Podcasts   //   July 16, 2020

Cleo Capital’s Sarah Kunst on scouting for business ideas in unlikely places

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Cleo Capital’s Sarah Kunst thinks the investing landscape focuses a great deal on the top of Maslow’s hierarchy of needs — in plainspeak, that’s stuff that isn’t really essential. Or, in Kunst’s words, the kind of product that answers the question: “what will make you feel better in the moment?”

Her investments are in companies that supply basic needs. “There’s the whole thing on the bottom: where you do you live, where do you eat, how do you feel loved?’ Kunst said on the Modern Retail Podcast.

That includes Zero, which calls itself “the first plastic-free grocery delivery service” — and is available in the Bay Area only, for now — and StyleSeat, which aims to help beauty professionals run and grow their personal businesses.

Kunst also started a scout program — “when a venture fund pays for you to angel invest” — and Chrysalis, a fellowship for tech workers laid-off as a result of the coronavirus (and curious to start their own businesses). “This wasn’t us flying everybody to a private island for six weeks, it was ‘hey, we have a Slack channel,'” Kunst said. “When you provide space for people, a lot of creativity just kind of flourishes.”

“We didn’t turn people into founders. We took people that we believed could be founders and we showed them that a lot of what was holding them back was that zero to one. Candidly, they didn’t even need an idea. Not every person started their own company. A lot of them joined with other people,” Kunst said.

Here are a few highlights from the conversation, which have been lightly edited for clarity.

Cleo Capital’s focus
“The thing we’re most externally known for that’s different than most venture is [that] we run a scout program. They’re pretty much confined to the West Coast. They’re when a venture fund pays for you to angel invest. The thought behind that is these funds have all this money but a limited number of people, and there are plenty of people who don’t have money to invest but who were the first ones to try Glossier and track down the founder because they love the founder so much. If you give those people capital and have them angel invest and split the proceeds, you’ll probably find some really interesting deals. Usually really big funds do that. Mine’s really small, but we do that. We have an amazing group of female founders who are our scouts. That’s a big part of our differentiation. The other piece of it is direct deals. Those deals are really focused on this area, not as much direct-to-consumer, but more what I call ‘complicated consumer.’ If you picture Maslow’s hierarchy of needs, it’s the stuff on the bottom. We spend a lot of time and money looking at the stuff on the top: what will make you feel better in the moment. Then there’s the whole thing on the bottom: where you do you live, where do you eat, how do you feel loved?'”

Parity isn’t complicated
“Race is a complicated topic in America, but one thing that is not complicated, for the most part, is looking around and noticing if people are Black or not. It’s pretty obvious that most spaces in business, certainly tech is included in that, are not particularly diverse. Change has been really slow, and the MeToo movement jump-started that a little bit for women, but primarily for white women. This moment — as absolutely horrifying and painful as it’s been — has been a wake-up call. My phone’s been ringing off the hook the last couple months with friends who run big tech companies [or] huge venture capital firms, reaching out and saying the same thing: ‘we think we have a problem.'”

If investors tread the same ground, they won’t find anything new
“VC is like being a customer at a restaurant, not a chef. You come in and someone hands you a menu. It might be a huge. menu, but you can only pick what’s on the menu. Part of it is that VCs have had a limited menu. If you’re only going to a Mexican restaurant and you’re like ‘it’s so weird, I’ve never ordered sushi,’ well duh. For a lot of VCs, the places they were going to take meetings to find people to invest in companies were their own personal network.”