From Madmen to Quants: What is Growth Marketing?

Sean Stuart
Aura Ventures
Published in
8 min readJul 29, 2021


1960s — The Golden Age of Advertising

Key Questions

What is growth marketing?

Why investment bankers are becoming marketers?

What does LTV/CAC measure?

How do venture capitalists evaluate growth?

Don Draper would be turning in his grave if he could see what marketing has become.


The Golden Age of Advertising was an era where little more than a silver tongue could take you places. Boozy lunches, bold visions, and baseless assertions about pretty much everything.

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” — Generic marketing quote 101

Digital marketing ushered in a new set of tools which addressed this attribution problem — do my marketing campaigns actually work? Platforms such as Google and Facebook provided granular detail about the effectiveness of each individual ad campaign. Marketing departments were hooked. And so began the tidal shift from the legacy ad world of magazine front pages to paid search and display banners. Newspaper monopolies became tech monopolies. It is incredible how a simple shift in the allocation of ad budgets from legacy media to tech would be enough to destabilise culture itself.

Source: The Visual Capitalist — Global Ad Spend (USDb)

Such a shift can be seen by the magnitude of global internet advertising market valued at $299bn, double what it was in 2015. Most companies have shifted their marketing budgets towards digital and a wave of internet gurus have their marketing courses ready to deploy.

True to the spirit of the 60s, new age marketers have coined an equally vague phrase — growth hacking.

Growth marketing/hacking is basically just internet marketing. The reason why a lot of words are appended onto marketing is because it is a fundamentally new approach, deserving of a new title. Internet marketing is far more quantitative with the focus on experimentation evaluated by metrics such as conversion and customer acquisition cost.

There are striking parallels to finance. Growth marketers place bets based off expected yield and then adjust their approach according to market dynamics. It’s for this reason e-commerce brands are poaching investment bankers from Goldman Sachs. It truly is a story from mad men to quants.

Eucalyptus jobs board

Let’s unpack a high-level overview of the objectives of internet marketing and the respective digital channels to choose from. Then we’ll look at some of the most important metrics and I will unpack how we use them at Aura Ventures.

Online channels as asset classes

The objective of internet marketing is to convert attention into revenue. The internet is a battleground for attention with companies competing for access to 3.5 billion sets of eyes. On average, each set of these eyes will look at their phone 58 times per day. For four hours a day. They will also be exposed to 4,000 ads every day. Just like a stock exchange, it’s a competitive market that requires an edge to make money.

To do this, growth marketers will experiment on different digital channels trying to get the most eyes on their product for the cheapest price. There are a lot of different digital channels but some of the most popular include:

  • Search Engine Optimisation (SEO)
  • Content Marketing
  • Social Media Marketing
  • Pay-Per-Click (PPC)
  • Affiliate Marketing
  • Email Marketing

Each one of these digital channels has different unit economics for different businesses. Growth marketers are looking for efficient channels that undervalue the cost of reaching eyeballs and converting sales. They can then invest in these channels and receive a better return on investment. It is exactly like an investor looking over multiple asset classes and searching for value.

  • Gold > SEO
  • Cryptocurrency > Content Marketing
  • US Large Cap Stocks > Social Media Marketing
  • Emerging Market Stocks > Organic Reach on LinkedIn
  • Real Estate > Pay-Per-Click
  • Zimbabwean Dollar > Email Marketing
  • Private Equity > Affiliate Marketing

Undervalued digital channels have built many businesses. In 2012, social media marketing was a lot cheaper, the average cost per click (CPC) was around 45 cents on Facebook compared to nearly double that in 2021. A slew of e-commerce companies were born due to the high organic reach on these platforms and cheap CPC and CPMs. Put simply, these digital channels were incorrectly priced and made a lot of money for their investors, ad buyers.

I will spare you from an essay on the efficient market hypothesis but there are some powerful insights that apply to digital marketing. Basically, EMH says that the price of a stock reflects all the information available so it is impossible to beat the market. While only theory, it encapsulates the dynamics of ad buying. Intelligent ad buyers are looking to beat the market, which is very difficult when all other competitors know information about an asset — reach, attribution and cost.

Both informational asymmetry and volatility create opportunity. It’s the job of a good growth marketer to find undervalued marketing channels that others have overlooked.

This why it is a red flag for us if a company relies heavily (>30%) on undifferentiated channels such pay-per-click, it’s bad growth marketing.

How do we measure online channels?

Naturally, one asks how do you measure the efficiency of marketing spend in each channel as well the company as a whole. That is where the coveted LTV/CAC ratio comes in.

