Diligence at Social Capital Part 1: Accounting for User Growth | by Jonathan Hsu | The Startup | Medium

• MAU growth = new users + resurrected users - churned users. Two companies with identical growth curves can have completely different retention profiles underneath.
• The "quick ratio" (new + resurrected)/churned must exceed 1.0 for growth. Consumer apps typically hover around 1.0-1.5, meaning you lose 2-3 users for every 3 you gain.
• High retention (40%+ month-over-month) justifies aggressive top-of-funnel investment. Low retention means fix the product before spending on acquisition.
• Cumulative registered users is a vanity metric. Active users decomposed into cohort components reveals true product-market fit.
• The framework works across time windows (daily/weekly/monthly) - choose based on your product's natural usage frequency.

Social Capital's diligence process decomposes MAU growth into an accounting identity: current active users equal new users plus users retained from last period plus resurrected users from earlier periods. This means MAU growth receives positive contributions from new and resurrected users and negative contributions from churn. The framework reveals that two companies with identical top-line MAU growth can have radically different underlying health.

The key metric is the "quick ratio" - (new + resurrected)/churned - which must exceed 1.0 for growth. Most consumer apps operate between 1.0-1.5, meaning for every 3 users gained, 2-3 are lost to churn. A ratio of 1.5-2.0 indicates strong retention worth amplifying with aggressive acquisition. The author demonstrates this with two fictional companies showing identical 12% monthly MAU growth over 16 months, but one has 40% retention while the other has much lower retention masked by higher new user acquisition. The high-retention company is far more attractive because it's easier to fill the top of funnel than fix fundamental retention problems.

The framework applies beyond monthly windows - early products should focus on monthly retention before attempting weekly, and only the stickiest products (like Facebook) should measure daily or sub-daily retention. The approach works equally well for consumer and enterprise SaaS businesses, and many portfolio companies use it operationally on a rolling 28-day basis to remove day-of-week effects. The core insight: cumulative registered users is a vanity metric, and even MAU alone is insufficient - you need to understand the components of growth to assess true product-market fit.