This VC looks at this idea, figures out that in order to own the market and make $fuckton, they'd have to spend > $fuckton. Decides to bail.
As a bootstrapper of businesses, I look at this case study and go "well yeah of course it'll take $fuckton because you're haven't focused on a narrow enough niche". Which of course they haven't because you can only make $shittons from niches, not $fucktons (where $fuckton is up to an order of magnitude larger than $shitton).
It's a very different set of expectations. $idea might not be investable as a VC, but if you can really define a specific niche, get a toehold, and patiently build from there, $idea might have merit for a bootstrapper.
(All that said I don't think this particular idea has legs based on the reasons identified in the "Regarding competition" section and also from my own limited experience in the music space).
Absolutely. Because we're venture-backed and are spinning out venture-backed companies, we are limited to billion dollar ideas. It's not uncommon for us to kill great ideas that could "only" make tens of millions of dollars.
We're hoping through blog posts like this and other means to be able to share more of them because we want those companies to exist, we're just not set up to create them!
How did matchmaking for music lessons get into the discussion as a billion dollar idea?
Referrals for tutoring in any subject (math, reading, music, etc.) would be a bigger market, but even then it might not be a $1B company.
100,000 music instructors, $60 per hour, at 365 days per year is roughly: $2.19 billion gross revenue per year-hour in the segment. Assuming, the average hours per day are like 3.5 (I can't imagine folks doing this are giving lessons for a full 8 hours per day, 5 days a week), that gives a total market of like: ~$7.65bn. Assuming they could earn a 20% stake in 100% of the market, that's like $1.53bn.
Looking at the numbers, I think there is likely more potential than they realized. I would suspect that by and large, digital advertising is capturing almost none of the market as kinda proven by their analysis. Looking at how low the frequency of searches were compared to the sheer number of employed individuals tells me something is off as a whole with the analysis.
That is to say, digital advertising isn't showing the volume of or demand for musical teaching service because it's highly likely everyone believes it's incapable of doing so or adding value... That (driving the market online) is the problem to be solved in the space, because it sounds _hard_, and solving hard problems tends to be the way to make a lot of money. The other opportunity I would look at is, sort of from the other side: how to fix (what I assume to be likely) most music instructor's "underemployment" problems (i.e. inconsistent, few, or not enough hours). I imagine this angle would probably net more gross sign-ups as well since users (instructors) would be advertising the platform for you.
With all that said, you'd have to assume there is latent under-served demand (25-35%) in the market too to bother with anything I've said... that 25% is essentially what would be left over for others after you've captured the niche.
One last thought, for the VC since it looks like they're reading HN. Have you thought about doing retroactive market analysis where unicorns now exist to see what the market looked like then (e.g. short-term vacation rentals in ~2006)?
Might give you some strong signals for where there is potential...
 They are indeed a VC so it may not be in their best interest (time value of money, opportunity costs, etc)...
Edit: Adjust some bad arithmetic.
$60 / hr is not awfully high, lots of private tutors in the western world charge that, but note, that's it the west. There are also hordes of tutors charging as low as $5-$10 / hr in the west. It is unfortunately a business that is absolutely overrun with undercutting.
I think in reality, the only tutors you'll find that can charge that much, consistently, are professional musicians (i.e doing it for a living), and those with a degree.
Neither does it help that free alternatives like youtube and IG vids are in great abundance, which again can help to bring down the perceived value of lessons ("Why should I pay $60 when this great musician with 100k followers is putting out lessons for free? / on patreon for $10 a month")
There's probably some kind of market, but I'm not sure it's a billion $ market.
I'm a member of various FB musicians groups: buy/sell, discussions, theory, etc. and you see small businesses and startups like these come by all the time.
That makes no sense. Why would/should instructors+students continue to give them 20% commission for follow-up classes beyond the first one? It seems like just wishful thinking. The app store situation is very unusual (monopoly/monopsony), and does not apply in this context.
These market place ideas don't work nearly as well for businesses where there are long term, repeated, interactions between seller and purchaser. They work best when there is a one time exchange, because a market is really getting paid to make an introduction.
edit: I see now that many people made this argument much more eloquently in other comments on this thread.
