Tokens as CAC - Are Crypto Companies More or Less Efficient in Acquiring Customers?
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Tokens as CAC - Are Crypto Companies More or Less Efficient in Acquiring Customers?
Tokens are the paid customer acquisition channel of web3. By analyzing how web3 companies invest tokens, we can calculate the cost of customer acquisition (CAC) for a crypto company. When a user spins up a validator to verify transactions on a blockchain, stresses the testnet and is rewarded with tokens, stakes tokens to generate yield, burns tokens to transact, or receives an airdrop for tweeting, a cryptoco expends tokens to acquire a customer. Hence tokens, which have value, constitute the business’s CAC. Web2 sales and marketing techniques pervade our inboxes, plaster our browsers, and percolate in our voicemails. In their own way, web2 companies spend dollars to acquire customers and partners and build an ecosystem. The profit and loss statement of a business records the quantum on the Selling & Marketing Expenses line. Let’s contrast the sales and marketing investments of web2 companies to web3 companies. We can benchmark them relative to their corporate value. This analysis should imply something interesting about the fraction of tokens ought to be offered to a community. Typical enterprise software companies spend approximately 7-15% of their enterprise value on customer acquisition. L1 Web3 companies spend 29-95%.
The comparison between web2 and web3 is stark, 3-7x higher CAC relative to corporate value. Even if the estimates are off by a factor of 2 or more, this math suggests crypto companies acquire customers less efficiently than their older brothers. It also suggests future token cap tables may not be so community focused in the future, a phenomenon we’ve already observed in L1 token allocations. In all fairness, the web2/3 CAC comparison is somewhat clementines and satsumas for a few reasons.
Nevertheless, the concept of CAC will permeate crypto go-to-market strategies at some point. But not today. I haven’t met a crypto company that talks about CAC. Or sales and marketing spend. Or ROI. It’s too early in the development of the ecosystem for most businesses to concentrate on customer acquisition funnel optimization. We’re still focused on discovering to which of the 6,000 filaments is the ideal chemistry to sustain the crypto light bulb and bring NFTs to millions of homes. For Edison, Tungsten worked best. Uncannily, cryptoland has decided Tungsten cubes might just be our thing. Plus the $38b of venture capital invested in crypto year-to-date doesn’t ask many questions. 1000x returns have a way of pacifying hesitation and silencing skepticism At some point, though, we’ll examine the costs of customer acquisition via token and ask whether tokens do fundamentally change the economics of growth. Until then, buidl and hodl. – [1] The base data is the basket of publicly traded cloud companies as of the date of writing. Multiply the selling & marketing expense by 1/3 over 10 years for a rough estimate of lifetime selling and marketing expense. Then divide by enterprise value. One could argue 15 years is a better estimate for lifetime, but the S&M expenses in the early years are de minimus relative to the outer years. Why multiply by 1/3? Take an imaginary company that spends the following on selling and marketing, and assume it maps linearly to ARR of a high growth business, the average is roughly 1/3 the value of the current spend. Another way of thinking about it: it’s the area of a triangle with a roughly 60 degree interior angle, proxy for 60% annual growth over these years. It’s an approximation: let’s go with it for now!
[2] I’m using the estimated sum of the public presale and community allocations using data from L1s via Messari. |
Older messages
The Fifth SaaS Correction
Monday, December 13, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Fifth SaaS Correction Since 2016, public
Partnering with Mysten Labs to Build Foundational Infrastructure for Web3
Tuesday, December 7, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Partnering with Mysten Labs to Build Foundational
How Stripe Scaled - Notes from Office Hours with Claire Hughes Johnson
Wednesday, December 1, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. How Stripe Scaled - Notes from Office Hours with
Samsara S-1: How 7 Key Benchmarks Stack Up
Saturday, November 20, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Samsara S-1: How 7 Key Benchmarks Stack Up Founded
Words Like Loaded Pistols
Wednesday, November 17, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Words Like Loaded Pistols Words like Loaded
You Might Also Like
🧃3 business ideas from a $20M founder
Wednesday, May 8, 2024
AI COO, men's health, and b2b niche media
66 new Shopify apps for you 🌟
Wednesday, May 8, 2024
New Shopify apps hand-picked for you 🙌 Week 18 Apr 29, 2024 - May 6, 2024 New Shopify apps hand-picked for you 🙌 What's New at Shopify? 🌱 Shopify Flow - Use console.log in Run code action
Paperless-home, WSTR, Recurrr, Linesaver, empaithy, and more
Wednesday, May 8, 2024
Take photo, get product description, and many more BetaList BetaList Weekly Paperless-home Exclusive Perk Find your documents when you need them most WSTR is an app designed to merge your To-Do list
stop talking sh*t online
Wednesday, May 8, 2024
^^^ a very important lesson Read time: 1 min, 30 sec A while back I had a wild exchange on Twitter. I posted a tweet and shut my computer, thinking nothing of it. A few hours later, I came back to
Founder Weekly - Issue 635
Wednesday, May 8, 2024
View this email in your browser Founder Weekly Welcome to issue 635 of Founder Weekly. Let's get straight to the links this week. General They thought they were joining an accelerator — instead
Louie Bacaj — Betting Small to Win Big — The Bootstrapped Founder 318
Wednesday, May 8, 2024
Louie Bacaj (@LBacaj), once a Walmart engineer, made a bold career shift into the unpredictable world of venture capitalism and entrepreneurship.
Why I have a love/hate relationship with scripts
Wednesday, May 8, 2024
Your script should serve you, not the other way around. Remember to stay present and use your judgment. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Newsletter: Apple evangelist reveals how to create great products.
Wednesday, May 8, 2024
Hi there, One day, while working in his cubicle at Apple, Guy Kawasaki was confronted by Steve Jobs. Next to Jobs was a man Kawasaki didn't recognize. Jobs asked for Kawasaki's opinion about a
'Dual-use' tech is a cop-out
Wednesday, May 8, 2024
Plus: Europe's largest AI round to date and the fertility startups to watch View in browser Logo - Zoom_flagship (1) Good morning there, In the last year, lots of VCs have told me they're
Wanting Sand, Work Boxers, & Web Share 🩳
Wednesday, May 8, 2024
And the rollercoaster of an industry View this email in your browser Sandy Story in The Underworld Amidst the shadows of the oil (and other precious resources) underworld lies a lucrative black market