Quixotic Ventures’ performance as a Venture Fund — 2x IRR of Top Decile for similar funds of same vintage.

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.

TheRealReal: From Sparkle Pony to Unicorn. Really!

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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.