Here’s what we know. Nextdoor, a 13-year-old social network designed to digitally connect local community residents, is going public via a special purpose acquisition company (SPAC). As a result of choosing this “blank check” style of funding, all the metrics and measurements — such as daily active users, churn, revenue, losses — investors would normally use to value the company are unavailable, shrouded in mystery. Nonetheless, Nextdoor’s backdoor listing plan has still been able to derive a valuation for this business of roughly $4.3 billion.
Go figure. The problem is, with this SPAC deal and many others like it, you actually can’t.
Nextdoor’s debut will be the latest example of what might be considered “Exhibit A” for why SPAC deals like this — and dozens of others that have gone before it — can carry more risk than reward when the San Francisco-based firm merges with the Khosla Ventures Acquisition Co. II.
“Nextdoor has been at the forefront of cultivating ‘hyperlocal’ communities and neighborhoods since its inception, allowing neighbors to create meaningful connections — both online and offline,” NextDoor CEO Sarah Friar said in an announcement of the deal. “Our business strengthens as we scale, benefiting from strong network effects, and we believe the proposed transaction with [Khosla] accelerates the growth potential of our platform. We remain focused on optimizing our strategy and investing in products to drive continued neighbor and organization acquisition and engagement.”
The transaction will generate $686 million including a $270 million private investment from T. Rowe Price Group Inc. and Cathie Wood’s ARK Investment Management, as well as Dragoneer Investment Group, and is expected to close in the fourth quarter.
The listing will also launch the firm into its latest iteration as a public firm providing a digital venue for locals to organize events, chronicle local wildlife and report suspicious activities of all kinds via “clothesline conversations” between neighbors.
Nextdoor was initially described as a local version of Facebook when it opened its doors 13 years ago.
But it hasn’t quite lived up to that billing — with a lot of the digital services it offers available in other places across the web but not much in the way of a distinct offerings to call its own. It’s a platform PYMNTS’ Karen Webster likened to a more chaotic and confused version of Craigslist when she signed on a few years ago.
An App In Search Of A Purpose
The key problem with Nextdoor that Webster identified two years ago is that everything it offers is readily available elsewhere on the net, and often in a superior form. Consumers, she noted, have lots of places where they can access local services such as dog walkers and babysitters, there are scores of Facebook groups for hyperlocal internet communities and a plethora of apps available on which people with stuff to sell can post it, including Facebook. Nextdoor doesn’t seem to have a way to provide it differently or better, Webster said, or make a unique case why users should choose their platform among so many other options.
“Instead of useful information about-the-neighborhood, for-the-neighborhood, I was getting spammed by dog walkers and babysitters advertising their services, people selling used furniture, private landlords from places outside of Beacon Hill advertising cheap apartments to rent, and ads for Maytag washers and dryers,” Webster reported. “The problem that Nextdoor.com must crack is giving users the information that neighborhood residents really value and is missing from other sources they can access today. I think that is an uphill climb.”
Until this most recent news, Nextdoor was very successful in vacuuming up VC funding, but without a dime of revenue earned over its then 11 years in existence with no unique value to offer — it gave all appearances of a VC darling in search of a purpose.
Potential Versus Purpose
To be sure, not everything is wrong with Nextdoor or even SPAC deals. Webster acknowledged that former Square executive Sarah Friar was an excellent add-on as CEO — and from the sounds of her statement she is looking to leverage the recent IPO to expand and enhance the platform’s offerings.
There is also the tailwind of the pandemic-driven digital shift that has lifted usage of the site — along with most every online property. There’s also been an ebb and flow of local news content consumption for many of the same reasons.
But industry-wide general trends such as those are just that — general — and offer nothing by way of a tangible snapshot of how the business is actually faring today as Nextdoor readies itself for its public debut shrouded in SPAC secrecy from the probing eyes of Wall Street.
So, too is how it will monetize its platform. That will take a combination of great and unique information that keeps users coming back, and enough of them for advertisers to find it an attractive channel at which to park those dollars.