In November 2018, Insight Venture Partners was proud to announce a $60 million investment in Lightricks, Israeli company behind the popular photo editor, Facetune and several other award-winning apps, including a new app for small-medium business owners, called Swish. To welcome them into the portfolio, Insight Principal, Harley Miller, interviewed two of four Founders of Lightricks, Zeev Farbman and Nir Pochter.
Let's start by diving into your career paths. Did you both always want to be a entrepreneurs?
Nir and I we didn't aspire to be entrepreneurs. Twenty years ago, we were in the Israeli army together, dreaming of how cool that would be to be tenured university professors. This may not sound as cool as being an entrepreneur, but back in the day, that did it for us.
After the army, I was working in a lab at The Hebrew University with Yaron, our CTO. There were many nights where we would be working on our research until four in the morning. One night, we were leaving the lab and it was so late that we couldn't even catch a cab home. So, we're strolling in the night through the streets of Jerusalem and Yaron says, “You know what, Zeev? If we were working that hard outside the academia, we would probably be millionaires by now.” That point stuck in my mind because it was the first time that I really considered doing something outside academia.
As you considered transitioning away from academia to become an entrepreneur, what dawned the inspiration of Facetune? Why is mobile a core tenet of that philosophy?
In the beginning, we built prototypes of the things that were interesting to us, but proved to be not that interesting to anyone else. It took us a while to figure out what kinds of things we think we can create with our technological expertise that were actually going to be relevant to mass market.
A large part of our PhD research was a field called computational photography. When we started, we built prototypes that gave mobile phones the ability to shoot better images in low light conditions. Although, we couldn't find a way to make this meaningful to users. Then we implemented a prototype for the reshape photo tool, which made the retouching capabilities of Photoshop available to everyone. When we combined all of these elements, we knew that we were onto something.
We saw Facetune as a stepping stone to another products. What we were really inspired were companies like Adobe and Autodesk because of their ability to address a huge market in the creativity and productivity space. From the get-go, we tried to figure out how the creative market on mobile is going to look.
Let's discuss the pricing and packaging of your various products. What did that look like in the early days and how how have you evolved that over time?
At the beginning, we were throwing darts. We started with the fixed price of $1.99 for Facetune. At some point, Nir realized that the price was too low. His argument was that if it's too easy to acquire users then your price point is probably too low. Gradually, the price for Facetune 1 shifted from $2 to higher than $4, but at some point we found equilibrium around $4.
In 2015, we released Enlight and had a run rate of $10 million. We constantly had two products in the top ten spot of the US App Store, but we figured out that this model isn't scalable enough. No matter how much we tweak the prices for Facetune, it’s just not going to work in order to reach $100 million in revenue. We needed to rethink the business model and just tweaking the pricing would not be enough to get to that scale.
This was the point when we moved to a subscription model. With subscription, it's a similar process of figure out the right price point. Obviously, it's much more complicated because the time horizon that you need to take into account in order to do this optimization is significantly longer. The price sensitivity to the user is something that is really hard to figure out without empirically testing that.
Besides pricing, what other challenges have you experienced over the last few years? How did you go about overcoming that challenge?
A challenge that we continue to face is how to allocate resources across all of our products and how to continue to push existing products while constantly developing new ones.
One thing that we did to mitigate some of our issues was to structure the company in a way that allows product teams to amortize a lot of the costs by leveraging what other product teams already built. For example, we have an infrastructure team that builds the graphical engine on top of which all the apps are running. With Swish, the video editing product for SMBs, that allows us to leverage all the infrastructural work that people in Videoleap, video editing product for aspiring creatives, did in the last four years actually since mid-2015.
Similar to that, with the research team, they are scouting state-of-the-art ideas in the academic literature in our fields, they’re building prototypes and then product managers can take these prototypes to their products. We're trying to find more than one product that will use the prototype.
What is your ‘secret sauce’ that has allowed you to scale so efficiently?
Nir has this concept of exploration and exploitation. Basically, exploration is taking baby steps that are meaningful enough to provide you with initial data, but without spending too much time or money. Then, when you're convinced that it's actually working, you then push hard on that.
We apply data to everything that we do, especially when it comes to marketing. Our data science team will analyze how much money we will make with a given cohort of users. Our designers who are creating advertisements are then looking at that data and trying to understand how much time users spend looking at each ad.
It's interesting that it seems like Lightricks flexes both sides of its brain. There's a quantitative approach married with a soft qualitative design, all in the spirit of servicing the creative industry.
That’s one of the aspects that I enjoy most about Lightricks. We're able to strike a balance between being hardcore techies, designers and marketers. When we started, there was a bit of tension between these groups because it took time to understand their outlook and balance their responsibilities with your own. In time though, the people with a design background starting appreciating the numbers and the people with the tech background became enamored with design. We all learn and grow from each other, which is something really special.
Lightricks started as a bootstrapped company, so what ultimately led to your decision to raise capital?
There were a number of factors that led to our decision to fundraising. Initially, it had a lot to do with the Founders wanting to hedge our personal bets and improve our lifestyle.
With our most recent round, as a company, we wanted to hire another 150 employees, build at least three to four new products this year, significantly scale the marketing of the existing products, explore new channels and consider acquisitions.
Another consideration was secondary-share sales, which provided liquidity to the founders and early employees. It's a great tool to allow companies to fulfill their true potential. In Israel, we see a lot of people selling their companies or entertaining acquisition offers too early, even before they realize the full potential of the company. With a liquidity event, you mitigate this danger of a premature sale.
The last point is about the choice of investors, which was very important to us. We think about taking an investment as something that is really similar to Catholic marriage. It's not something you can easily reverse.
With this recent round, we did a little bit of speed dating. At the end of the day, we selected Insight because, similar to marriage, we have similar beliefs. Insight has invested heavily in similar businesses in the consumer subscription space, even in Israel. It's convenient that we are able to leverage this network to discuss similar challenges and learn from each other.
We are grateful that have you a part of that network. Thank you, Zeev and Nir.