Note: This is for a subscription revenue business, there are many different ways to calculate LTV/CAC.

CAC = Customer acquisition cost = Total marketing spend/number of new customers

LTV = Lifetime value of customer = ARPA*GM/Churn rate

APRA = Average revenue per account

GM = Gross margins

Basically, it is measuring how much it costs to get the customer divided by the total value they will bring to the business.

The ratio is a measure of capital efficiency. For each dollar spent on acquiring a customer; how many dollars will they return to the business in the medium to long term. Why is this powerful? It shifts away from conventional financial statements that don’t recognise the value of growth, as the lifetime value of the customer is often realised beyond a single financial year.

But more importantly, it shows where to allocate capital. A high LTV/CAC ratio means you can acquire more customers with less money and so you can spend more money on growth.

High LTV/CAC = capital efficiency= good growth

Low LTV/CAC = capital inefficiency = bad growth

All growth is not equal, if it costs you $1 to gain $1 in revenue, your business might grow quickly but it will be bankrupt very soon. Bad growth is growth that scarifies the medium to long term financial health of the business.

A good benchmark to aim for is a LTV/CAC ratio of 3:1. Every dollar spent on acquiring a customer generates three dollars in revenue. Generally, a higher LTV/CAC is better but if it goes past 7:1 it can be an indication the business is squandering the opportunity for good growth.

I have made some graphs to illustrate some key concepts, disclaimer, they are overly reductive.

In this scenario, the business improves it’s LTV/CAC ratio as it scales. This is very hard to do for a number of reasons but VC’s love it. For every extra VC dollar they invest into the company, they will generate increasingly more revenue which can then be spent on more growth. It’s like pouring petrol on a fire where the LTV/CAC ratio is the jerry can funnel — ensuring you pour the right amount of petrol without getting burnt.

Note: Network effects can increase the LTV/CAC ratio like this

Okay this one pretty much never happens but it is still good if a business can maintain their LTV/CAC ratio as they scale, assuming it is good to start with. VC money invested into the company will grow the company in a linear predictable way.

The sad reality is that as a business reaches massive scale, it’s LTV/CAC ratio tends to become more inefficient. This is a bad thing if it becomes too low, as it means each additional dollar invested into the company will not result in good growth.

To use the fire analogy, it is like throwing money into the fire because a LTV/CAC ratio of 1:1 is so inefficient that extra VC money spent on marketing channels will generate no future returns, it’s bad growth.

This third option is why tweet’s like this exist:

Many start-ups in Silicon Valley have declining LTV/CAC ratios and allocate capital to overpriced digital channels that don’t generate a return. If you spend millions of VC money on pay-per-click Google ads but you are only selling paper planes, you might sell a lot but this growth is fundamentally bad.

CAC Payback

That’s why a better concept to supplement LTV/CAC ratio is the CAC payback. It shows why different types of growth are good or bad. It is a measure of how long it takes for a customer to pay back the cost of their acquisition. If it costs $100 to acquire a new user and each user generates $50 in gross profit per year, then the CAC payback is 2 years.

We can calculate this by solving for LTV_n.

gm*LTV_n = CAC

LTV_n = Cumulative revenue from the customer after n months

gm = gross margins

CAC = customer acquisition cost

Another VC rule of thumb is that n < 6 months is great and n > 2 years is not so great. What does CAC payback tell us? It tells us about leverage and how quickly a business can make bets. If the CAC payback is long a business is constrained in the number of bets it makes because it has less cash flow.

More bets on more channels allows for more optimising.

Final tips about CAC/LTV

  • Present both blended and unblended LTV/CAC as well as CAC payback to VCs.
  • In the calculation of CAC include everything required to acquire the customer — this means SaaS spend on marketing tools and even engineering team expenses if this was involved.
  • Some businesses generate implausible LTV/CAC calculations, this usually happens where there is negative churn. If this happens to you, you might want to read here.
  • There is a lot of reasons why LTV/CAC trends downwards as a business scales — if you are interested read here.
  • Avoid spending too much on paid channels where there is no differentiation, it’s not defensible if you only rely on dynamically priced auctions to generate sales.
  • Read about attribution problems before blinding trusting LTV/CAC for different channels, digital marketing is not as straight forward as it seems.

The best resources for Growth Marketing

A quantitative approach to unit economics:

Nicole Liu’s guide to growth marketing

A16z on the relationship between LTV/CAC and scale

Useful guide about how to calculate LTV/CAC

A guide to attribution problems

Thanks to Max Marchione for editing the article!



Sean Stuart
Aura Ventures

Writing about VC, Tech & everything in between