While social media typically focuses on broad reach, Nextdoor made a calculated choice early on: to cultivate a thriving business through smaller, more intimate local communities.
For many years, this strategy proved successful. The now 15-year-old platform has established itself as a leading venue for neighborhood discussions, facilitating everything from lost pet notices to suggestions for local services. However, growth has since plateaued. Users increasingly engaged only for basic transactional interactions, driven away by issues like misinformation, racism, and trivial disputes among users who either lacked awareness or simply disregarded the need for constructive dialogue.
Now, Nirav Tolia is determined to reverse this trend. Having founded the company and led it until 2018, when he was reportedly removed from his position due to a disagreement concerning a proposed acquisition, Tolia has a compelling reason to succeed. In 2021, Nextdoor went public via a special purpose acquisition vehicle with a valuation of $4.3 billion. However, facing stagnating growth and decreasing interest from advertisers, the board requested Tolia’s return last year.
Tolia’s financial stake is significant, as he identifies himself as the largest individual shareholder in Nextdoor, which currently has a market capitalization of around $1 billion. Benchmark, one of the initial venture capital backers, holds the position of the largest institutional investor. Tolia asserts that “neither of us has sold since the IPO.”
Tolia expresses confidence in the company’s future, primarily due to the initiatives he’s implementing. Progress is evident, as Nextdoor reported 45.9 million weekly active users at the close of September, reflecting a 13% increase compared to the same period the previous year. A crucial asset appears to be the proprietary data generated from the platform—data that, unlike platforms such as Reddit, Nextdoor has no plans to sell to companies like OpenAI or Google.
Nonetheless, the road ahead remains challenging, particularly given the limitations faced by a company of Nextdoor’s smaller scale, including the reluctance of larger institutional investors to participate as shareholders. This raises pressing questions about the timeframe for Nextdoor’s turnaround and whether it might be more advantageous to operate as a privately-held entity.
We conversed with Tolia about these topics, along with his rapport with long-time board member Bill Gurley of Benchmark, in a dialogue you can listen to here. Following are selected excerpts from that discussion, summarized for brevity and clarity.
You’ve been quite active in the media lately. What’s the reason?
Upon my return, my top priority was to engage with our internal team. However, as we work to form our strategy and consider how we can reach our full potential, it’s crucial for us to communicate our story externally as well. Despite being around for 14 years and having 100 million verified users [on the platform], Nextdoor has not attained the relevance we believe it deserves or maximized its potential.
You mentioned plans to overhaul the product.
We firmly believe that our neighbors can play a vital role in helping each other. Staying connected to our local community is essential for remaining informed, safe, and making smart purchasing decisions within that community. However, after reviewing our product, we realized we lacked sufficient relevant information for our users to stay updated. Moreover, even when we had pertinent information, we often failed to present it effectively. Therefore, we’re working on what we internally refer to as the “next Nextdoor,” a new product designed to enhance users’ connectivity to their local neighborhoods.
Can you specify some of the changes you intend to implement?
Nextdoor has primarily relied on user-generated content (UGC) from neighbors, which accounts for 99% of what is shared on the platform. However, we have come to understand that local sources like schools, businesses, influencers, and organizations—including regional news outlets—have valuable information that can benefit the neighborhood. One of our major initiatives will be to incorporate new content from these sources, thereby enriching the information available on Nextdoor.
I stopped using Nextdoor because I was disturbed by some of the comments from neighbors. A significant challenge for you is managing users’ discourse without stifling free speech.
This is indeed a prevalent challenge faced by all social media platforms. Firstly, we must continuously strive to enhance the tone and atmosphere of conversations, making them more constructive and positive. Secondly, with the rise of AI, we’re optimistic about leveraging technology to improve user experiences substantially. We believe that by reminding users about the importance of community and collaboration, along with employing innovative AI tools, we can make significant strides in this area.
Would you consider using AI to control political discussions?
