Investing in Digital ‘Third Places’
Consumers are craving intimate and authentic digital experiences that are so transformational, they feel spiritual
A decade and a half ago, Northzone led the €15M Series A round in Spotify. It was not a hot deal; seemingly everyone had passed on the year-old company which had 23 employees, no live product, and big competitors like Rhapsody, iTunes, LastFM, and Pandora. But to his credit, my colleague Pär-Jörgen Pärson put his internal reputation on the line and received the partnership support to invest. Ten years later, Spotify IPO’d for $29.5 billion with Northzone owning 5%.
Northzone has a legacy of investing in category-defining consumer platforms like StepStone (invested in 1997; exited for $1bn), LastMinute.com (invested in 1998; exited for $1bn), Spotify (invested in 2008; exited for $34bn), Avito (invested in 2010; exited for $2.7bn), Kahoot! (invested in 2015; exited for $6bn), and many still in the active portfolio.
I’m excited to dive into how Northzone underwrites investments in this category by also highlighting a space that I have been spending a lot of time in; something I argue is one of the greatest opportunities in consumer digital experiences today: addressing loneliness.
The loneliness epidemic
During the Covid-19 lockdowns of 2020/21, I was very blessed to spend the bulk of quarantine in northern California with my parents, my six siblings, and my 99th-percentile-BMI baby nephew.
But despite being surrounded by so much love, I felt trapped and lonely. The idea that a whole generation of kids and young people were being locked in isolation gave me a lot of anxiety, and I would often preach from my soapbox about how our more extreme shelter-in-place policies were wreaking havoc with unintended consequences and tearing at the social fabric of society.
While rules prevented us from spending time together IRL, people desperately sought social interactions via other mediums. Say what you want about OnlyFans but it offered users something no other creator platform was able to replicate — human intimacy.
Framed very well by the then-Head of Design at Hinge:
“People are willing to pay for things they need, and they need intimacy and connection now more than ever. It seems capitalism slowly works its way up Maslow’s hierarchy of needs, and we’ve hit the Love & Belonging rung of the ladder.” — Lucy Mort, “OnlyFans & The Rise of the Digital Girlfriend”
This sense of lost togetherness wasn’t new, however; even before the Covid-19 lockdowns, the world was experiencing a loneliness epidemic.
During an era of explosive use of social media that was supposed to capture, organize, and cultivate our community connections, we instead have been left feeling isolated and disconnected.
Many macro trends fuel the loneliness epidemic (my good friend Hugo Amsellem is writing a piece about it), but I want to focus on one in particular: the decline of valuable “third places”.
Loss of third places
“Third places” are spaces where people spend time between their first and second places — home and work — and serve as community builders or locations where people can share their worries, rejoice, and renew together.
Third places can be parks, barber shops, community pools, and so forth. I like the example of a spa/salon where I bare my soul and confide my deepest personal issues to the stranger cutting my hair or sitting next to me getting a manicure. These centers of community foster chance encounters and leave us feeling more happy, less lonely, more productive, and generally connected.
I would argue that the most important historical third place has been places of worship. Churches, mosques, temples, synagogues, etc. have traditionally held communities together; no other institution serves that role with the same clout.
But religious affiliation is declining. In American society especially, we are experiencing a secularization of civilization as fewer people identify with religion and therefore attend fewer religious services.
Many young people are skeptical of religion, associating it with issues like abortion and white supremacy. While religious dogma and conflicts have certainly inflicted much pain on the human race, religion has also historically played a central role in the civic space.
Even as we renounce organized, institutional religion, we still crave that third place and maintain a sense of spirituality (meaning we believe in the divine-human spirit and the idea of oneness across sentient beings). This has yielded a rise in the demographic of people who identify as ‘spiritual but not religious’, a movement that spans age, gender, race, and political preference.
And so we turn to other sources of community and spirituality which we have found in the form of cult-like brands and activities.
I would guess that my experience in some ways mirrors that of many other Millennials and Gen Z people: I was raised in the Catholic faith by my dad who would lasso seven unwieldy kids to mass every Sunday, and while the actual religion part never stuck with me, the foundations of religious practice professed later in life in my desire to seek out yoga and meditative habits.
For me, the past few years were an interesting time to pause and reflect on how I felt about connectedness to my community and my sense of self. I didn’t want to go back to church but I wanted that church-like experience back in my life.
Investing in digital third places
I wasn’t alone in my quest for connectedness. Some of the greatest entrepreneurs I’ve had the pleasure of meeting in recent years recognized how impactful digital communities can be for addressing the loneliness epidemic.
Northzone has been lucky enough to invest in a few of those platforms early at seed. By way of introduction:
Yoni Circle
Yoni Circle is building a global storytelling movement. The founder/CEO Chloë Drimal was the 14th employee at Snap where she created the Our Story product, a curation of millions of user-generated Snaps from around the world. From that experience of seeing how deeply connected we all are and via her own journey with depression, Chloë discovered the most impactful healing methodology — exchanging stories with strangers. The platform offers live storytelling Circles guided by an audio/visual meditation and prompt, and a Spotify-like streaming experience to asynchronously discover other stories from the community.
