The market has been primed, now is the time for blockchain

by Blake LaFayette on October 7, 2016

VCs have for the most part retreated from investing in bitcoin and blockchain. The appetite for blockchain products however has only increased. Corporations have formed consortiums such as R3 and the Hyperledger Project to learn more about the technology. Numerous enterprises have rolled out internal pilots to test and explore the various applications of blockchain.

At Thomvest, we believe blockchain adoption is about to take off – making it a prime time for VCs to begin making early stage bets.

Take a look at our most recent research report which delves into the current state and future opportunities of blockchain.

An Introduction to Blockchain from Thomvest Ventures

Research Report: The State of App Marketing

by Nima Wedlake on September 26, 2016

Thomvest, in close partnership with our portfolio company Apsalar, recently fielded a quantitative survey to find out more about what marketers are thinking and doing as we finish out 2016 and head into the next year. The survey, conducted in July and August, asked mobile app marketers from around the world about their teams, challenges and opinions on the key issues facing our fast-growing industry. You can download the report in its entirety here, but we wanted to highlight some results around app revenue models and marketing spend.

According to the most recent data from comScore, mobile apps now comprise 58% of connected time in the US.


The figures in many other parts of the world are even higher. Given this, it’s natural that apps are increasingly viewed as a major revenue source for companies. They’ve always been important to mobile –only businesses, but now retailers, travel companies, financial services business and firms in many other verticals are placing greater emphasis on apps as a business channel.

Multiple Revenue Sources Becoming the Norm

One of the first decisions that app makers need to consider is “how will we make money?” By charging for the app? Advertising? In-app purchases? Virtual goods? According to our respondents, advertising has become the most frequently leveraged revenue channel.


Advertising is critical to the so-called “freemium” business model for many gaming apps, where non-payers are monetized through ads. But it is also increasingly common in other categories. Next most popular are real world and virtual goods transactions. Real-world goods sales are the keystone for retail apps, while virtual goods sales are most commonly leveraged in the gaming side of the business. Subscriptions are also becoming increasingly popular, with about ¼ of our respondents reporting that they are part of their revenue models. Subjectively this figure seems rather high to us, which may be driven by our respondent sample. Nevertheless, it seems apparent that subscriptions have “arrived” as an avenue for revenue in our world.

Advertising More Popular Monetization Model in the Developing World

Ours was a truly international respondent sample, and an analysis of developed versus developing world apps showed some interesting patterns. Most vividly as regards in-app advertising. Perhaps not surprisingly, advertising was leveraged more often as a revenue source in developing markets like India, China and Latin America.


Nevertheless, on the gaming side, in-app purchases of virtual goods like game gold represent the most popular type of game monetization.


So that’s some summary information on how apps MAKE money. On the investment side, there is naturally a big range of monthly marketing support levels for apps. About half our marketers said that their average monthly marketing investment per app is $25,000 or less. About a quarter reported spending between 25,000 and 100,000, and another quarter say they average more than $100,000 in monthly spending per app.


To download the complete report in PDF Form, click here.

Blockchain: A Call for Infrastructure, Not More “Killer First Apps”

by Blake LaFayette on September 8, 2016

As our first installment in a series of publications on the blockchain space, we deemed it informative to gather observations around the innovation economy in Silicon Valley, assess opportunities for a new generation of blockchain-enabled systems, and present our thoughts on how the space will develop. To compliment this, below we’re including a deck detailing our initial findings. This reflects a culmination of several weeks of secondary research and conversations with founders, investors, and early adopters. As we continue our research, our theses with regards to timing, infrastructure developments, and use-cases continue to evolve – we hope you find this to be a meaningful summary piece as you explore this rapidly changing space.


It is hard to picture a society without centralized order. Governments, central banks, corporations, and financial institutions all play vital roles in organizing economic activity, enforcing rules, and establishing a sense of trust and order in our lives. With each technological leap forward – mechanization in the industrial revolution, electric-powered Fordism at the turn of the 20th century, and personalized computing and the Internet in recent years – power structures have evolved in response to paradigmatic shifts in.

