Since San Francisco-based Forerunner Ventures launched its first venture fund in 2010, the firm has backed some of the fastest-growing direct-to-consumer startups in recent years, from Bonobos to Away to Glossier.
Eurie Kim, general partner at Forerunner said what initially excited the firm about the DTC approach was that it allowed brands to reach new customers more quickly than they ever have before, because they could reach more customers than just those who live near a brand’s store.
“It’s just a different go-to-market and a different way to build relationships with customers,” Kim said.
Now, as there are DTC brands in every category from toothpaste to pet food, Forerunner is making a more diverse array of investments in commerce. Over the past few years, Forerunner has started investing in more companies like supply chain company Attabottics and returns startup Narvar that help address the logistical challenges these DTC brands face as they scale.
Kim spoke with Modern Retail about what she looks for in an investment, what challenges Forerunner’s portfolio companies are dealing with right now, and retail predictions for 2020. This conversation has been lightly edited for clarity and length.
Are there any business models right now that you are particularly excited about or interested in investing in right now?
Right now we are really thinking about what consumers are actually wanting to spend their money on — and they are still interested in buying things, but as I think everyone has seen over the last few years people are shifting their dollars to more services or experiences.
In the consumer world there is still a really high value for great service and really great human service. So the business models we’re really excited about right now is — how do you combine both the human touch and sort of the human mindset with technology and with automation, AI and all of the fancy buzzwords to create an experience that’s flexible and scalable for both the consumer and the company, but also doesn’t lose its personal touch?
We also have spent a lot of time in consumer health-related businesses this year and going forward. And that’s less because it’s a sector of health care but rather from a consumer perspective, what you spend your money on has really changed. It’s green juices and vitamins and SoulCycle, and it’s just a lot of things that are around wellness.
What would you say you are looking for in founders you are considering backing?
When you think about founders who are successful and what mix of ingredients they have to get to that success — it’s a real combination of having vision to look at a problem in the market and to see not only the one problem you need to solve today, but also where could that solution then expand to, such that you can build a big enough business to make sense to be taking the venture route?
When you go into a store, there are a lot of great brands you might see, but there’s only a few Lululemons or Gaps or Levi’s.
You have to have this passion that draws people together, because you are going to be recruiting all of these people. You have to bring on investors, and bring on consumers and really speak for that vision you have. I think if somebody doesn’t really have that desire to be that mouthpiece, it’s really hard to break through — there’s just a lot of people vying for consumer’s attention both online and offline.
Across your portfolio, what would you say a lot of the common challenges your companies are grappling with as they are trying to scale?
The challenges that you have to navigate at each step really differ. In the beginning, you’ve got a small SWAT team of people who are working morning, noon and night, trying to get their first product to market, trying to get their brand developed and trying to figure out how to talk to their consumer.
Finding the right people at the right time to join your team is always really difficult. When you are growing so fast, the person you really want may not be interested in joining your team because it’s so early, but the person you hire may not scale with you past 12 months.
There’s been a lot of talk about Away recently, due to recent articles about the work culture there, that have set off a number of conversations about startup culture. As an investor in Away, do you have any comment about the culture there, or at startups in general?
I can’t comment on the specific topic directly, but I can comment on just in general people’s conversations around startup culture, and whether it is or isn’t right for people.
Ultimately the biggest challenge for startups is you are moving really fast, and you don’t have a ton of time or resources to get everything right. You are doing the best that you can with what you have and the information and the resources that you have. Sometimes that does lead to not having enough processes, or to be able to give the perfect sort of experience to somebody that is coming out of college.
And maybe that means that that person should actually go work for a more established company that has very clear rules, reporting structure and responsibilities. Clarity is probably not what you’re going to get when you work for an early-stage startup. What you are going to get is massive responsibilities that probably you would never have if you worked for a big company, and the opportunity to grow in that way if that’s something that excites you.
Do you have any retail predictions for 2020, in terms of what you think we’ll see consumers spending more of their money on?
One trend that we’ve been keeping an eye on for years now is obviously the one around sustainability or sustainable materials. It started as something really more niche and kind of a nice to have. This year I feel like there was a real inflection point where the consumer was effectively demanding it and expecting it.
We’re really curious to see how that continues to evolve, because that’s a lot of pressure on companies as well. To not only make these products, deliver them in a very fast and expedient way, make them at a great price, also have them be natural or sustainably sourced, and still be able to make the margins that they need to hire the people that they need. It’s actually a pretty complicated number of factors that companies have to juggle, and I don’t know if everyone is going to be able to do it.