1/ A few things in this piece I agree with and some I don’t. Overall good for consumer entrepreneurs that more journalists are covering this trend. Just wish journalists would take the time to understand the true drivers (and results). economist.com/business/2018/…
2/ "Microbrands" denotes size. Not channel. D2C is a channel - nothing to do w/ size. The opening saying that the two are synonymous is…….bizarrely wrong. That’s important because it is subtly, but importantly celebrating 1 specific channel that is already very misunderstood.
3/ The growth over the last 5-10 yrs of “microbrands” is not driven by co-packing. That has existed for 20+ yrs. Granted it’s easier now, but I would argue that’s not a top 3 driver. The points about Shopify are spot on.
1/ The same day I saw @itaidamti tweet I was also asked about an investor we know very well- and didn’t have a good experience with. I wanted to convey questions to push the investor on. (HT to @davetisch as well)
2/ It got me inspired to send the email below with context on questions to ask before taking an investment from a VC/PE firm.
3/ Let’s be clear, it is absolutely not realistic to be able to ask all of these questions, and some might even turn off the investor. But I wish I had even known to think of some of these questions- as they would have triggered me to act differently.
2/ What I think often I’ve missed in evaluating CEOs in the past (as an investor myself) is transition from being a successful founder to successful CEO. They are two different brains. Both are critical - but each have IMO a set of required traits that can be in conflict.
3/ Specifically the CEOs need to delegate. If the CEO brain doesn’t delegate that person will burn out with any reasonable co. growth. More people, more customers, more complex product, more business lines. CEO will burn out if they cant delegate.
2/ IMO tech vc has not been scalable and repeatable. Strong firms raise larger funds, but strategy shifts (which is why funds increase 10x but you rarely see 10x as many companies that look like those in original fund). [So scalable in that case, but not repeatable- new strategy]
3/ The asset class is pretty brutal overall (I think you'res saying this too). I haven’t seen many reputable studies that wouldn’t suggest tech vc is the worst performing asset class (v. PE, publics, bonds, real estate, etc) over most time periods.
1/ Things about CPG that people wouldn’t understand unless they live in the industry. Most of these relate to how difficult it is to be an entrepreneur in that space- and how unfair it is for them historically.
2/ The inefficiency is crazy. No Silicon Valley, no TechCrunch or YC of scale that comes close. There is an absurd amount of networking- it would dwarf what is considered normal in tech.
3/ The data providers in CPG are horrible. Most are high precision with very low breadth. In addition, there is so much money in CPG (the industry is HUGE $15 trillion) that the same few data providers are used by everyone - thus commoditizing the impact.
1/ I hear confusion about difference between systematic VC and data driven VC.
a) Systematic VC will find/evaluate co's algorithmically. Decisions based on set of rules.
b) Data driven VC has typical investment committee making decisions informed (not instructed) by data
2/ Because of the lack of data historically in VC decision making, 2b sounds novel. 2a I’ve talked about before.
1/Had a wonderful discussion with some amazing consumer investors last week.
Premise was small brands are gaining mkt share in almost every single CPG category. I’ve never met anyone in consumer that debates that. So just for fun we played off that premise.
2/ Hypo 1: I think the Personalization of the Consumer (consumers wanting brands/products that meet their unique needs) will continue resulting in further fragmentation. CPG has never had a Power Law, and the “winners” will own even less of the market going forward.
3/ There will be a great number of successful companies, but the winners wont be as big. More winners at $500m-$1b in exit value, not as many >$1b in exit value.
2/ I’m seeing more and more data driven VCs. 9 out of 10 have one outsourced engineer and nothing more – meaning it is basically marketing for LPs. In this case my perception, and these numbers seem to back it up, is that they are investing into building something real
3/ In particular I like how they are focused on trying to use tech to help the companies post close. Critical in tech given how many sources of capital exist.
1/ Been talking about my vision for a systematic VC fund. Think Renaissance Technologies in the private markets. Here is initial strawman of how it could work. Flow her is industry->tech->outreach->validation-> negotiation->close->post close.
Don’t have all the answers.
2/ Starts w/ stage & industry. Cant have too much competition (not tech b/c 1k vc firms), must have large mkt, enough data (not seed stage), biz models largely standardized so you can generalize training data.
CPG perfect. $15T industry few active VCs.
3/ Need small Information Advantage (IA) + Large Sample (N). IA won't be perfect so must spread out over large population. Said differently- predictions won't be guaranteed, so need to make a lot of bets to capture the value of the IA.
1/ What drives decisions for (bad) VCs. This is going to be fun.
2/ Who else is in the round: At least half of VCs actively just admit they are influenced by who else is in the round. Why? They have a lot of reasons related to more smart people around the table. I’ll give another: you don’t get fired by co-investing with @sequoia
3/ What their partners think: Not a lot of VCs have the courage and capacity to do a deal that their partners don’t like. That deal goes bad and it isn’t a joking “I told you so.”