Our official policy restricts national political discussions on the platform. Nonetheless, users occasionally bring up such topics. We can establish dedicated groups for political discussions, as some users do desire to engage in these topics. However, it’s important that these conversations don’t intrude on the main platform experience while still remaining accessible. We also have plans to utilize AI more effectively in this context.
For instance, we employ a feature called a kindness reminder that assesses posts for aggressive language before publication. If any problematic wording is detected, we send a notification suggesting more constructive phrasing. There’s much more we can do in this regard.
Is this AI developed internally?
Absolutely, it’s developed in-house. I feel very strongly that to excel in AI, a technology company requires three essential components. First, you need skilled engineers, which we have done. Secondly, possessing your own proprietary content is crucial, which Nextdoor is actively generating. Finally, a significant audience to test your LLMs against is imperative, and with 100 million users, we have a vast and diverse pool for this purpose.
Would you ever consider licensing that AI?
It’s a frequent inquiry from investors. My perspective is clear: if Nextdoor’s content is available through platforms like Google, OpenAI, or Microsoft Passport, why would users seek out Nextdoor? Thus, I believe it is extremely risky for a platform with proprietary content to share it with larger competitors where users might prefer to go first. While I wouldn’t categorically rule it out, my strong inclination is that if users desire the benefits of Nextdoor, I want them to come directly to us.
You have a long-standing relationship with renowned VC Bill Gurley, who serves on Nextdoor’s board. Reports indicate he was instrumental in your ousting before inviting you back after growth stagnated. How accurate is this narrative?
That account is inaccurate. The sentiment across the company was one of dissatisfaction with its direction. Following our IPO, the stock had plummeted by 90%. It wasn’t solely about Bill Gurley or myself; it was clear we had to take action. Bill has been a pivotal figure in my career since 1996 and we’ve collaborated since he financed my first company in 1999. I hold him in high regard and although we don’t always see eye to eye, our working relationship through multiple ventures has been invaluable. We all share the goal of enhancing the company, which was a collective aspiration and not limited to just one person.
Is your intention to succeed as a public company? Given your goals, have you considered taking Nextdoor private again? Have you had any discussions with private equity buyers about this?
We don’t comment on such matters. However, it’s a compelling question. Bill and I have pondered this, given that he primarily invests in private companies and I have extensive experience as a private company CEO. It’s a familiar arena for us both.
As a public company, quarterly results are critically important. Your stock price—a measure of performance—is visible daily. In contrast, private companies have more leeway to make long-term strategic decisions without facing immediate scrutiny. Bill and I concur that to truly elevate this company, operating as a public entity is essential. It’s akin to choosing between major and minor leagues; while successful, private companies are still in a developmental stage. Going public brings added responsibilities and scrutiny, but developing those aspects is necessary for long-term success.
What is the current ownership structure of Nextdoor? I know that you and Benchmark hold significant shares, and I noticed Ark Investment Management acquired roughly 4% of your Class A shares recently.
Yes, that’s all publicly available information. I am the largest individual shareholder, while Bill and Benchmark are the main institutional shareholders. Neither of us has sold our shares since the IPO, which indicates our strong belief in Nextdoor’s untapped potential. We aim to fulfill that promise for all our shareholders, including ourselves. Cathie Wood’s Ark Investment Management taking a substantial position in Nextdoor is fortunate for us. However, in our sector, being undercapitalized—a $1 billion market cap—poses challenges, as many institutional investors aren’t permitted to invest in companies with valuations below $3 billion to $4 billion. Consequently, we need to attract more long-term, reputable investors slowly but surely, which hinges on demonstrating our value first.
This is about validating our worth, starting with a superior product that enhances user value, which will, in turn, improve the experience for our advertisers and lead to better financial metrics. Ultimately, as we elevate our offering, everything else will align accordingly. Right now, our focus must be on improving every aspect of our operations.
Compiled by Techarena.au.
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