Subscription start-up businesses have become very popular over the last few quarters and it seems to be taking over the internet. There are so many websites that offer you a product or a service with a monthly subscription fee attached to it, and most of the time these products have better value than what is available. Subscription start-up companies are great for consumers as well as investors, because they show revenues in advance of expenses, expenses, that can have managed and controlled accordingly and generate profitable unit economics. So if you are thinking of investing in a start-up company, here are a few things that are great characteristics to these businesses.

They have the potential to become ‘cash cows’

This is not exaggeration. Every subscription start-up business has the potential to deliver insane amounts of profits and become the proverbial cow on which cash is made! The reason for this lies in the clever tactic that is employed by these business owners. For a subscription to be activated on the consumer’s profile, they have to pay the subscription fee up front before they can receive the product. This means that there is a continuous positive cashfloat in the business model and, as a start-up, they are on a good wicket as they could plan their expenses based on the subscription revenues collected.

The start-up business acts as a yielding asset

When you think about it, the start-up business acts like a bond that has been registered in your name and it delivers the same amount of benefits. If the interest rate goes up, then so will the value of the start-up subscription. Secondly there is a lot more security for an investor to know at the start of the month how much revenue they can expect – is almost like starting into a crystal ball!

The consumers are “sticky”

Not many are aware that AOL had 2.3 million users that were using the dial-up subscription in 2014! AOL was making a cool $140 million a quarter on group of customers and the average customer had been paying them for FOUR-ah-TEEN years! There is a lot of evidence to prove that the one thing that people find most difficult to do is to change their habits (forgetting to cancel the monthly charge for gym membership?).In fact, when I was used to sell electricity contract door-to-door in the US I found that consumers had this “motherhood” loyalty to their current energy provider and even if we offered them a 20% discount to their current energy prices they found it difficult to be convinced to change.  It took a lot of effort to get them to flip even then I used to have 10% of them cancel the switch after I had left – that is sticky!I am looking at business like the Farmery and Supr Daily to add to Artha India Ventures’ portfolio and find that these businesses can be very interesting, in fact the business model of Massage Envy is enviable (pun not intended) and should be emulated!

In my next post I will go over the metrics I am looking at when evaluating these start-ups...