5 months in, Snapchat had only 127 users. Here's how Evan Spiegel found product market fit w/ Jeremy Liew (Partner at Lightspeed and Seed Investor in Snapchat)

Organic teen growth and strong retention won Snapchat's first investor

Snapchat found product market fit by serving teens who had no private way to talk, and the proof was in retention and geographic spread rather than revenue. Jeremy Liew backed it in 2012 because usage was organic, retention was near 50%, and the founder was rethinking how social sharing should work. That early bet now sits in a company with about $5bn in revenue.

Takeaways

• Snapchat grew through a gap in teen communication. Teens in 2011 had no good private channel. Evan's cousin, a high school student in Orange County, used it at school, where phones were banned and school iPads blocked Facebook. Growth was organic, from 127 users in August 2011 to 100,000 daily users by April 2012.
• Geographic clustering showed genuine word of mouth. Jeremy Liew read the highly geographic usage data as real word of mouth, with growth in Los Angeles, then Sweden, Scandinavia and Saudi Arabia. Usage was concentrated in young women, whom he regards as carriers of culture.
• Retention metrics, not revenue, won Lightspeed over. Jeremy saw a 50% daily-to-monthly active ratio, 50% D30 retention and 50% month-on-month growth across a statistically significant number of users. In 2012 Lightspeed bought 10% for just under $500,000, at a valuation just shy of $5m.
• Evan Spiegel questioned the premises of social media. Evan argued that disappearing messages reduced performance anxiety and restored the real-world default that conversations are not recorded. Jeremy calls chronological stories that disappear a complete innovation at the time, and credits Evan with challenging basic assumptions.
• Most investors passed before Lightspeed got through. Evan put in $10,000 of his own money while server costs rose with no revenue. Sequoia, Chris Sacca and many other investors passed. Jeremy's email went unanswered, but a Facebook message got a reply within two minutes, and Lightspeed then invested.
• Facebook's copycat attention helped Snapchat. Facebook offered $3bn, which Evan turned down, and launched the copycat Poke in late 2012. Pablo argues the publicity helped Snapchat. It reached about 50m daily users in 2013, 200m in 2018 and 400m today.

Jeremy Liew's four tests for consumer apps

• Can the app become part of pop culture. Early Snapchat users were mostly young women, who set the cultural tone for their peers.
• Does it create new habits.
• Is growth scalable and repeatable. Growth can be manufactured, invitation-driven or paid, not only real-world virality. Snapchat's invitations relied on friends sharing usernames.
• Does the founder have a unique insight.