It’s “Thanks- let’s make you a venture partner for a year as you transition out.”
1/ Randomly thinking about the amount of data that @Lever has. Who is interviewing and what companies think of those candidates. But that data gets super interesting over time and when combined with other data sets.
[I’m not an investor/advisor in Lever and have no affiliation]
2/ First who is interviewing: one of biggest pain points in the recruiting is the drop in conversion between outreach and engagement. Narrowing in quickly on who is interviewing- not who says they are interviewing (i.e. Hired/Indeed), but who is actually interviewing.
3/ What co's think of candidates- Text data and the Lever scores (1-4). Some fun questions:
-Which interviewers feedback at a given co. are most predictive of hiring (or success post close)
-Optimal # of interviewers
-More predictive of the hire – score or long-form review?
1/ First, I’m geeking out right now because I’m a huge fan. Let's put that aside. (btw- we have 5 copies of your book in our office and it’s a small office). Love how you describe complicated subjects in easy to understand ways @annieduke
2/ Q1: Defining success- really great pt and I was a bit flippant because @Zachkanter and I were having fun.
Ultimately measured by returns (i.e IRR or MOIC) but here the time frame is too short for that (I’m assuming Zach agrees)
3/ In 2 yrs success would be:
a) demonstrate that models/factors, upon which the fund is based, are able to predict objective measure of success that correlates “strongly” with IRR.
b) raising a multi hundred million dollar fund
c) begin to deploy fund at projected rate
3/ Every quant fund I know is doing some work to explore the space (privates). Some of that work has a predetermined answer (“lets show LPs this is too hard”) other is true R&D trying to find a path to innovation. A systematic approach to VC/PE investing is going to happen.
1/ I am seeing more and more founder secondary in venture rounds (Secondary = founders selling some of their shares before some other shareholders are able). Series B-D. I see both as an investor and through entrepreneur circles.
2/ I like secondary for entrepreneurs. Moderation is key but in a lot of situations I think it helps accelerate the co. Lots of very smart investors disagree. Here are my thoughts.
3/ Magnitude: My basic rule of thumb from what I see is market is 4+ yrs and up to 10% of founder’s equity stake with some $ cap that makes sense given stage etc. (typically <$10m)
2/ First observation – the crowd reignited a belief in me that Bay Area can have a good sports fan base that isn’t just jumping on the latest bandwagon. Game was sold out.
3/ Second- the @USC_WSoccer were a top 2-3 team I’ve seen in the past few years in terms of communication, how they supported each other, and just general teamwork. It was a master class in teamwork to watch.
1/ We will see more and more use of data in private markets. Over next 24 months it will become table stakes in most private markets. wsj.com/articles/priva…
2/ The transition will happen much faster than it did in the public markets because publics have paved way, easier to process massive amounts of data, more of a demand now to differentiate yourself.
3/ In early stage tech investing in Silicon Valley, I’m very skeptical that there is a problem to be solved (too much capital- not much inefficiency) or that data is the solution….at least in the short-term.
2/ Let’s be clear. By horrible I mean that GM% was worse than expected as WholeFoods/Amazon (>30% of their business) puts pressure. EPS missed estimates and guidance implied that margin pressure will intensify next yr. Stock hit 5 yr low.
So I guess I call that horrible.
3/ To quote @karenhowland2 : “The company has razor thin margins (2% operating margin) and is buying another low margin, even less differentiated business in @supervalu and saddling the combined company with a lot of debt. Not a good combination.”
2/ I think almost all founders struggle with these emotional issues-but there are so few that talk about it. Why? Fear of being the only one not “crushing it”, fear of what it will mean with potential investors/customers/employees, fear of not living up to expectations.
3/ I deal with these feelings every day. It is a struggle.
1/ The magnitude of CEO turnover is hard to imagine if you don’t focus on CPG. Find an industry where leadership turnover is worse. wsj.com/articles/packa…
2/ Almost no CEOs in public CPG companies have clout. They are almost never the founders, often aren’t respected by the street. Usually suits that have never created anything, never driven real positive change.
3/ They are usually lifelong company people that are really really good at running companies that are dying- and slowing their death.
1/ I’ve said a few times that I think @Instacart will win in grocery delivery. They will beat @Amazon. It isn’t a popular view, and there aren’t a lot of folks that bet against any part of the Amazon machine.
2/ I know, I know – insane to bet against a trillion $ business. Maybe. But a little insanity is what you need as a private investor. Or an entrepreneur.
Let me lay out the argument and see if there is a good response other than “yeah but Amazon has a lot of money.”
3/ First, Amazon already tried to vertically integrate. It didn’t work. Amazon Fresh failed. It failed when they already had ~100m prime members along with all of the other mothership benefits. Still didn’t matter.