1Mby1M Virtual Accelerator Investor Forum: With Mark Selcow of Costanoa Ventures (Part 4)

Mark Selcow: We had a market thesis that more and more employers were going to steer their employees to high-deductible plans because they work. There seemed to be a possible regulatory tailwind where the constraints on a high deductible plan might be relaxed at some point and anyone would be eligible for an HSA.

So we thought this was a market that had some positive trends. We were interested in Lively because I had an HSA with a different bank. It wasn’t a good experience. People will tell you that sometimes big incumbents who’ve been around for centuries can’t innovate in technology and the HSA products are kind of like that.

The guys at Lively created a digital platform that was just a better experience for the saver and the healthcare spender. The service was incredibly high. I opened a Lively account. I moved the money from my old one. I was expecting to have to scan, sign, and fax forms.

I just got an email saying “Your funds are available. Do you want to invest? Do you want to save?” Education started coming on, “Did you know that you can use HSA funds for sunscreen?.” It was summertime. I didn’t get any of that from my prior bank. “Did you know that if you forget to bring your debit card, you can take a photo with your mobile phone of the receipt and therefore have it as an eligible expense?”

I thought, “These guys get it. They get how millennials want to live and work.” Especially those who are really mindful of their healthcare premium dollars. FinTech was an area where our firm and I had a personal interest in. We saw a great market, but we saw, in this case, a chance for a superior product.

A superior digital experience can be really meaningful in converting market share. So we invested in Lively in the fall of 2018. We’re really glad we did. The company is doing incredibly well.

Sramana Mitra: You had a third example that you wanted to discuss.

Mark Selcow: The third example is a bit more of an example about our firm and how we support companies. It’s Quizlet. We started with talking about how Costanoa is a B2B firm. Quizlet is our one exception. Quizlet does have business users for its products but it does have a large consumer component to it.

You can think of Quizlet as the ultimate global platform for flash cards, but it is actually user-generated content around anything you need to learn and master that is available either for free or for a subscription. It’s used worldwide across all ages for mastering a subject, starting as early as middle-school Spanish, for example. I’ve got three kids. They all use Quizlet in school every day.

You can even use it to get your real estate license and there’s an exam. So there’re business use cases as well as consumer learning. We learned about the company because I had a friend who is one of the founders. We saw incredible network effects with this flywheel of people creating content, sharing it with their friends and sharing it with learners.

People were beginning to subscribe for premium features like the ability to work offline or the ability to have ads disappear or the ability to create groups in a more private and secure way. We thought it had the potential to be really massive. Let me get to the main point around how our firm operates.

The CEO at the time needed to step aside for some personal reasons. I raised my hand and said, “I’m willing to step in and be the interim CEO of this company.” I did it for nine months all the while recruiting the right person to be the long-term leader. We found an incredible guy who ran products for YouTube, which is perfect for what the company needed.

Quizlet is now a top 10 Comcast website. It’s one of the top 10 destinations that people in the US go to online. It has something like 100 million users every month. The business itself is really growing over 100% a year. There are probably other firms who would have done this. But at Costanoa, we saw the opportunity.

We were willing to have one of our employees, me in this case, step into a really intensive role because we believed and had such conviction. So the first two opportunities were Lively and Skedulo. There was market conviction. We really believed in a mega trend. That was also true at Quizlet where we believed in lifelong learning. We believed in network effects and user-generated content.

But we also believed that the best way to support the company and have the investment work is to be operational and be willing to step in when it’s needed to be either helpful to the founder or be in a leadership role. So these are all examples of how we think and how we operate.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Mark Selcow of Costanoa Ventures
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