The High-Stakes World of Consumer Marketplaces: John Connolly on Trends, Metrics, & Myths

Apr 3, 2025

John Connolly, Managing Director at Spectrum Equity, dives into the intricate world of consumer marketplaces. He discusses how investor sentiment has changed dramatically over the past 15 years and why traditional metrics may not apply in this realm. John shares valuable insights on evolving business models and the significance of customer experience in reducing churn. He also recounts the success story behind Teachers Pay Teachers and highlights the emotional connections fostered by platforms like Grubhub and Headspace, emphasizing their role in empowering communities.

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INSIGHT

Evolution of Defensibility

Defensibility in investing has evolved from physical assets to software and now AI-driven hard assets.
This cyclical change means today's valuable IP includes data centers and AI capabilities.

INSIGHT

Consumer Investing Cools Off

Investor appetite for consumer businesses has sharply decreased in a risk-off environment.
Focus has shifted towards SaaS businesses with rock-solid net dollar retention (NDR), limiting consumer deal flow.

INSIGHT

Rethinking Retention Metrics

Traditional SaaS metric net dollar retention (NDR) doesn’t apply equally to many consumer businesses.
Nonlinear retention curves and cohort analyses over time better reflect consumer user engagement.

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In this episode, CJ sits down with John Connolly, Managing Director at Spectrum Equity, to explore the evolution of consumer investing. They discuss how investor sentiment toward consumer companies has shifted over the past 15 years and why traditional SaaS metrics like net dollar retention (NDR) don’t always apply in this space. John explains what signals indicate a strong consumer business, whether brand or product wins in the long run, and how consumer companies have adapted their monetization strategies over the last decade. Plus, John shares the story behind Spectrum Equity’s investment in Teachers Pay Teachers and the craziest thing he’s ever done to land a deal.

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@cjgustafson222 (CJ)

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TIMESTAMPS:

(00:00) Preview and Intro

(02:32) Sponsor – Subscript | Rippling Spend | Vanta

(06:04) The Evolution of Investing and Defensibility

(08:50) Cooling Investor Appetite for Consumer Businesses

(10:13) Efficiency Metrics for Consumer Businesses

(12:24) How To Navigate Retention and Churn

(14:12) Sponsor – Tropic | NetSuite | Planful

(17:47) When Churn Is Necessary

(19:15) Increasing TAM in Consumer Businesses

(21:13) The Most Important Metric: Funnel Health

(24:08) Celebrity Partnerships as a Competitive Mode

(25:05) Why Brand Is Even More Important in B2C Than B2B

(26:25) The Strongest Brands John Has Invested In

(28:23) Changes in How Companies Monetize Over the Past Decade

(29:52) Using the Supply Side To Bring You Demand

(34:02) How COVID-19 Wreaked Havoc on Consumer Trends

(38:11) Evaluating Consumer Businesses

(39:04) The Craziest Thing John Has Done To Win a Deal

(40:56) How To Pitch to Bootstrapped Founders

(43:00) The Revolutionary Teachers Pay Teachers Marketplace

(46:18) Wrap

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