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Battery Ventures on CPG: It’s Simple, Great Product Wins
Last week, I met up with Battery Ventures’ Brian O’Malley, who invests in a range of things but has been particularly successful leading some of the firm’s e-commerce investments. Among the related companies that O’Malley has championed at Battery are Skullcandy, the now public earphone maker; the fast-growing grooming products startup Dollar Shave Club; and high-end home furnishings company Serena & Lily.
While e-commerce has been falling in and out of fashion on an almost yearly basis, O’Malley suggests that making smart retail bets, including on consumer packaged goods companies, isn’t that complicated. He starts with knowing what not to do, like focusing on the “things that are already done versus the things that are yet to come.” He elaborated during our sit-down. Our chat has been edited for length.
You seem to be a big fan of consumer packaged goods companies. But they have a spotty track record. What’s the appeal?
The good thing about CPG is high-frequency purchase rates. Take Dollar Shave Club. Guys shave every day, and once you get that staple, you [then sell] the toothpaste and hair gel and aftershave. There’s a whole list of products that you can add on afterwards. With CPG, you can very quickly get to hundreds of dollars of spend per customer.
Is the trick to avoid low-margin businesses?
Low margins are part of the challenge. CPG companies are also logistically complicated, they take a lot of money and time to scale, and there’s a big change [required] in behavior. So if I’m a Gillette customer, I might not like the idea of spending $20 for razor blades, but I don’t go to Google and type in “razor blades.” So companies typically have to spend a fair amount of money to gain visibility and change consumer thinking.
Is there a model way to invest in these types of companies then?
Well, if you need to raise big money to scale them over time — $25 million to $50 million rounds – you’re at the whim of what’s exciting to big money at that time. That’s the issue. So the types of things we’ve invested in on the consumer side have very quick payback periods on the unit economics. So you’re either paying back your advertising in three to four months because the advertising is cheap and the margins are good, or there’s more of this shared-risk model where you’re paying either a sales rep or an affiliate based on what’s actually sold. That way you’re always kind of marginally profitable.
You make it sound so easy. Where do you think some of the bigger-known names, like Beachmint and ShoeDazzle and Fab, have gone wrong?
Each one is different, but at the end of the day, the old adage that retail is detail is very true. It comes down to running a really tight ship. So you need to be very proficient at logistics, and with marketing and so forth. But when a lot of money was flowing at these companies, many of them became professional fundraisers as opposed to professional operators.
People grew enamored with the idea of changing a business model or selling online, when at the end of the day, great product wins. If you have a great product, it doesn’t matter if you have a flashy business model. People will tell other people to come back and buy it.
Does it matter what the product is?
I don’t really care what the product is. I’ve got companies that sell everything from custom men’s shirts to baby bedding to wine devices. The question is: how big is the opportunity, what’s the pain point, how do you tell people about what you’re doing, and then what’s the buying behavior from there. Is it viral? Will users tell more people about it?
Appia, a five-year-old, Durham, N.C.-based mobile ad network that’s focused on helping its customers acquire users (they pay Appia when one of their apps is downloaded), has raised $4.5 million. The money comes from the Portland, Me., venture firm North Atlantic Capital, and brings Appia’s total funding to date to roughly $35 million.
BrightTag, a four-year-old, Chicago-based online marketing company that allow companies to mine real-time data about their customers, has raised $27 million in funding led by Yahoo JAPAN. Previous investors Baird Capital, EPIC Ventures, I2A, Pritzker Group Venture Capital and TomorrowVentures also participated. BrightTag has now raised around $43 million.
CytoVale, a company that’s trying to pioneer a new class of biomarkers based on the mechanical properties of individual cells, has raised funding from Peter Thiel’s Breakout Labs. CytoVale spun out of UCLA Engineering, helped by the school’s Institute for Technology Advanced Placement, early last year. Founded in November 2011, Breakout Labs now supports 16 companies in areas ranging from food science and biomedicine to clean energy.
Google and KKR have agreed to acquire six solar farms being developed in California and Arizona in a deal worth $400 million. The companies are providing both equity and debt financing for the projects, which are expected to produce enough power for more than 17,000 homes.
Greenhouse, a two-year-old, New York-based maker of recruiting software, has raised $2.7 million led by The Social+Capital Partnership and Resolute.vc. Numerous angel investors also participated in the round in the round, including Thomas Lehrman of Gerson Lehrman Group and Bill Lohse, a general partner at Social Starts.
Kidaptive, a two-year-old, Palo Alto, Calif.-based education app maker that’s focused on storytelling, has raised $10.1 million in Series B financing. The round was led by Formation 8, which was joined by Menlo Ventures, the Stanford-StartX Fund, NewSchools Venture Fund and Prana Studios.
Qloo, a 2.5-year-old, New York-based online recommendation engine, announced yesterday that it has now raised $3 million round of seed funding, including $1.6 million that it collected earlier this year. Among the many angel investors involved in the company is actor Danny Masterson.
TinyCo, a nearly four-year-old, San Francisco-based game maker, has raised $20 million in fresh funding from Pinnacle Ventures and Andreessen Horowitz. The company, whose games include “Tiny Monsters” and “Tiny Castle,” has raised nearly $40 million to date, according to Crunchbase.
Yesware, a three-year-old, Boston-based company that produces email productivity software for salespeople, has added $1.2 million to its Series B round, says Dow Jones. The money brings the total financing for the round, raised this fall, to $14.7 million. Yesware is backed by Battery Ventures, Foundry Group, Golden Venture Partners, Google Ventures and IDG Ventures USA. The company has raised $19.7 million altogether.
Hong Kong is getting a boost from China‘s 14-month-long freeze on domestic IPOs. According to bankers who spoke with Bloomberg, more than $5 billion in deals originally slated for China have moved to Hong Kong since September 2012, from car dealers to apparel makers.