To illustrate this, let’s deconstruct the contemporary shift to web-based tools. The Internet has enabled a multitude of players to bring our physical world online, and subsequently build platforms for search, P2P marketplaces, conversational interfaces, social media, etc. As a whole, the tech industry has been focused on either improving processes for centralized organizations or enabling distributed interactions via centralized mediums. Hence, the Internet has democratized the open transfer of information, goods, and services. These interactions have increasingly become dominated by large platforms such as Google, Amazon, Facebook, Apple, and Oracle, reinforcing society’s natural affinity for centrally controlled organization.

The valley is known for perpetuating contrarian views which challenge the status quo. The integral role tech companies have played in establishing global organization is therefore counterintuitive. Has centralized authority prevailed because it’s the optimal solution, or rather because it is familiar and straightforward in establishing order? A closer look at the underpinnings of our economy suggests the latter, with centralized services such as escrow, tax filings, bank reconciliation, clearinghouses, accounting, records storage, and countless others relying on painstakingly manual processes. Oftentimes, inefficient processes inflate the cost and latency of transactions while injecting security risks.

In an effort to combat limitations of such internal systems, attempts towards achieving distributed computing have been in the works since the early 80’s, with incumbents such as NASDAQ long demonstrating interest. Blockchain is simply the latest manifestation. Depending upon your level of knowledge and buy-in to recent blockchain hype, you may be an advocate of fully decentralized autonomous organizations (DAOs, made infamous by a recent “hack” of one particular version built on Ethereum), the use of distributed ledgers for certain use-cases such as Bitcoin, securities trading, voting, and land registry, or simply be wondering what the technology is in the first place.

For those of you in the latter camp, a blockchain is simply a data structure that makes it possible to create a digital ledger of transactions and share it among all of the computers in a participating network. Thus, it is sometimes referred to as a peer-to-peer ‘distributed ledger’, and is a tamper proof, public or private, network-hosted record of all consensus verified transactions. Think of Bitcoin as the initial proof of concept for blockchain and posterchild for cryptocurrencies, made famous by regulatory disputes, high-profile hacks, venture investment, and price volatility. To learn more, I’d recommend watching this 6-minute introductory video, reading WSJ’s business-oriented CIO explainer, or looking through CoinDesk’s Q1 2016 report for updated trends and insights.

The recent rise in interest for blockchain is likely due to an oversaturation and consolidation of Bitcoin companies, the narrow market for cryptocurrencies, and the recognition of broader applications of the underlying bitcoin technology, blockchain. In any case, Q1 2016 marked the first quarter in which investment in blockchain startups surpassed that of bitcoin companies, with notable participation from corporate VCs and financial strategics. Moreover, bitcoin companies such as BitFury are pivoting towards offering blockchain solutions at an accelerating pace in order to capture the market’s shift beyond bitcoin.

Consequently as of Q1 2016, seven of the ten highest-funded startups in the space now operate hybrid – i.e. offering a mix of bitcoin and blockchain services – or blockchain-dedicated business models.

Many thought-leaders in the space, including Andreessen Horowitz’s Marc Andreessen and 21’s Balaji Srinivasan, liken the bitcoin blockchain of today to the Internet in the 1990s – a mysterious and undervalued technology that lacked initial mainstream adoption. Yet rather than attributing its slow adoption to a low number of “killer apps” driving usage, our initial research suggests a need for more stable and scalable infrastructure to support the . This refers to those companies building services on top of existing blockchain protocols, most commonly the Bitcoin blockchain or Ethereum smart contracts, in order to deliver solutions for use-cases such as digital authentication, cross-border payments, or securities trading. In a recent piece, famed entrepreneur and investor Joi Ito writes: “I don’t think today’s blockchain is the Internet in 1996 – it’s probably more like the Internet in 1990 or the late 80’s – we haven’t agreed on the IP protocol and there is no Cisco or PSINet.” Lacking adequate focus on improving today’s immature infrastructure, Mr. Ito warns of the possibility that irresponsible deployments will off-put adoption, and that a poor underlying architecture will reduce applications to mere improvements upon narrow use-cases.

