From Passion to Startup: Turning Hobbies into Businesses

The TechCrunch Exchange: Water Cooler Trivia

Welcome to this week’s edition of The TechCrunch Exchange, a newsletter focused on startups and market trends. This publication draws inspiration from the daily Exchange column, but is offered freely for your weekend enjoyment. Interested in receiving it directly in your inbox every Saturday? You can subscribe here.

Hello everyone! Alex is taking a break next week. Anna, a frequent collaborator on the weekday column, will be curating next week’s newsletter. It promises to be exceptional. We hope you enjoy it!

From Hobby to Business: The Story of Water Cooler Trivia

Recently, we examined the performance of several startups, with a particular emphasis on growth metrics. This week, we’re concentrating on a single company from that group: Water Cooler Trivia.

Frequently, startups originate as solutions to identified problems. A developer might encounter an inefficiency in their work process, create a custom solution, and subsequently develop that initial fix into a scalable product. This is a common pattern.

However, Collin Waldoch followed a different path, transforming a personal interest into a viable business venture.

Growing up in a large family of six children within a highly competitive environment, Waldoch organized bar trivia events during his college years. He continued this tradition by distributing weekly trivia questions to his colleagues after completing his education.

He maintained this practice throughout his early career, including a period of employment at Lyft.

Recognizing a Market Opportunity

During his time in the corporate world, Waldoch observed that companies were willing to invest significant funds in team-building activities. He cited an example of a company spending several thousand dollars on a soccer team, despite difficulties in securing consistent participation. This led him to consider whether a trivia product could capture a portion of that budget.

Consequently, Waldoch launched Water Cooler Trivia, initially developing it as a corporate offering. Alongside his friends, he scaled the project to approximately $20,000 in Annual Recurring Revenue (ARR) as a side endeavor. The founder characterized this initial success as a substantial source of supplemental income.

A key factor contributing to the project’s revenue was an exceptionally low churn rate, which ultimately influenced Waldoch’s decision to leave Lyft and dedicate himself fully to his side project.

Current Status and Future Prospects

Currently, Water Cooler Trivia has achieved $300,000 in ARR and employs a global team to support its operations. Companies can customize the difficulty of their weekly trivia questions and monitor employee progress through ongoing leaderboards.

Waldoch attributes the success of the concept to its focus on the end-user – the employees – rather than solely on Human Resources departments. This user-centric approach ensures the product is genuinely enjoyable. The company has experienced some customer attrition, but still maintains net retention rates of nearly 100%. This is particularly impressive for a product lacking extensive enterprise-level upselling options.

The service is also very affordable. In fact, it may be underpriced. At $100 monthly for 100 users, Water Cooler Trivia could potentially increase its pricing and significantly boost its revenues. Waldoch indicated that the company may consider raising rates in the fourth quarter of this year.

Even without price adjustments, Water Cooler Trivia believes it has substantial growth potential within its existing product framework.

It’s a compelling story. Here’s to software that enhances the enjoyment of everyday life!

Drift, Xometry, and Carrot: Recent Developments

Despite a period marked by numerous initial public offerings and a surge in startup pitches, several noteworthy events deserve attention.

Drift's Acquisition by Private Equity: Boston-based Drift recently announced the sale of a majority stake to Vista Equity Partners. Having previously utilized Drift’s facilities for podcast recording, I recall a positive experience with their team. However, considering the company’s reported 70% Annual Recurring Revenue (ARR) growth in 2020, the decision to pursue an exit rather than further capital raising is intriguing. Drift successfully secured substantial private funding in the past, including a $60 million round in 2018. This early exit mirrors the Gainsight sale to private equity, raising questions about the underlying rationale. For the Boston tech ecosystem, this exit is positive, potentially fostering a new generation of angel investors, yet a crucial detail seems to be missing from the narrative.

Xometry's Public Debut: This topic has been pending discussion, and with a break on the horizon, we’re addressing it now. I engaged in conversation with Xometry CEO Randy Altschuler following the release of his company’s earnings report a few weeks ago. Xometry became a publicly traded company earlier this year. Altschuler conveyed optimistic perspectives regarding the process of going public amidst the COVID-19 pandemic, highlighting the efficiency of the Zoom roadshow format, which enabled broader engagement while reducing travel burdens.

Further Insights from Xometry: Beyond typical post-IPO discussions, Altschuler shared observations that resonated. He emphasized the potential impact of inflation on technology businesses. Companies like Root are already experiencing the effects of rising used car prices on insurance claims. Inflation also influences Xometry’s operations, which connect manufacturing demand with supply. This serves as a reminder that macroeconomic conditions significantly impact the technology sector, often in subtle ways.

Xometry and the Future of Manufacturing: Altschuler also predicted the eventual implementation of a carbon tax. This point arose during our discussion about the trend of onshoring manufacturing to the United States. Current shipping costs are substantial, and a carbon tax would further increase expenses. This could enhance the competitiveness of local manufacturing, potentially benefiting proponents of increased industrial production in post-industrial economies. Tech companies involved with physical goods should consider this possibility.

Carrot's Expansion: Another item from our backlog, let’s examine Carrot. The company recently secured $75 million in funding, prompting inquiries about its growth trajectory. Carrot provides employers with fertility benefits for their employees. Given the global decline in fertility rates, demand for such coverage is likely to increase.

The past 18 months have demonstrably accelerated Carrot’s business growth. According to the company, it has experienced “nearly 5x overall growth” over the last six quarters. Carrot anticipates reaching 450 customers by the end of 2021, covering approximately one million individuals.

Carrot did not disclose the valuation change between its Series B and Series C funding rounds. Fortunately, PitchBook provides this data, revealing that Carrot’s valuation increased from approximately $66 million (post-money) after its $21 million Series B to around $260 million following its Series C. This represents a significant increase in value for the company’s employees and founders.

My optimistic outlook on the growing need for fertility support aligns with the company’s vision, which it articulated as believing that fertility and “family-forming care could and should be the fourth pillar of employee benefits and health care more broadly, much like medical or dental or vision.” I wholeheartedly agree with this perspective.

That concludes my updates for the next few weeks. Prioritize safety, consider vaccination, and practice kindness towards others. — Alex