I asked Kathleen Wilson, a smart University of Chicago MBA (aren’t they all?), to assess my portfolio performance as if I were a fund — NET OF CARRY AND MANAGEMENT FEES, even though I invest from my family trust and don’t pay carry or management fees, to benchmark my performance against other funds of the same vintage. The results are above. You can judge for yourself how I’m doing. But if you have trouble reading charts, wink wink, I think you’d agree I’m doing pretty well. 2x IRR of Top Decile says it succinctly. Basically one of every eight investments has been a unicorn.
Category: My Investments
Investing in the “Circular Economy”
Over the past eight years, I’ve invested in five used-goods companies — NiftyThrifty, TheRealReal, OfferUp, Revivn and Remoov. Two have turned into BIG companies; one of which — TheRealReal — IPOd last year. Inspired by my first investment in the category, I studied the segments I believe have most promise. Serendipity got me started but the rest came through focus and intention. Spray and Pray is a portfolio strategy but it is not mine. I’m more of a “craft” investor. 😆 I focus on a segment and keep chipping away, hoping to find a diamond. Here’s how I’m spinning it up in the Circular Economy…
In 2011, Topper — a first-time founder — pitched an online thrift-store in a cold but persuasive email. Topper had suppliers who could provide vintage t-shirts and other items for $1 a pound — about $.20 an item — that he could sell for $15+ while benefitting the environment. Nice markup! Mission-driven concept. We’ve all seen how much pollution and waste is produced by the apparel industry making clothing for a populace that ever more rapidly discards it. The company was aptly named NiftyThrifty. This pitch came before the “Circular Economy” entered our lexicon. Topper had been selling used clothes online with success and wanted to build a real business. Because he was a first-time founder with little work- and no startup experience, part of my due diligence was lunch with his dad where I said “I’d be disappointed if he lost my money chasing this business but I’d be horrified if he took the money and ran off to a beach in Mexico. Please tell me he wouldn’t do that.” The answer was “no, he’s a good guy, he wouldn’t do that” so after some market diligence (p.s. thrift stores are a $10B business) I wrote a series of checks to get the company started on the basis of my research, a stack of tshirts, a powerpoint and a dream. It’s often like that in early-stage venture. We went on to raise several million dollars, hired a great team, launched, got to $40K in monthly revenue but couldn’t break through beyond that. NiftyThrifty ended up in the trash heap. It happens. But Topper recycled the idea and is still at it with another new concept in used clothing. He is an indomitable entrepreneur. I am so thankful to have invested. It was karmic because my return on that investment was ultimately significant.
How?! That investment led me to several promising companies, one of which IPOd last year. Serendipity, karma and some focus on a thesis…
In 2012, another founder pitched me via cold email a local marketplace for used goods called OfferUp. The app had recently launched in Seattle and had 3,000 listings. After a conversation I was interested. Smartphone penetration was up to more than one-third of the population. Craigslist and Ebay were not mobile and OfferUp made it 1-2-3 easy to post an item for sale. I had a meeting in Seattle with a potential partner (largest thrift store chain in America) for NiftyThrifty so I met with Nick, the founder of OfferUp, his team mates and a couple of his F&F investors. Great people!!! I did my homework and ultimately wrote a check. OfferUp has become a powerhouse in local listings and recently acquired LetGo. The combined company has a massive footprint. Both apps are top 10 free shopping apps in the Apple’s app store — right up there with Walmart and Target. I’m looking forward to seeing where Nick takes this important company.
While I was doing my due diligence for NiftyThrifty and OfferUp in 2012, I went to AngelList as I always do to poke around. I came across TheRealReal (authenticated luxury consignment). The moment I saw it, lightbulbs went off in my head. I could see this was right for so many reasons:
- The traditional consignment experience was awful. You drop something off and wait months and months for it to possibly sell then you have to chase the check. Liquidity is painfully slow.
- The market is highly fragmented, filled with mom and pops.
- Fakes abound on sites like Ebay.
- Luxury goods drive a high average order value.
- Sellers could unlock value in their closets, buy more new items they could later consign and buyers could purchase luxury items at an accessible price. Nice two-sided marketplace with a potential fly-wheel effect.
I met the founder, Julie Wainwright, for breakfast, visited their tiny office in Marin County (north of San Francisco) chock full of merchandise, did my homework, invested and joined the board. When I joined, the company was doing $80,000 a month in GMV (sales on the platform), around the time of the IPO (June 2019) it was doing about $80,000,000 a month in GMV — a 1,000 increase!!! I’ve written about the experience previously. It was awesome.
I was on a roll in used goods, owning that thesis. 😂
Fast forward to 2016. My friend Nathan (whose company I had invested in previously) introduced me to TheRealReal of corporate IT called Revivn. They offer a white glove service where they come in, take used hardware away and repurpose it (revive it!) so it doesn’t go in the landfill. It’s a white glove service that gives old hardware a new purpose. The company has been easily profitable since I invested. I’m very interested to see where Anthony takes the company.