Taking a closer look at recent developments in the space, fundraising data offers compelling support for this view. In Q1 2016, the two largest rounds of financing went to infrastructure companies Digital Asset Holdings (abbr. DAH; $62M Series A) and Blockstream ($55M Series A). DAH along with groups making a name by Hence, open-source efforts such as the Linux Foundation’s Hyperledger Project and Ethereum become increasingly significant in enabling collective advances and standardization of protocols. Blockstream offers a particularly compelling solution with its “sidechain” product, intended to enable interoperability between blockchains. As with the Lightning Network’s introduction of payment channels, sidechains will prove critical in improving the scalability of the bitcoin blockchain by compressing transactions to increase throughput.

Two additional developments warrant recognition: (1) product offerings from tech giants, such as IBM, Intel, and Microsoft, and (2) the emergence of three dominant protocols, the Bitcoin Blockchain, Ethereum Smart Contract, and Ripple Consensus Ledger. Many blockchain companies operating within the application layer currently build upon one of these three protocols, with many enterprise blockchain platforms such as Microsoft’s Blockchain as a Service offering cloud-based developer environments for several open-source protocols. Further expanding this assessment of protocols, we encounter an emerging divide between permissioned and permissionless blockchains – colloquially, private vs. public – which subsequently may be either open-source or proprietary.

After speaking with several founders in the space, the consensus appears to point towards open-source as the most effective mechanism by which to encourage widespread adoption and the development of powerful use-cases for blockchain technology. However, many industry consortia groups increasingly operating proprietary solutions built on open-source protocols, such as R3 CEV, are likely to continue strong traction as financial institutions seek to mitigate their risk profile while reducing buy-in costs until the infrastructure becomes more widely proven for its security and scalability.

Given these findings, truly revolutionary deployments of blockchain such as in voting, property title registry, escrow, accounting automation, and digital asset registry are likely at least 12-24 months away, with financial services similarly reducing their risk profile by adopting private protocols in low-risk data areas in the short term. In an effort to consolidate an outlook for the market, the CBDO of DAH noted, “If 2015 was the year we work up to blockchain, 2016 is the year people are running their proof of concepts. 2017 is when you’ll see the first live applications. 2020 is when you’ll see significant adoption, and in 2025 we’ll see a tipping point in some markets. That’s 10 years out.” Our research suggests a similar vision, with a clear emphasis upon developing widely accepted infrastructure in the short-term to help ensure the success of early applications.

Unpacking The Trade Desk’s S-1 Filing

by Nima Wedlake on August 24, 2016

The Trade Desk, a demand-side platform serving primarily agency customers, filed its S-1 on Monday, indicating its intention to go public. Their IPO is an important milestone for the advertising technology sector, which has experienced declines in investor sentiment and deal volume over the last several years. The company is growing and profitable — it reported revenue of $113.8 million and an adjusted EBITDA of $39.2 million in 2015. We took a deeper look into the S-1 and summarized many of the company’s financial metrics in the charts below. For more background on the company, see AdExchanger’s excellent profile from earlier this year.

Operating Metrics

Trade Desk_Revenue & EBITDA

The Trade Desk has experienced rapid growth over the last several quarters. It’s trailing twelve month (TTM) revenue in Q2 2016 was $149 million, a 106% increase over Q2 2015. The company hasn’t sacrificed profitability for growth — its TTM adjusted EBITDA in Q2 was $48 million.

Trade Desk_Gross Media SpendBecause the company’s product offering is primarily self-service, revenue is reported net of all media spend flowing through the platform. It does, however, include gross media spend in its filing; TTM media spend totaled $726 million in Q2 2016.

Looking at the two charts above we can calculate the company’s “take rate”, or the percent of gross billings captured as revenue. The take rate has hovered at around 20% — notably lower than Rocket Fuel (~60%) and Criteo (~40%). These companies clearly have different models, but The Trade Desk is also serving a market segment that is more price sensitive, meaning its take rate could trend lower over the next several quarters.

