1Mby1M Virtual Accelerator Investor Forum: With Nate Redmond of Alpha Edison (Part 2)

Nate Redmond: Investors including myself sat and looked at the company and didn’t quite understand the size and scope of the opportunity. Being an expert in hospitality didn’t necessarily help you. In fact, it probably created blind spots. The focus for us is really understanding how you can engage a supply base and organize it to really unlock a large portion of latent demand.

Unlocking that latent demand really requires understanding the types of behaviors that people would like to engage in and yet aren’t because they’re otherwise constrained. In the case of Airbnb, one of the most important elements that unlocked that behavior was a sense of trust.

Trust, for us, has become one of these foundational layers and lenses that we look through to really understand how you can build trust. What types of new behaviors emerge and what does that allow you to do in terms of reshaping the business model within that industry?

Sramana Mitra: That means that you are looking for markets where trust was obvious in a very small segment. The broadening of that trust equation took time and you are committing to extrapolating and thinking through that trust equation on a longer term basis.

Nate Redmond: That’s right. There is a lack of trust that existed within the context of any one of us individually going into someone’s home who we didn’t know. The framework through which we can begin to establish and build that trust through rating systems allows us to begin and understand the scope of the market opportunity that exists if you’re able to establish that trust.

For us, this is less about actually going in and taking share from incumbents. That’s always part of it. What actually drives the long-term sustainable growth is much more unlocking of these behaviors. Using ride-sharing as a framework, before Uber and Lyft began, the total spend in the Bay Area on taxis was $140 million. Last year, already more than a billion dollars was spent in the Bay Area. This is not a growth curve that is reflective of going in and taking share.

It turns out that a lot of people wanted to move from point A to point B without driving. Consequently, they either previously drove themselves with frustration or they just didn’t go at all. By creating trust within the system, you actually unlock a set of behaviors that described a market that was much bigger than people realized. That failure to understand the size of the market opportunity oftentimes causes investors not to have conviction as to why Airbnb could be large and therefore, miss most of their best opportunities.

Sramana Mitra: That tells me that you’re focusing mostly on B2C?

Nate Redmond: Consumer businesses clearly have an application of this. We’ve also found that there are servicing businesses. Their customers are fundamentally servicing consumers and/or the changing behaviors of the underlying consumers actually shape and reshape the markets. For example, I was with a firm called Rustic Canyon.

In that time, I invested in a company called GaiKai. GaiKai had looked at the changing dynamics of streaming enabling very different modes of game play. At that time, it was less obvious. That shift in the enabling technology was fundamentally shaped by the desire of individuals to play interactive entertainment without requiring the game to be loaded on to your computer.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Nate Redmond of Alpha Edison
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