In 2015, I was introduced to a founder also focused on used goods. Luis was building a company called Remoov. Let’s say you do a big spring clean or you’re about to move and you have a big pile of junk that’s too much for you to sell on OfferUp or TheRealReal and you’re not really sure of the value anyway. You call Remoov to come pick it up. They take it away, evaluate it and either sell it, donate it or recycle it. If there are any proceeds, they share them with you. 35+ million people move a year in the US so it’s definitely a large addressable market. Luis pitched me in 2015 when they had one operation in SF. I was interested but declined and asked to stay in touch. Luis continue bootstrapping, built a good business and decided to expand to Phoenix. He did a superb job keeping me updated on the business and in 2019 I (finally) invested and referred him to another investor that wrote a big check.
I’ve done high- and low-end clothing, and accessories. I’ve done computer hardware. I’ve done home goods. What’s next?
I’ve been remiss. Very remiss. I haven’t touched this blog in 2 years. You might think I’ve spent the past two years on the beach. But no. Since my investment in SKTCHY two years ago, I’ve invested in seven companies in ecomm/ecomm enablement and social media/social media enablement: Everypost, HomeLight, SellBrite, Bezar, HYP3R, Blackbird and Revivn. It’s definitely time for a portfolio update. Here’s a quick overview of each company:
Everypost — a mobile-first app — makes it easy to curate visual content from a variety of sources, customize and schedule posts, and take greater control over your social pages.
HomeLight analyzes millions of home sales to find the best performing real estate agents so you as a seller, or buyer can chose the best agent to handle your transaction.
SellBrite makes multichannel listing and inventory management simple.
Bezar — acquired by AHALife — is a curated marketplace for creative and inspiring objects. Bezar was founded by Bradford Shellhammer, who also co-founded Fab.com (one of my earlier investments).
HYP3R is an engagement platform for venues which helps businesses and brands identify influential customers at their locations and engage them in real-time, when it matters most.
Blackbird leverages recent advances in image recognition and natural language processing to deliver superior search relevance and recommendations.
Revivn is an enterprise electronic recycling company. They remove outdated technology from your office, clear your data and dispose of it by reselling or recycling it.
TheRealReal: From Sparkle Pony to Unicorn. Really!
TheRealReal is a luxury marketplace for high-end European luxury brands – and now art. The luxury goods market is a $300+ Billion market worldwide (original sale not re-sale). I guess that qualifies as a rich niche.
TheRealReal solves two real customer problems. Let’s say you regularly buy the latest Loubies at $1000+ a pop. You wear them a few times to parties or a benefit then what do you do with them? You can let them gather dust in the closet, give them to charity for a tax write-off or sell them on TheRealReal and recapture some of the original value. If you’re a savvy shopper, you do the latter. That’s the consignor story. For the consumer, TheRealReal makes luxury accessible — great brands at discounts up to 90% off original retail. You can find a (pre-owned) Chanel dress on TheRealReal for the same price as a (new) Diane Von Furstenburg wrap at Bloomingdales. Great value! If you’re a dude, it’s kind of like buying a Ferrari 458 for the price of a BMW 5 series. Get it? Plus all the product has been vetted by experts so you know it’s the REAL deal (this is a big market differentiator by the way).
Last month, Julie Wainright (the founder and CEO of TheRealReal) walked the board through her three-year plan outlining a huge and achievable future. It wasn’t just a walk, it was a joy ride. We applauded loudly and often; then resoundingly approved the plan. As an investor, there is nothing more gratifying than a company with all metrics dramatically up and to the right. #itsabeautifulthing (VC investors include Greycroft, Canaan Partners, e.ventures, Novel TMT Ventures and Interwest).
While Julie was mapping out the future, I looked back at her 2011 pitch deck to see how the business is tracking against her original plan. (The company launched mid-2011 and I invested in January of 2012) Often the pitch plan is super ambitious (why shouldn’t it be?) and few companies hit or even exceed it. [Look at Fab.com. I invested in Fabulis – a gay social network – and 18 months later it became a super fast-growing ecommerce site. Bigger and better, most definitely — but very, very different from the original plan. That’s early stage investing. Roll with the punches. Flex with the pivots. Hope for the #win.] In 2012, TheRealReal exceeding its original revenue projections by almost 50%. In 2013, the company really popped – blowing through Julie’s original revenue projections by 350%. 2014 looks to be another stellar year.
Back in ’11 when she was raising seed capital, the investing community didn’t – uh — fully value Julie’s background. She had to hustle, bootstrap and hustle some more to get the company going. Why? She fails the pattern recognition algorithm that (too) many investors use today: She’s experienced. She’s not a technical founder. She didn’t work at Google. She’s a woman. She’s over 50. Those things can count against you in the Valley. Beats me as to why. I found the company on Angelist, met Julie for breakfast (loved her instantly), did a due diligence check the next day at the company’s tiny office/warehouse in a seedy Marin strip mall and quickly pulled out my check book. Julie is super smart, scrappy and determined. She’s an operator. I knew she’d kill it and I couldn’t wait to see investors pounding on her door when she got the company going and that’s precisely what’s happening now.
