We are excited to release our first Negative CAC Market Map, showcasing the companies that are acquiring net new customers at no marginal cost as an extension of the paid functionality that their software delivers to existing customers.
In a recent blog post, we shared a new concept we called “Negative CAC” and were blown away by the responses we received.
Early-stage companies covering a variety of use cases operating in markets as familiar as lending as a service, to vertical SaaS for real estate escrow reached out and expressed their resonance with the idea. We have been refining our thesis here over the past few weeks, and thought to ourselves,
“If we’re seeing this many people within our immediate and adjacent networks identify with this concept, who are we missing?”
For that reason, we decided to create a Negative CAC Market Map to showcase the companies that are leading the way in leveraging this new strategy, with the goal of updating the map year after year as it grows.
Negative CAC (for those of you who didn’t read the original piece) is a go-to-market and product strategy that enables companies to acquire a net new customer at no marginal cost as an extension of the paid functionality that their software delivers to existing customers. A simple example (which I’ll dive further into below) would be the relationship between Stripe and Shopify, and between Shopify and their merchants. Stripe generates incremental transaction revenue with each additional merchant Shopify signs.
Below, in addition to the 2023 Negative CAC Market Map, we’ve included specific examples of how Negative CAC comes to life at multibillion-dollar enterprises like Shopify, new startups like Revela, and key fintech infrastructure companies like Stripe. We’ve also included some important lessons and observations that we believe would be helpful for early-stage Founders who are curious about how the Negative CAC model could unlock and expedite new growth opportunities.
Negative CAC Market Map
The Market Map is divided into eight key categories:
- Employee Benefits
- Treasury & Payments
- Wealth Management
- Real Estate & Construction
- Supply Chain, Logistics & Transportation
- Legal & Compliance
Within the Infrastructure segment, we further divide companies into eight additional sub-segments:
Each of the companies listed has one or more Negative CAC motions currently in place or has communicated a strategy to activate Negative CAC in the near future.
If you know of companies that should be included in the Market Map that we have missed, please email us at negativeCAC@firstmark.com — we want to make sure this map is as representative as possible of the current ecosystem.
Lessons In Leverage & Lending
After researching each of the companies included in the 2023 Market Map, several learnings emerged that we believe would be valuable for early-stage Founders to consider:
First, it’s crucial to seek out opportunities for leverage within the value chain.
To us, leverage in a value chain is defined by the natural one-to-many working relationships required to produce a product or service — for example, the relationship between general contractors and subcontractors in the construction industry or between employers and employees in the realm of employee benefits.
Leverage in the value chain is important because it helps create more repeatable, efficient, go-to-market motions that receive amplified benefits for adopting a Negative CAC strategy and allow early-stage companies to achieve breakout velocity faster.
Second, if you can incorporate a financial services component into your offering, you will unlock the ability to leverage a Negative CAC motion to scale your revenue orders of magnitude more.
A workflow-based SaaS tool can undoubtedly be a successful business, but a fintech-enabled SaaS tool can become a once-in-a-generation business. Shopify is a perfect real-world example of this phenomenon. While the core of Shopify is (or at least started as) a website-builder for small businesses, by embracing financial services, they have added more than $10bn in additional topline revenue over the past 7 years, which is only expected to continue to compound.
Third, we are on the precipice of a significant unlock in the lending landscape, which represents a massive $1T+ opportunity for early movers.
As the shift towards online commerce continues and both businesses and consumers increasingly conduct their financial activities online, the logical progression is for lending products to follow suit, following the precedents set by payments and banking. This transformation presents a massive and growing opportunity for entrepreneurs, as they will increasingly have opportunities to enable loan origination, underwriting, and servicing alongside core workflows in a variety of verticals.
Positive About Negative CAC
We are extremely excited about the 2023 Negative CAC Market Map and the emerging opportunities it represents. From commerce and banking to healthcare and infrastructure, the companies pioneering this strategy are not only disrupting traditional business models but also redefining the possibilities of revenue growth and value creation.
Early-stage Founders who take advantage of this moment in time by finding leverage within their value chain, incorporating financial services into their offering, and getting ahead of future opportunities in the lending landscape, will experience massive returns in the very near future.
The Negative CAC model is now a proven, effective strategy, and the companies featured in the Market Map are all seeing the benefits of it, even in today’s challenging economic environment. We are looking forward to seeing the growth of this map in 2024, so stay tuned for what promises to be an exciting journey ahead.
At FirstMark, we are wildly excited about the value creation in this market and are looking for more innovative companies that are employing (or plan to employ) a Negative CAC model.
We are at the beginning of an incredible transformation in the Fintech sector and recently raised $1.1 Billion to invest in the next generation of iconic companies. We would love to hear from you if you are building in this space.