Another local-centric company that we’ve watched for a decade has decided that 2021 is the year to finally go public. Nextdoor, the local community destination will merge with a special-purpose acquisition company (SPAC) and go public at a valuation of about $4.3 billion.
At that valuation, the company would go public more valued than either Yext ($1.8B) or Yelp ($2.9B). It would also be about a quarter of Wix’s $16 billion valuation. And it’s a smidgen of DoorDash‘s nearly $60 billion market cap.
The SPAC is sponsored by Khosla Ventures, a Silicon Valley premier venture capital company. Nextdoor launched in the U.S. in 2011. Since then it has taken about $450 million in venture capital. Its latest round was a $170 million Series H in 2019.
Ad Revenue a Mystery
The company, headquartered in San Francisco operates in some 275,000 neighborhoods in 11 countries. The company’s primary business model is advertising. It offers local businesses the opportunity to target ads at one or many contiguous neighborhoods and national brands that may way to reach a broad swath of consumers. CEO Sarah Friar came to Nextdoor after helping take Square public at a valuation of just under $3.0 billion. During part of her tenure at Square, the company’s valuation accelerated and now stands at about $111 billion.
What’s interesting to us is of course the local and small business advertising dimension of the company. We have not found any information about their current advertising revenue, either from local businesses or national brands. We imagine that most of you reading this have been experienced Nextdoor at some point over the last decade. According to reports, the company is another beneficiary of the pandemic. The company experienced 80% user growth over the last 18 months.
Those are certainly nice tailwinds to go public with. But no one can, or should, expect user growth to continue at those levels. And while user growth is a great metric, the real question is usage growth, how often are those users actually engaging on the site.
Kind, but in a Bold Way
CEO Friar told Axios that the company plans to protect Nextdoor from social media pitfalls by foregoing opportunities. “We know it’s good for business to build out a platform that’s about kindness, not in a saccharine way but in a bold way, and to support local businesses,” Friar told the news platform.
We find the word kindness and the ticker symbol “KIND” quite interesting. If you’ve ever followed some of the threads on Nextdoor, it can be anything but “kind”. It has developed a reputation as a forum for petty attacks from “neighbors” near and far. Anything but “kind”. But to be fair, the platform is also used constructively. For example, for sharing recommendations for service providers or finding lost pets.
According to Friar, the company’s top priorities are to grow the user base (we would add grow usage) and develop products that make the newsfeed feel more personal. And, importantly for our audience, to make the platform more useful for small businesses. Using our friend “Dan the Dentist” as a test case, he’s put out free posts on Nextdoor seeking a front desk person. And he received responses from several qualified candidates. Given the tight labor market, we would recommend that Friar and CMO Heidi Anderson focus on helping small business owners hire qualified technicians and professionals. We presume Anderson, given her time at LinkedIn, is figuring out how to monetize what “Dan the Dentist” was able to do for free.
Following Amazon, Instacart, Shopify
The company is likely to be following the path that Amazon, Instacart, and now Shopify have charted. That is building an ad platform to take advantage of a large audience. Amazon and Instacart have built ad propositions that take advantage of shoppers searching on their sites for products and selling ads to manufacturers. Nextdoor will have to rely on a different input. Conversations and discussions about local services will be its trigger to sell advertising solutions to local businesses.
Where Amazon and Instacart have the advantage of selling ads to national brands at scale, Nextdoor will have to figure out how to scale the selling of ads to “Dan the Dentist”, “Sarah the Plumber” and “Gene the Dogwalker”. Not trivial, but at least they’ll have some public currency to pursue people and platforms that can begin to soften the challenges ahead for the company.
In our minds, there are some really interesting mash-up opportunities out there. Does a company like Yelp find a pathway to merge with Nextdoor? Or what about Nextdoor picking up a local media property like LocaliQ for monetization opportunities? Is it far-fetched for a company like Thryv to partner up with Nextdoor as a sales agent?
To us, it seems like there’s always the chicken and the egg challenge in building local/digital businesses. You either have the audience but don’t have the sales machine to monetize the traffic. Or you have a sales machine — perhaps leftover from an analog media organization — but you lack the audience to monetize. It is clear Nextdoor has one of these. We wonder what recipe they have in mind for overcoming the other.