Where We Are Investing Now: Health and Happiness Digitally-Native Vertical Brands

Both of our fund families focus on consumer products. Social Starts focuses on products that contribute to health and happiness. Our sister fund Joyance Partners focuses on consumer goods with an emotional core, those most likely to deliver a Delightful Moment. We have a particular focus on products with science at their root but will look more broadly if we see strong signs of market acceptance and individual outcomes in keeping with our views.

We believe that successful digital brands have these characteristics:

  • Sold online primarily; omnichannel is recognized as an inflection point at the Series A

  • Can be micro-manufactured and ship well; preferably, but not always, using new tech materials

  • Allow for a type of product design or economics not feasible in the traditional channel

  • Have high customer lifetime value

  • Deliver high gross margins

  • Display a strong propensity to be shared via social media or garner earned media

  • Show product timelessness; not subject to fast or seasonal product shifts

While generally, we want to invest at the moment companies are born, with consumer products, our natural investment point is at the second raise or later. We will join the first raise only if there is dramatic traction or a deep science breakthrough. In most cases, we need to see a market response before we commit capital.

In every CPG investment we need to see success well above the mean in the following:

  • Gross sales

  • Gross margin

  • Data usage

  • Customer identification

  • Shipping

  • Return rate

  • Repeat customer rate

  • NPS

For mid-year 2020, we will narrow our course for consumer goods as set in January. We should factor in the impacts of the “new normal” emerging from the COVID crisis as we get any signs of them. Consumer goods will address the perceived needs that emerge with these new attitudes.

We believe COVID will have a tumultuous impact on digital brands. Looking ahead, this is likely to be positive, and we are seeing many of our current consumer goods companies vaulted to profitability during the pandemic, but the unsettled market will make it nearly impossible for new brands to get started. We should maintain our long-term view on brands, but take a bit of a holiday in this category until we can see the far shore. Then, we should rededicate ourselves toward new digital brands reflecting the new normal.

We are on the far side of one great brand opportunity; we can see another in the post-COVID future. We must avoid getting trapped in the purgatory between.

For the moment, the virus is in charge. Until we see employment return, there will be major demand decreases and instabilities. So, for the balance of this year, we will stay on the sidelines, except for re-investment or where we see unmistakable signs of massive current market acceptance.

Reprinted by permission.