20 Minute VC with Harry Stebbings

I recently had a conversation with Harry Stebbings on his 20 Minute VC Podcast

My partners Jon, Phil, Tony, Kevin, and Puneet were all earlier guests of the show – so I was excited to cover a different part of the True Ventures story – diving deep on True’s model, portfolio construction, and how we think about risk internally

I really enjoyed interacting with Harry and hope the content is helpful for anyone who is interested in the business of venture capital

You can listen to it here:


Would love to hear your feedback in the comments or via Twitter

Important Attributes of Modern Consumer Brands

(This post was originally posted on the main True Ventures blog

We’ve been fortunate to work closely with a number of teams that have built and scaled modern consumer brands. These include Blue Bottle Coffee, Fitbit, Madison Reed, Peloton, Ring, and more.

Over time, we’ve compiled a list of attributes we think are most important to evaluate when investing in next-generation consumer brands and products.

This list shares some of those qualities and how we think about them in the context of building a scalable, durable business and consumer brand that lasts.

1. Lead Hero Product

Many of the great consumer brands we see today started out by doing one thing exceptionally well. A lead hero product helps companies create relationships with new customers and build a foundation of trust. From there, they can grow the relationship.

At True, we think a hero product should be able to generate more than $100 million in annual revenue. Examples include the Ring Video Doorbell, Lululemon yoga pants, and Tory Burch ballet flats.

In our portfolio, Madison Reed started with hair color, but gradually expanded its business to offer other products that further enhance the customer experience. These include Root Touch Up, color-safe shampoo, and a full suite of high quality, safe hair products.

From a financial perspective, this should result in increased average order value, increased customer lifetime value, and greater customer loyalty as a brand becomes a more important part of an individual’s everyday life.

An exception to this rule exists for some food and beverage companies. These businesses can look more like platforms in their early days in that they start with a single product, but with the intention of expanding to similar or adjacent categories.

An example is KIND, which started with bars, but now sells granola, cookies, and more. Similarly, True-backed Prime Roots started with a fungi-based salmon burger but has since expanded to sell chicken, beef, and other meat alternatives.

2. Third-Party Retail as Marketing

Third-party retail can eventually be an accelerant to drive revenue but can overwhelm a new startup in its earliest phases by impairing gross margin, creating costly operational complexities, and making the brand overly dependent on its initial retail partners.

Instead, we like companies that are strategic when selecting initial retail partners, deciding which products the partner sells, and when it becomes part of the business model.

Madison Reed partners exclusively with Ulta Beauty, while Ring sold its product via a number of big-box electronics stores early in its life cycle to increase the company’s number of potential software subscribers.

Long term, we think the strongest modern consumer brands will have omnichannel strategies that consider using third-party retail as an acquisition channel to give consumers a chance to sample product in person before purchasing direct.

3. Direct Customer Relationships

The relationship with the end customer is no longer owned by the retail store, but rather the brand. At the very least, modern consumer brands must be successful in securing the customer’s email address and phone number. At best, their product will have a natural purchase pattern that could lend itself to a subscription business model, which – in addition to enabling the brand to build a deeper understanding of its customer’s profile – creates a stream of predictable, recurring revenue.

A number of DTC brands such as Madison Reed have seen great success with SMS. When customers run low on the company’s hair care products, they receive a helpful text message encouraging them to restock. In addition to re-marketing, this direct relationship can help build a better product experience and tighten the feedback loop between the customer and brand — potentially leading to ideas for future product innovation and solving problems before they happen.

We believe this change in relationship with brands is the most disruptive part of the modern consumer brand model. Predictable, repeatable revenue via direct customer relationships ultimately leads to greater enterprise value.

4. First-Party Retail as Part of Strategy

Peloton Showroom in FLA

Self-owned retail, in addition to third-party retail as marketing, is an important part of any next-generation consumer brand’s strategy. The customer relationship will likely move online, but most new customers want a way to experience a brand and sample their products before committing to a long-term relationship.

If successful, physical storefronts drive initial purchases (which ideally turn into subscriptions) and send customers to the brand’s main website.

This may not work the same for all business types; ultimately, it needs to make sense in the broader financial profile of the company in terms of gross margin, average order volume, and real estate cost. But even in food and beverage, we’re seeing a growing number of interesting experiments with pop-ups as a channel for customer acquisition. Daily Harvest, Hungry Root, and Recess are all recent examples.

5. Amazon as Its Own Unique Channel

Amazon is an increasingly important retail channel for all omnichannel brands. And given its scale and relative share of wallet of potential customers, it justifies the time and energy required for a brand to develop its own unique strategy on the platform. For most consumables, it is a required channel today. Over time, this may become increasingly true for prestige products too.

For most brands, Amazon is an underinvested opportunity, similar to how Google SEO and SEM were 20 years ago. As more and more commerce moves online, it will continue to be a leader in e-commerce and continue to be an important channel for brands long term.

