may come to be as well as to try and help the entrepreneur on their path. While we definitely talk to many entrepreneurs in the pre-product stage, most of our time ends up being spent with entrepreneurs who already have a product with users/customers. In this case, part of diligence involves developing an objective understanding of demonstrated product-market fit. While every company is different, we have a few standard ways of looking at core traction metrics and we’d like to share these with you in the hopes that it helps to give you insight into your own business. It should go without saying that there are many other aspects to diligence including, but not limited to, team, market, vision, competition, core technology, etc. and that we will only be discussing a particular subset of diligence in these posts.