Lessons from the front lines on how to grow one’s start-up were a central theme throughout the “Evolving E” forum.
Tuesday’s forum in Manhattan was presented by venture capital firms GGV Capital and Max Ventures, and hosted by the law firm Lowenstein Sandler. GGV has $3.8 billion in capital under management, and investments in consumer brands include Lively, Poshmark, Peloton, Function of Beauty and The Glow Concept. Max Ventures targets the early stage of a company’s life cycle. Seed investments in consumer brands include Eloquii, Le Tote and Ollie, and it was a series A investor in the now-defunct Jack Threads.
A key takeaway from Awad Sayeed, chief technology officer of Pixlee, who spoke about “Evolution of Word of Mouth” during the lunch workshop, was that brands aren’t using the voice of the customer in the marketplace. According to Sayeed, it’s no longer about what the brands are telling their customers, but more about what their customers are telling others.
As for a brand’s advertising and marketing efforts, Sayeed said, “The message that brands are putting out is not the message that consumers are seeing. That can be terrifying for brands. Word-of-mouth is a more powerful tool. Ninety-two percent of consumers trust online content created by their peers above all other forms of advertising.”
As smartphones have become more ubiquitous, Sayeed said “word-of-mouth is at a scale never possible before.” He added that because consumers trust other consumers, companies that understand how people share and are influenced by word-of-mouth can help them scale their business.
In the panel on “Money Moves: Selecting the Right M&A Target,” Carrie Barber, head of global luxury, apparel and beauty at Credit Suisse, cautioned that “bigger is not always better” when it comes to a valuation. While a big, splashy valuation is great, companies still have to be responsible about growing the business, she said, noting that a high valuation might make it that much harder to raise the next round of funding.
Randy Yang, head of corporate development for digital consumer brands at Walmart e-commerce, likened his division’s mandate to building an “LVMH of digitally native brands,” with an incubation arm. When looking at acquisitions, he said the big questions are “What is the fit for Walmart?” and “Why does it make sense for a [particular] asset to be at Walmart?” Yang said bringing in people is a big part of that equation, noting the addition of Marc Lore from its Jet.com deal and Andy Dunn from its more recent Bonobos acquisition.
Barber and Yang noted that more companies are looking at — and having conversations with — potential targets at earlier stages. Yang advised attendees, “Whoever you can have that conversation with, have that conversation with [them].”
At the venture capital panel “Series A to Z: Everything You Wanted to Know About VC Funding, but Were Afraid to Ask,” Ellie Wheeler, a partner at Greycroft, noted that “there’s a ton of money out there” for investment, but that the interest and appetite for where that money will be put to use varies from firm to firm.
That said, Taylor Greene of the Collaborative Fund added that it still can be hard for many companies to raise money, noting that his firm looks at several thousand companies each year and typically makes investments in just 100 start-ups.
Greene said the most successful start-ups are those that can find a repeat customer and be able to scale up the business. And Fabrice Grinda, cofounder of FJ Labs, said those two areas can be the hardest part of growing a business. He emphasized that unless one can find new areas of growth, raising additional capital can easily cap out once an aggregate raise hits the $10 million or $20 million mark.
Entrepreneurs can help themselves by asking for help, according to Greene, who said “Not enough founders do that.” And Wheeler said entrepreneurs should keep investors up-to-date, whether it means taking a current term sheet to a meeting or sending a periodic e-mail about what the company is doing.
Further, Greene said start-ups often pick a seed investor based on how networked the firm is because they are looking at potential introductions to series A investors down the road. These entrepreneurs should limit themselves to no more than three introductions to VCs. That’s because VCs talk among themselves about who’s out there as possible investments, and “you don’t want to be the company a VC passes on even if you are not really pitching,” he explained.
Panelist Natalie Mackey, a participant in the group discussion “Global Entry: Your Brand on the World Stage,” spoke about building the beauty brand Winky Lux. She is cofounder and chief executive officer of the brand’s owner, The Glow Concept. Two issues early on was how U.S. factories didn’t want to work with the upstart, as well as how the company wanted to produce on a faster turn than was typical in the beauty industry.
According to Mackey, she was able to find a factory in China run by a woman who understood that she needed to produce and ideate product within a two-month cycle. There was also the problem of dealing with “rampant trademark infringement” in China, which required hiring local counsel with expertise in fighting trademark infringement issues. The company already sells in Europe, the U.S. and Canada. As for expansion elsewhere, Mackey said the company has decided not to expand into new areas unless it is fully funded for the expansion, has a public relations team in place to help with marketing, and “boots on the ground” in the new territory.
Mackey advised that one needs to make sure there’s enough bandwidth before taking on a new expansion project. She gave as an example the scenario where one sells in a new area and gets bad data that suggests the consumer isn’t responding. “You think the consumer doesn’t like the product when maybe [you might have gotten] a better reaction if you went in with a real campaign and marketing plan,” she said.