A caveat may be businesses in fashion and high-end jewelry, which have historically had a different relationship with Amazon and have a number of unique characteristics (fashion risk, size and IT challenges, and exit landscape) that may make them different than other types of products discussed here.

6. Community as Part of Strategy

Community commerce is the number-one trait we look for when considering investing in new consumer brands. People buy products that make them feel good. If your customers are excited to be associated with your brand in front of their peers and in public forums, you’ve achieved a watershed moment, which many brands strive for yet rarely attain.

When customers are genuinely excited to share your products with friends, community-driven commerce kicks in. This can drive down CAC, increase retention, create loyalty, and fuel product innovation. This is in great opposition to CPG incumbents that have limited access to customers’ wants, needs, and psyches.

The Ring User Group was a meaningful driver of product sales and provided important feedback and input on new and current products. Similarly, Madison Reed’s Facebook page is filled with pictures and feedback from customers who love the products.

From day one, these companies have been focused on understanding their customers. They want to know who those customers are and build authentic relationships with them. This gives them the opportunity to retain those users as well as upsell and cross-sell new and better products.

7. Awareness of Substitute and Alternative Goods

The best founders we work within this space take an expansive view of competitors. Not only do they consider products that compete with them directly, but they also consider other types of substitute goods that, while inferior or indirectly competitive, could sway a potential customer against them when making a purchasing decision.

In addition to great product differentiation, the best consumer businesses today need significant innovation with go-to-market strategies. They need to be able to stand out against a bunch of competitors who will make similar product claims, whether or not those claims are actually true.

Community, branding, and building direct customer relationships can help, but this concept of awareness around substitute goods is often built into the DNA of modern consumer companies from day one.

8. An Authentic Brand Story That Resonates

Most importantly, brands need to have a human face for customers to trust them. Customers want to have a relationship with the people behind the brand.

Jamie Siminoff of Ring appeared on QVC multiple times so he could tell the world about the company’s mission to reduce crime in neighborhoods. Amy Errett of Madison Reed takes the time to visit local Color Bars to tell employees and customers about why she started the company, her mission to make hair color with “ingredients you can feel good about,” and the real impact she wants to see in the world.

The traditional consumer brands of the past struggle to compete with these authentic personal stories. They matter in a big way to today’s consumer who wants more than colorful labels in their medicine cabinets, closets, and pantries.

This ultimately drives business value seen in measures of repeat purchases or customer retention, organic engagement on social platforms, and word of mouth/virality in terms of customer acquisition.

We are in a golden age for innovation with consumer brands and products, and we believe there will be many new, independent and public companies built over the next decade that will better cater to the consumer than the conglomerates of the past.

If you’re creating a set of consumer products in a category that stands to be disrupted to the benefit of the consumer, we’d love to connect and learn more.

View the checklist below for more of a window into what we look for in consumer brand business models. Also, thank you to Amy Errett of Madison Reed and Brian Nicholson of Sonoma Brands for reviewing early drafts of this post and greatly expanding on a number of the ideas featured here.

Consumer Brands Business Model Checklist

Founder-Focused Investing in Human Health and Biology

(This post originally appeared on the main True Ventures blog)

Recently, there have been a number of thoughtful blog posts on different models for funding emerging opportunities in human health and biology:

Biotech Researchers Venture Into the Wild
by Jorge Conde 

The $100 Trillion Opportunity
by Arvind Gupta

How Biotech Startup Funding Will Change in the Next 10 Years
by Jared Friedman

The Creation of Biotech Startups: Evolution Not Revolution
by Bruce Booth

All are excellent posts, and I recommend reading them if you’re interested in this market. I won’t rehash what they’ve already covered, but I would like to share True’s perspective and how we’ve approached investing in this emerging ecosystem.

Our focus at True has always been to fund the very best founders wherever they’re spending time. In 2005, many of these individuals were building new consumer products and media services on the web. These were enabled by new platforms, open-source software tools, and infrastructure services, which allowed for lower-cost tinkering and easier initial experimentation with new, bold ideas.

Over time, we’ve seen many of the same forces draw founders into other markets including infrastructure software, consumer hardware, human health, biology, and more.

In 2012, we made our first investment in this space when we funded Moleculo. The company was founded by Mickey Kertesz and Dmitry Pushkarev, two individuals with dual PhDs in biology and computation. As part of their research at Stanford University, they enabled long-read sequencing of DNA with a combination of tagging and algorithms using existing Illumina hardware.

When we met with them, we were unsure if Moleculo was the type of investment we’d make. Our firm didn’t have any direct experience with biology or DNA sequencing. However, we were captivated by several facets of the investment, which matched our sweet spot at True:

1. The founders had unique cross-discipline expertise which let them view the opportunity in a new way.

2. We were introduced to the founders by members of the True community whom we trust.

3. The founders had incredible ambition to reshape a big market by initially focusing on a small initial wedge.

As we spent more time with the team, we recognized that many of the same forces that enabled our earlier investments in software and media startups were in play here as well and could enable the company to reach meaningful milestones on fewer initial investment dollars.