Relypsa, a six-year-old, Redwood CIty, Calif.-based pharmaceutical developer, has cut its expected IPO price range from $16-$19 per share to just $12 per share. The company still plans to sell 6.85 million shares when it debuts on Nasdaq. The company is majority owned by OrbiMed Advisors (it owns 44 percent), 5AM Ventures (22.6 percent), Delphi Ventures (11.4 percent), New Leaf Ventures (10.1 percent), Sprout Capital (9.4 percent) and Sibling Capital (6 percent).
Shares of Zulily, the four-year-old, Seattle-based flash deals site for mothers, begin trading today at $22, up from an originally expected per-share price of $16-$18. Yesterday, the company sold 6.3 million shares, worth about $140 million worth of stock, roughly a fourth of which came from insiders, who sold 5.1 million shares for $112 million.
Given demand for its shares, Zulily’s offering is expected to perform well, though the company has its skeptics. As Peter Fenton of Benchmark noted much earlier this year, companies like Zulily “are capital-intensive, face structural challenges to their margins, and if they do go public, they trade at low multiples.”
Zulily posted a profit of $155,000 on $438.7 million in revenue during the first nine months of the year. During the same period last year, it lost $13.6 million on $202.8 million in revenue. Zulily’s biggest shareholders are Maveron (it owns 23.5 percent of the company), August Capital (it owns 7.4 percent), and Andreessen Horowitz (it owns 7.3 percent).
Servio, a four-year-old, San Francisco-based company that focuses on content and search engine optimization, is being acquired by Swansea, Ill.-based CrowdSource, which outsources projects to online communities or workers with particular skills. Terms of the deal aren’t being disclosed. Servio had raised a little more than $9 million, including from Draper Fisher Jurvetson. CrowdSource is backed by Highland Capital Partners, which invested $12.5 million in the company last year.
MapMyFitness, a nearly seven-year-old, Austin, Tex.-based company whose technology enables users to map, record, and share their workouts, has been acquired by the publicly traded company Under Armour for $150 million. Under Armour, based in Baltimore, makes footwear and apparel for athletes and will operate MapMyFitness as a subsidiary. MapMyFitness had raised $23.5 million over the years, according to Crunchbase. Its investors include Austin Ventures, Square 1 Bank, and Milestone Venture Partners.
Chi-Hua Chien, a partner with Kleiner Perkins Caufield & Byers, is talking with prospective investors about launching his own venture capital fund, reports Fortune’s Dan Primack. Last month, Fortune reported on a management shake-up over at Kleiner Perkins, which is narrowing its early-stage roster to five managing directors; Chien is reportedly not among that group.
Jeremiah Daly and Alex Taussig were just promoted to partner at Highland Capital Partners. Daly, who joined Highland in 2012, was previously a principal at Accel Partners in London. Before Accel, Daly was an investor at Summit Partners and Gold Hill Capital and a banker at Silicon Valley Bank. Taussig joined Highland in 2009 straight out of M.I.T., where he nabbed an MS in materials engineering after graduating from Harvard College. Taussig also has an MBA from Harvard.
Another day, another bloodbath at Fab, and AllThingsD is on it. The outlet earlier reported that Fab was planning to notify up to 100 employees this week that they are being laid off; yesterday, it learned that among those leaving are its chief product officer, David Paltiel, its head of human resources, Allison Rutledge-Parisi; and merchandising execs Grace Glenny and Tracy Doree. Writes AllThingsD’s Jason Del Rey: “Most of these execs will have the option to stay on three more months, but will not have a job at Fab after that.”
Today is the last day of the Startup Phenomenon conference in Boulder. You might want to check it out if you’re in town.
It’s also day two of the Women 2.0 conference. Speaking today: Tina Sharkey of Sherpa Foundry, Jeff Clavier of SoftTechVC, and Christine Tsai of 500 Startups, among others. Learn more about here.
According to Cambridge Associates, U.S. venture firms returned 4.3 percent in the second quarter, a 1.8 percent improvement of their first-quarter performance. (Worth noting, the Nasdaq returned 4.2 percent during the second quarter, though VCs bested other major indices.) Overall, venture performance still markedly trails that of the public markets over the last decade. After that, things flip pretty dramatically, as you can see in this chart.
Yahoo is in the market for a Business Development Director, Yahoo Strategic Partnerships at its Sunnyvale, Calif., headquarters. Among other things, the role is “directly responsible for establishing, developing and executing key distribution, product, and monetization partnerships for Yahoo, with a focus on building and expanding Yahoo’s relationships with ISP and telecommunications companies in North America.” Minimum requirements include an undergraduate degree, though an MBA is preferred, and at least eight years of biz dev or equivalent experience.
The inside story behind the iPad’s iconic design.
The December issue of British Vogue features an apparently terrible story, titled “High Tech Heroines: The Silicon Valley Wives and Girlfriends,” (a lot into which Yahoo CEO Marissa Mayer is inexplicably thrown). Business Insider identifies just a few of the piece’s weakest points.
Did you know? There’s a secret science to successful stock symbols.
Italians on average drink 13.6 gallons of wine a year, down from the 29 gallons a year that they drank in the ’70s. This is reportedly cause for concern.
StrictlyVC may just be overtired, but this Tumblr made us laugh.
Sweater pants or swants, the latest trend in fashion nowhere (one hopes!).
Corrections: On Wednesday, StrictlyVC featured what it thought was the perfect sweater for the rakishly handsome, Verbier skiing, European money launderer. Kyle, a VC, has since written into say that “no self-respecting international financier would be seen in such a sweater” but that we might find one wearing one of these, in red, “the color of the Swiss [mountain] guides, not blue, the color of the French guides.” We stand corrected.
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