The “The old Series A investor who put in $ 2 million and really cared and had resources is dead.”
Gil Penchina is not a man who minces words. Pando has detailed, at length, a number of forces that have deteriorated the “first money in” position of traditional Sand Hill Road VCs. Manu Kumar of pre-seed fund K9 Ventures has recently argued they are now usually the fourth round in.
Naval Ravikant of AngelList would say that’s unequivocally bad for traditional VCs. It has some benefit for entrepreneurs: There are more places than ever to get that early cash. The problem is that many of those sources don’t do all the things a Series A VC used to do during the boutique glory days of the industry. Some simply don’t want to.
“A seed fund doesn’t have the resources that a Kleiner Perkins or a Benchmark had,” Penchina continues. “Incubators help for three months and then kick you out. AngelList syndicate leads help, but they don’t care enough to help as an old, classic $ 2 million VC did. These platforms are all trying to rebuild that to some degree, but I’m not totally buying it. Entrepreneurs have to stitch it together themselves.”
Mark Goldstein puts it another way: We are midway through a great unbundling of what a VC used to be…
In the beginning, you could run your own internal SMTP mail server and have end-to-end control of email delivery—whether for one-off messages or a batch message to your subscribers. Unfortunately, the black-hat guys used the same tactics to send spam, making breaking through the clutter harder and harder for legitimate marketers.
To prevent legitimate messages from being caught by ISP spam filters, many email service providers (ESPs) arrived on the scene, offering their services to help automate best-practices. They wrapped this deliverability service within a piece of marketing software that made building one-off lists, creating nicely designed messages, and distributing the messages effectively very easy.
As more ESPs flocked to the scene, the market became very fragmented, with vendors catering to different industry verticals and company sizes.
Most ESPs attempted to differentiate themselves by bundling more layers on top of the delivery services for which they were known. They added a host of features, such as easy-to-use, drag-and-drop HTML email creation tools; online signup forms; and click tracking. Some ESPs focused on brick-and-mortar businesses (Constant Contact), some on large enterprises (CheetahMail), and others went after small startups (ExactTarget).
Today, managing a simple email newsletter is easier than ever, but the market and what consumers want in their inbox are evolving.
What’s Driving the Evolution?
Web applications emerged to do things like send friend notifications and password reminder emails. That requirement ushered in a new wave of specialized ESPs that began to unbundle the all-in-one ESPs that previously dominated the market. Those companies offered an API that let developers quickly reap the benefits of a third-party SMTP deliverability optimization, tailored for one-time, transactional-only messaging. Examples include such companies as SendGrid, Dyn, and Mailgun.
Many large companies still run their own systems in-house for transactional messaging, but ESPs like those—aided by a quick signup process and a modern, developer-friendly API—have become the platform of choice for smaller companies.
Some of the savviest (and most well-funded) companies—such as Pinterest and Spotify—elected to build their email engagement solutions on top of their transactional deliverability provider of choice, which in both cases happened to be SendGrid.
Using the source code of their systems, Pinterest and Spotify could make their email communications more customized to user interests by telling SendGrid to trigger emails to do such tasks as recommend what pins or which artists an individual customer might fancy. SendGrid allows the companies to easily manage the composition, queuing, and sending of each custom message into their customers’ inboxes. Because that ties directly into the company’s home-grown solution, it eliminates the need to manually export user data, perform mail merges, or consider separate marketing software.
Expect more and more companies to think about their marketing at the same level of sophistication as Pinterest and Spotify. Email communications is not just about deliverability any more but also about driving true engagement.
In this new age of one-to-one marketing, consumers have come to expect much more personal, more tailored experiences in their inboxes.
Expect two core changes to happen in the vendor marketplace from this shift.
1. The established deliverability providers may add even more features, functionality, and services as they try to create one-size-fits-all marketing suites
This will be a good fit for some companies, but some ESPs may become monolithic in their attempts to please all, and as a result, they will see adoption rates suffer—similar to the traditional B2B sales automation suites did.
2. A new wave of vendors will add remarkable value quickly and easily by using the strengths of SendGrid and other transactional/API channel partners
Expect highly vertical, specialized vendors to emerge, vying to be the best for a subset of companies. The risks of these smaller vendors are the likely failure to interoperate nicely (often around reporting) and/or entrapment of core data/functionality while trying to work their way into the marketing team’s workflow.
Thanks to the unbundling of email services, buying the right email deliverability vendor has now become an entirely separate exercise from buying (or building) an all-around email product. If your existing ESP works for you, you can just add new systems and intelligence without having to migrate to a new vendor. Moreover, you can avoid the headaches of warming up a new IP address, migrating your domain, and other switching costs associated with transitioning to a new ESP.
What Should CMOs and Marketing Executives Take Away From This Trend?
Focus your vendor search first on the needs of your customers and what delivering the most personal, most compelling emails possible requires. Then decide what capabilities your marketing team needs to execute that strategy. Know that you can either find an end-to-end solution to cover all your needs or build a piecemeal solution that ties directly into your own systems for more customized capabilities.