Hero Journey Club
Hero Journey Club is bringing mental healthcare to digitally native spaces. The cofounders Brian and Marc spent years tinkering with consumer health plays — the findings: therapy is expensive, inconsistent, outdated, and limited in access. In response, they built a platform that provides weekly small-group wellness sessions guided by a licensed therapist and hosted within digitally native spaces like Discord, Minecraft, Animal Crossing, Roblox, and more.
Hidden Door
Hidden Door is building a new kind of social roleplaying experience using generative AI. The cofounders Hilary and Matt are data / applied ML experts and avid gamers; they wanted to use AI for interactive entertainment to help people immerse themselves in their favorite worlds. With a team of largely PhDs and fantasy fiction enthusiasts, Hidden Door has built a narrative AI platform that turns any work of fiction into an infinitely playable multiverse of generative personalized content, like D&D but sanctioned by your favorite author and run by an AI Dungeon Master.
Troop
Troop is a community app for individual shareholders to collectivize their assets and act like a distributed activist hedge fund. The cofounders Felix Tabary and Zen Yui are community leaders themselves who were inspired by the rise of movements like r/wallstreetbets and Web3 that sought to democratize finance and mobilize the collective power of investors. Troop users can propose and join campaigns that could ultimately translate into formal shareholder proposals.
Northzone’s investment thesis
As a firm, Northzone has been investing in consumer platforms since the mid-90s. Consumer bets are notoriously ‘binary’ in terms of success, making it really difficult to invest before the inflection of growth, as Northzone does. Below is the framework that works well for us; not every time, but enough to make us one of the largest early-stage venture firms:
- The most important early signal of a transformative social platform is evidence of a superfan user base with crazy strong engagement. The experience should supplant users to a certain place where they feel an identity linked to the platform and organize their life around it; a cultural change.
- In the beginning, not everyone will “get it”. It’s hard to describe a completely new form of media — how could you possibly convey the transformative experience of watching Game of Thrones for the first time to someone who’s never seen a movie…?! You don’t even want mass-market appeal on day one, otherwise, it’s not truly transformative. Describing the experience to your friends should be difficult, confusing, and require appealing to emotions.
- But it starts with a group that’s primed. In my GoT example, that primed group would be fantasy film fanatics. The pre-primed group forms that early superfan user base.
- The question then becomes: can the infrastructure be built to broaden the appeal and introduce the experience to unprimed groups? Continuing the GoT example, that infrastructure could be film previews, at-home streaming, viewing parties, online reviews, and so on.
- Lastly, very good execution requires a team who has the vision, high-quality experience, and leadership presence to build a movement. The founders I mentioned above have an uncanny natural instinct for the products they are building and the communities they are cultivating.
The success of digital third places
While still relatively early in their journeys, these platforms are already showcasing examples of success.
Yoni Circle launched its product this past March on International Women’s Day and has since seen 94% week-10 retention with the average user attending 2.7 hourlong circles per week. At an average price point of $11.75/month, the app is a fraction of the cost of platforms like Peoplehood or Pace that rely on human moderation and lack the accessibility or scalability that Yoni has achieved via exceptional product development and creativity.
Hero Journey Club launched last summer and became a runaway success, with such a wave of interest that it overwhelmed and broke the company’s Discord servers. The brilliance is in the model: users pay $30/week for live group sessions, coming for mental health support but staying for the sense of community and belonging. In a few short months, their community has grown to over 8,000 members and has been described as the “kindest place on the internet”.
Hidden Door has signed up its first author and will be launching a Wizard of Oz world later this year (watch the trailer here!). The company is creating a new category of digital content and defining how the IP rights will work.
Troop launched earlier this year and is growing 10-15% week-over-week with ~70% of users connecting their brokerage accounts to the platform. The community currently represents $21M+ in connected brokerage assets from 1.7K shareholders. Institutional activist hedge funds are taking notice and hiring Troop to solicit retail shareholders for their large campaigns.
From sermons to circles
Again, I recognize and acknowledge the hazardous role that religion has and does play in society, but it also offers many people something we desperately need — a sense of belonging.
With loneliness wreaking havoc on our health and ability to function as a society, I think there’s a lot we can learn from religion in building digital experiences and communities. We just need to replace diety-obsessed sermons with peer-based group circles.
And what is to become of the places of worship of yesteryear as religion continues to decline? Who knows… but here in Amsterdam where I currently live(!!), old churches have been converted into apartments, schools, and other repurposements. Some even operate a bar ;)
Michelle Nacouzi is an investor at Northzone, a global venture capital firm founded in 1996 and now deploying a fresh $1bn+ of funds across the US and Europe.