Trade Desk_Expense BreakdownThe company has done an excellent job managing expenses relative to revenue. Much of this can be attributed to the model it’s chosen to pursue — licensing a self-serve platform to agencies, as opposed to relying on managed services to drive growth. As a comparison, spend on sales & marketing for The Trade Desk represented 24% of revenue in the most recent quarter, versus nearly 60% at Rocket Fuel. We fully expect the company to highlight these differences in its roadshow, along with it’s client retention figure of 95% in both 2014 and 2015.

Trade Desk_Ad Formats

Like most demand-side platforms, The Trade Desk’s ad format mix has transitioned from primarily desktop display to multi-channel & multi-format. The company expects this shift to persist, and plans on investing more heavily in new inventory sources like digital radio, social, native and television.

Comps & Valuation

Trade Desk_Comps

It will be interesting to see how the investor community values The Trade Desk. Clearly, they’ve developed both a scalable and profitable model. But will investors who have soured on advertising technology buy into the company’s long-term prospects? Ultimately, the challenge for investors will be predicting the company’s growth potential given their segment focus. The table below includes some valuation scenarios given a range of revenue growth rates.

Trade Desk_ValuationThe Trade Desk will undoubtedly be a welcome addition to the crop of public adtech companies. The company’s S-1 filing has important implications for a sector that has taken a few punches over the last several years. Their success to date is a testament to The Trade Desk’s ability to execute on its vision and the viability of digital marketing on the open web.

As investors in DataXu, another fast growing DSP serving a different market segment (brand marketers), we’re excited by The Trade Desk’s filing & believe it will pave the way for future adtech IPOs.

Is insurance too complex to disrupt?

by Laura Cain on July 11, 2016

Investors are bullish on insurance. After witnessing the disruption of banking, revolutionizing the insurance industry appears both lucrative and attainable. There are a multitude of parallels between banking and insurance; they are massive consolidated industries that have failed to innovate since the 80s. Incumbents are shackled to outdated IT systems which cannot support functions that have become expected by consumers, such as online applications, instantaneous decisioning, and singular account management.

However, insurance is in many ways a completely different beast than lending – and arguably much more difficult to disrupt. Beyond state-by-state regulation and large capital requirements, the dynamics behind consumer purchasing behavior provides significant challenges.

Insurance is sold not bought. When weighed against other financial priorities, consumers will often forgo insurance to address immediate needs. Additionally, when hedging against potential losses, consumers express a resistance to testing new carriers and products, as doing so introduces new risks. Insurance products are therefore extremely sticky, and consumers extremely brand sensitive. In sectors with long term products, in which a consumer plans to receive benefits decades out (life), or sectors with mandated insurance, in which markets are saturated (auto), attracting and acquiring high-value consumers will be both difficult and expensive for new entrants.

Consumers with the most incentive to switch insurance carriers are often high cost customers. Individuals with pre-existing health conditions are most likely to search for new insurance products, and drivers with poor driving records are likely to search for auto insurance carriers which heavily weigh other underwriting criteria. Cherry picking the best consumers will be extremely difficult, as bad risks are the most likely to shop for new insurance and both customers and incumbent insurance carriers have an information advantage.

The potential losses of bad insurance policies also far exceed those of loans. While reinsurance is a potential option, securing deals in a cyclical market may prove problematic. An insurer with bad timing could experience catastrophic losses and be unable to recover. For example, a homeowners insurance company that has not sold enough policies to be sufficiently diversified could be wiped out if a natural disaster hits within the first years of operation.

With these points in mind, we remain cautiously optimistic regarding the insurance sector. We believe there are numerous opportunities to innovate within the insurance sector, albeit certain sectors will be easier to disrupt.

Among P&C, life, and health insurance, we believe P&C insurance will be most easily disrupted. Policies are of lower value and have shorter durations, requiring the insurance carrier to take on less risk. Additionally, there are numerous data sources that are underutilized in the underwriting process. Unlike life and health insurance, improvements can be made with minimal action taken by the customer.

