Ace your next investor pitch with fool-proof user growth accounting
ROKO Mobi’s growth accounting tools help you tell the whole story
Whether you’re raising your seed round or series C, you can bet that investors will be asking you about user growth. Strong user growth numbers prove your product has achieved some degree of product-market fit, and if growth is sustained over a long enough period of time, investors will have a hard time disputing that you’ve got a compelling product on your hands. While showing “user growth” can be as easy as furnishing an upward trending bar chart, VCs will expect the complete picture so let’s make sure you’re prepared.
At the most basic level, if your app is acquiring new users every month, you can make the case that you’re seeing “user growth.” That said, it’s best practice to look only at active users because those who are engaging with your app are infinitely more valuable than those who aren’t. The graph below shows what a monthly active user (MAU) graph might look like for a consumer app. You can see that the number of MAUs is increasing by about 3% month over month. This app could be a promising investment based on the data shown, but prudent investors will ask that the data be broken down father.
Johnathan Hsu is the head of data science at the Venture Capital firm Social Capital, which makes him responsible for looking critically at the user data of potential investment opportunities. In his article “Diligence at Social Capital,” Hsu explains that the simple MAU graph shown above would not do enough to convey the full story to investors at Social Capital. According to Hsu, in-depth growth accounting requires breaking MAU data down further.
At ROKO, we’ve adopted a similar outlook at visualizing app growth. The example of our “Net Growth” graph below demonstrates what accounted for positive or negative changes to the monthly active user count. To visualize this, we’ve made the following enhancements:
- Eliminate retained users to isolate data that contributed to a net gain or loss MoM
- Divide users contributing to month over month growth into two groups:
- New Users (blue): those new to the app during that month
- Resurrected (green): previously inactive users who have returned to the app in the current month
- Add a third group “Churned Users” (red): Previously active users who have become inactive this month
Why are churned and resurrected users important? Let’s tackle churned users first. As Hsu explains, “most consumer applications don’t have a very strong mechanism to bring users back month after month…the dynamic each month in a consumer app is typically add a bunch of users and simultaneously lose a bunch of users.”
The graph above illustrates that; you see a high number of new users each month with a correspondingly high number of churned users. This app is barely growing because it is struggling to retain new users. What would be more appealing for an investor is an app that gains a smaller number of new users each month, but sees a lower churn rate. That data would prove that new users are finding sufficient value in the app to return month over month.
The second data point introduced in our more detailed growth accounting graph is the count of users resurrected month to month. Seeing resurrected users can indicate that tactics intended to bring back lapsed users are working. If you see a spike in resurrected users after you deployed new features, created new promo codes, or launched an ad campaign, you have evidence that your resurrection campaigns are working. Consider a scenario where 80% of your app’s users are no longer regularly active on the app, if even a small portion of those can be convinced to return through a resurrection campaign, you’ll dramatically increase MAU counts and prove that your lapsed users are not completely out of the picture yet.
By integrating with the ROKO Mobi SDK, you’ll have access to user reporting tools like the net growth graph pictured above. As a product manager at ROKO Mobi, I’m constantly working to build data visualization tools that help entrepreneurs better understand their users and grow their app business. If you’re interested in using our user reporting tools to better prepare for conversations with investors or have any questions about our products or how you can use them, please send me an email!