It’s happened again.
VCs have invested in a startup at a price that’s got half of tech twitter all like:
Of course, the company in question is Roam, the valuation is $200m (a 200x multiple of their most recent publicly shared ARR of $1m!), and the VCs include industry veterans such as the Collison brothers, Kevin Rose, Tim Ferris, Brianne Kimmel, Nikhil Basu-Trivedi, and many more smart folks.
Regardless of whether you think this is a smart or foolish investment, I think we can all take a step back and admire the sheer improbability of this event. I mean, just imagine toiling for years in obscurity, living in a van, getting rejected by Y Combinator five times, building a note-taking app that’s supposed to “fit everyone’s brains better” but being told over and over again that people don’t understand it, that it’s too complicated, then — seemingly in an instant — getting noticed by a small set of folks who love it, then a slightly larger group, then becoming a cult on Twitter, raising a proper seed round, launching paid plans, hitting $1m ARR within weeks, and, finally, raising a monster round from a who’s-who of Silicon Valley investors at an astronomical valuation.
Pretty good!
The bad news is: that’s all in the past now.
What happens next is what matters.
Can Roam justify the hype?
Roam is a weird blend of the best and the worst software businesses in the world.
The worst software businesses, conventional wisdom says, are todo lists. There’s almost zero barrier to entry to creating a new todo list business, so the market price is pretty close to $0. Yes, some companies have created quality todo list apps that are nice businesses, but they are not $200m businesses. This is because anyone with programming and design skills can build a todo list app, and if you prefer the design there’s not much keeping you tied to your current app. Personal todo lists don’t depend on others using the same system (no network effects) and it doesn’t matter to most people if your old todos aren’t there (low switching costs). It’s a tough business.
The best software businesses are networks. When every new user that joins makes the network more valuable for the other users, it leads to a sort of accelerating value and growth that is one of the most powerful forces in the world. Nobody can copy the value you provide, because the value isn’t derived from your functionality, it comes from your user base.
Right now, Roam is like a todo list, but they’re in the process of becoming more like a network. How successfully they pull this off will define their future.
They have some genuine innovations on note-taking (which I’ll explore in section 4 below), but these innovations are quickly being copied. Perhaps they can keep shipping innovative functionality for several years. But eventually they’re bound to run out of ideas, and the market will catch up. At that point it will be incredibly challenging to charge $15 a month.
If they hadn’t raised at a $200m valuation that wouldn’t be the end of the world. But now, the indie hacker path is out of the question.
So, the race for Roam to become more like a network — and less like a todo list — is on.