In the P&C insurance sector, we have seen several recurring themes. Summarized below are the areas we find most intriguing for investment.

Insurance Comparison Aggregators

Auto insurance has paved the way in moving the insurance application process online. Naturally, comparison sites have popped up in the space. Serving as a lead generation platform, insurance aggregators generate revenue when a customer purchases a policy.

However, with huge marketing budgets, insurers have incentive to heavily spend on direct marketing. Progressive, State Farm, Esurance, Allstate, and Nationwide provide car insurance comparison tools which directly compete with and startups such as Coverhound. By circumventing agents and brokers, the margin on each policy skyrockets – providing incentive for the insurer to digitize the sales process.  Given the strength of market leader auto insurance brands, it is both reasonable and beneficial for carriers to provide comparison tools and own the entire sales process.

We believe however, that customers value and trust unbiased third party sources, and that new startups in the space have the potential to gain significant traction. Given current market dynamics, to remain competitive in the long term insurance aggregators will need to develop their revenue models so that they are less dependent insurance carriers.

Insurance Comparison Sites:

Screen Shot 2016-07-11 at 3.33.43 PM

P2P P&C Insurance

P2P insurance is essentially reciprocal insurance. Those seeking insurance form small groups online, and claims are paid out by the group. While cutting out agents and digitizing the application, underwriting, and servicing has the potential to reduce the insurance carrier’s load factor significantly, reciprocal insurance has proved to be a difficult model to maintain.

Only a few auto insurers operate under a reciprocal insurance model, including AAA, USAA, and Farmers insurance. The model restricted the ability of companies to raise additional funds and secure reinsurance contracts. Diversifying groups and maintaining incentives for good behavior will be key for insurance startups in the space. We believe P2P insurance will be successful in the microinsurance space, but will be confined to low-premium policies.

P2P Insurance:

Screen Shot 2016-07-11 at 3.28.07 PM

P&C Connected Devices

Connected devices have the potential to revolutionize risk management within the insurance sector. Beyond detecting losses (such as a car crash), sensors can be used to prevent losses (such as alerting drivers regarding weather conditions in the location of a parked car).

However, adoption of standalone hardware solutions has been slow. Without proper incentives, customers have shown a resistance to sharing behavioral data (driving history) and to purchasing preventative solutions (sensors to measure pressure in water pipes).

Although the applications are somewhat limited, utilizing mobile device sensors shows great potential given the penetration of smartphones in the US. We believe products with a short lifespans will lead IoT’s disruption of the insurance space. While house gas pipes are almost never replaced, stoves and heating systems are replaced with higher frequency, making them more attractive entry points to install sensors.

Connected Devices:

Screen Shot 2016-07-11 at 3.31.12 PM

Thomvest Research: Insurance Industry Overview

by Laura Cain on June 22, 2016

For decades the insurance industry has lacked meaningful innovation. Complex regulation, low-margin products, and intense capital requirements have shielded incumbent insurance companies from disruption. Tied to outdated processes and systems, these companies are often focused on maintaining the status quo rather than improving their underlying business models.

However, insurance companies and investors alike have taken note of the disruption that occurred in lending. Once seen as impenetrable, the banking industry is now facing unprecedented pressure to innovate, which stems from the exponential growth of well-funded alternative lending startups. While a culture of change has yet to be fully embraced by incumbent insurance carriers, carriers are actively monitoring the startup space – standing up innovation departments and corporate VC arms.

This shift towards innovation among incumbent carriers is creating opportunities for technology companies in the insurance space. By piggy-backing off of established insurance companies through partnerships, the barriers to entry are significantly reduced.


While insuretech has become a major area of interest among VCs, we recognize that few investors in the space have comprehensive knowledge of the industry. To better understand the complexities and opportunities in the space, we have compiled the research report posted below. The report provides an overview of the auto, homeowners, life, and health insurance sectors. We hope you find the presentation insightful and welcome comments and questions.

To download the full presentation click here.

Insurance Industry Overview from Thomvest Ventures