The 20% cut also does sound rather extreme, but if you build a very good product where you can end up charging even more than the usual price, the 20% isn't taken away completely from the supplier, and might end up more like a 10% actual cut.
Once the platform has a significant number of suppliers, sure. If the platform is new then attracting suppliers is the number one problem to solve, and that's really hard if it's too expensive.
That's $76k/year. My guess is that only the top 1% of music tutors are making that much per year.
And only 100k tutors in the US is an incredibly small market.
This is basically a hyperlocal seo play not sure why PSL seems obsessed with PPC only paid is not the only channel - go talk to some one Like Norm at DAC group
An ad for online one-to-one art lessons has been popping up in my Wechat moments. Judging by the ad copy, they feel they have two strengths:
1. No need to transport your kid to and from the lesson.
2. Your kid will like this more than classroom-based lessons.
I conclude that the market they're trying to serve is parents who would like their children to learn to draw. But there are a lot of those, and their selling points seem pretty reasonable.
This is a near perfect example of how "big business" can kill the spirit of entrepreneurship.
The idea (or VC cocaine induced fever dream) that every idea should be a billion dollar idea is exactly whats wrong with the current tech climate.
- Ansel from PSL
For a tens of millions pitch go to Earnest Capital who will be perfectly happy to invest.
This means that if your business is the right shape, VC is a fast way to raise a tremendous about of money.
But that's NOT to say that every company can or should raise a tremendous about of money. There are less traditional VCs, angel investors, debt, and other financial vehicles that can help businesses succeed. There are tons of examples of companies worth hundreds of millions of dollars who raised little or no money to get there (Webflow and Atlassian are two top-of-mind examples).
Would Facebook have passed this "test"? There was Myspace and Friendster dominating. How about Instagram? Why would anyone want to share photos elsewhere when everyone posted their lives on Facebook?
We all know how those stories ended.
Your firm's method only addresses the current market in current conditions. Having the foresight to see the currently unseen before anyone else is what yields amazing results. And if this is the main reason for killing something like this off... let's just say I'm glad I don't have my funds there. :)
The expected value of this project is probably only $5-10 million once you factor probability of success into account and thus not worth the time and effort at trying in the first place. A $5-10 million E.V. project is very much worthwhile for two founders who wanted to bootstrap though!
One reason VCs target billion dollar ideas is that you'll probably fail. But in the unlikely scenario that you succeed, it more than makes up for the 10-20 other projects in their portfolio that DID fail.
Though you'd probably find that most were happy with Google Calendar, Xero and PayPal / Square.
Millions of incremental profit... unwanted. Of course it's logical given shareholders, but remains strange all the same.
Consulting can be a great way to bootstrap but you need to know when the tail is at risk of wagging the dog.
It's counter intuitive but in downturns consulting can tick up. The first place companies go to look to reduce cost is headcount but the work still has to get done. In come the consultants to implement a new system to increase efficiency and reduce headcount (it rarely turns out that way though). Also, I think it's easier to finance money for consultants than FTEs because of where the expense falls on the accounting books.
It's not as high quality as 1 on 1 instruction, but the benefits of scale cannot be understated. Offer lessons at 1/3 price but make double the revenue.
Small niches that have proved themselves are often more attractive from an investment standpoint.
VCs look at this and are like "We can't do that with run-off-the-mill webdevs and marketers". And they have a formula to express what to expect from this reasonable effort model.
Comes a founder with awesome experience in pedagogy, a reputation in, say, Montessori teaching, and publishing records. She knows 10 musicians who could potentially teach, 100 potential students to bootstrap the idea.
VCs re-reun the numbers with these new assumption and discover a potentially ten times higher return after Q1.
VCs and bootstrapers and founders make different assumptions in efforts and time and need each other, fit different niches.
I only go niche if the larger addressable market is big enough. It might be okay if the initial niche offering only makes $5k its first year, but I should see some path to expand to $500k+ per year or the opportunity cost is too high.