So what’s the magic formula for TheRealReal?
In addition to a wide selection of luxury products vetted by experts, a great UX and terrific service, it’s three things: 1) Excellent leadership; 2) A great business model; 3) Superb execution.
Leadership: Julie is a seasoned leader. She knows ecomm cold. This is not her first rodeo. I like that in a founder although most of the companies I invest in have first-time — maybe second-time — CEOs. She has disaggregated the business into all the important economic drivers and has developed metrics for each one. She holds her team (and herself) accountable for every metric. If there’s a miss its clear why it happened, who’s responsible and what’s going to be done to fix it. Julie has built a culture about delivery. Set a goal. Deliver.
Business model: TRR brings in merchandise from consignors, vets it to ensure authenticity, styles and photographs it, writes descriptions, loads the product up on the site, collects and fulfills orders then cuts consignors a check when an item is sold. The average transaction size is about 6x a typical ecommerce company (you read that right) and the annual customer value is off the charts. Take Zulily — which is a good public market comp — and add a zero to the annual customer value reported in their S1 and you have the TheRealReal. Really. How the hell?! Look at the brands (Chanel, Hermes, Louis Vuitton). Look at the average price point (couple of hundred dollars). Look at the target customer (well-heeled women). That’s your answer. Plus many buyers are also consignors — which creates a virtuous cycle of consumption and consignment. There is NO working capital tied up in inventory (it’s a consignment model). Last year, I visited the new warehouse and saw very little merchandise. I said, “uh, Julie, where’s all the product?” Her reply, “Mark we often sell through 80% in the first 24 hours a sale is live on the site and we have to pick and pack from the photo studio.” That’s called inventory spin, not inventory turn. With a *huge* average order size, efficient customer acquisition and little working capital, the unit economics are…well…luxuriant…maybe even decadent. Julie is building a powerful brand in the luxury segment and she’s taking the top off Ebay.
Execution: Everyone knows and says ecommerce is all about execution. It’s true. Everyone is assigned goals and they deliver. When there’s a problem it gets fixed. Quickly. The company has scaled nicely without major hiccups – remarkable in ecommerce.
I predict (humble brag?) that this company will pop out of the shadows soon and you’ll see it for the unicorn it’s becoming.
PS The Hermes bag and the two pieces of art presented are available on TheRealReal.com at the time this post was published.
One of my early investments goes public! Go TWTR!
Yes! Today is indeed an exciting day and the PERFECT day for my inaugural blog post. Why? Way back in 2007, I made an investment (my third early-stage investment after Say:Media fka Videoegg and Kidzui) in a quirky, quixotic idea called twttr. Today, TWTR began trading on the New York Stock Exchange. I’ve invested in 17 early-stage companies since I started in 2005 (the list is here), and Twitter is the first to go public. Hugely exciting! I cannot describe my elation today. I was moved to tears. I am so grateful to Ev, Jack and Biz for letting me join their adventure, and so grateful to Dick, Adam and the Twitter team for managing such an incredible expansion. I am so grateful to the universe. Wow! Deep breath.
Twitter launched when I was running a web development and digital marketing agency called Organic. I loved the idea and wanted to find a way to use Twitter to help one of our clients connect their rabid fan base using mobile phones. Hey, mobile connectivity was a novel idea back then. Biz kindly listened to my pitch and generously shared his ideas but told me Twitter needed to focus on making the service work and wouldn’t have time for a bespoke project. Ah, the power of focus! Good call Biz 🙂 I felt the promise of Twitter and I could not let it go. So, I went back and asked the guys if they’d take an investment from me. The answer was yes. Six years later, here we are.
I’ve been wanting to blog for awhile but I didn’t want to be that blogger with “a big hat and no cattle,” as they say in Texas. So I’ve been waiting for the moment where I felt I’d earned the right to opine and I think today’s liquidity event for Twitter is as good a moment as any.
I decided to call my blog Quixotic Ventures. Why? My grandmother loved art and Salvatore Dali was one of her favorites. She had that seminal engraving of Don Quixote you see everywhere (it wasn’t quite so trite in 1969). I remember her telling me the story of Don Quixote at six. As I was thinking of names for the blog, the first thing that came to mind was Don Quixote…tilting at imaginary windmills, hence Quixotic Ventures. Early stage investments are quixotic: “Foolishly impractical. Marked by rash, lofty, romantic ideas.”
Yeah, that’s early stage investing all right — especially the way I do it. I look for founders who have lofty, romantic, impractical ideas. Transformative ideas. Ideas that change an industry and in some cases — like Twitter — the world.
Thank you for your time.