These included:

  • Combining software and automation to increase efficiency.
  • A bottoms-up sales model where the company initially sells to individuals, rather than big enterprise, to build evangelism and lower the company’s initial capital needs.
  • Building a product on top of an existing platform with a built-in customer base.

Mickey introduced us to the founders of our second and third investments in this space. We source more than 50 percent of our investments from True’s founder community and take these organic introductions very seriously.

Josh Hoffman, Zach Serber, and Jed Dean previously worked together at biotech company Amyris before leaving to start their own business, Zymergen. The Zymergen team showed us that biotechnology could create an incredible number of new products and propel biology beyond traditional markets in healthcare.

Colleen and her Co-founders Jim Bullard and John Eid worked together previously at PacBio. They started Whole Biome to leverage their skills in long-read sequencing to understand and develop therapies for the gut microbiome.

At Whole Biome, the company chose to bring its first product to market as a medical food, which has a different regulatory and commercialization path. By focusing on the medical food path, they could launch a product to market more quickly than a traditional therapeutics business.

Building on our experience with Moleculo, Zymergen, and Whole Biome, we’ve since made more than 26 investments in companies focused on human health or biology. We’ve also established a strong relationship with life sciences accelerator IndieBio, which has proved to be a great match.

What we've learned so far

Over time, we’ve gotten better at understanding the types of businesses that will and won’t work with our funding model. Here are a couple of thoughts that drive our decision making in this space:

Focus on founders.

This is our north star at True. We believe that by backing the best, ambitious founders early, we will generate the best returns for our limited partners over the long term.

An example is Deep Genomics, an AI-driven drug development platform focused on genetic medicine. Deep Genomics Founder Brendan Frey is a world leader in his research field, which lies at the intersection of deep learning and human genetics.

Even though he had never run a company, we believed Brendan’s background made him uniquely positioned to be a founder and build a team around him over time to support the company’s long-term goals.

Similar to Brendan, we believe there is a class of incredible scientists out there who have the capacity to grow into leaders of a next wave of biology and health-driven companies, and we want to meet more of them.

Maximize early product and market risk. 

We believe there are an incredible number of large industries that will be disrupted by startups initially focused on reinventing small segments of those markets.

While the last century was dominated by petroleum-based materials and products, we think the next few decades will be defined by a more natural approach that uses biology as a technology platform. Zymergen, for example, is exceptional in creating products based on biology that were traditionally made with harsh chemicals.

We’ve also invested in companies at the other end of the value chain that are building new types of brands on top of these innovations in biology. Prime Roots Co-founders Kim Le and Josh Nixon are creating an alternative protein using fungi. These founders see a path from here to there and need a small amount of capital, support, and encouragement to test their ideas.

Look for outliers along the edge of emerging markets. 

We’ve focused on areas with product or market risk that we don’t believe fit the traditional biotechnology model. Our goal hasn’t been to compete directly with the existing firms in this space, but to follow founders into other emerging areas where we may have a different perspective.

One example is our investment in Vital Labs, which is taking a ‘software-centric’ approach to cardiac care for patients. Its initial product is a mobile application that uses the camera on smartphones to measure blood pressure. In the short-term, it lets the company get the product to market faster by not needing to ship a hardware device. Long term, we believe it gives the company the opportunity to provide better care by being able to more easily layer on additional services and biomarkers.

Another example is our investment in Filtricine, which is developing a non-drug treatment for cancer by using targeted nutrient deprivation. The founders at Filtricine developed their product as researchers studying metabolic disease at Stanford. This experience, combined with their previous work in developing traditional therapeutics, led to Filtricine’s differentiated go-to-market plan.

What we expect in the future

Both in the True portfolio and through spending time with IndieBio, we’ve been amazed at the large number of markets founders have attacked. These include food, beverage, packaging, materials, medical devices, consumer products, and more.

If testing a new idea requires meaningful amounts of capital, investors can become gatekeepers to innovation. But as the initial capital needs decline, that power balance shifts. Now, we see founders experimenting more frequently. We also see more founders with technical backgrounds in this space starting companies as full-time operational leaders.

Going forward, we think we’ll see even more convergence – not less. The book Complexity: The Emerging Science at the Edge of Order and Chaos by M. Mitchell Waldrop examines the magic of new ideas lying at the intersection of two or more fields of study, which we believe will continue here. Ultimately, that innovation is driven by the best founders who see the world in new ways, are curious, and want to try something new.

We remain active investors in great founders who are solving big and important problems in human health with biology. If you’re working on a solution at the intersection of multiple spaces and envision using biology to improve lives, we’d love to talk.

Biotechnology companies

Portfolio Geography – Comparing True Fund I to True Fund VI

As a follow-up to a conversation at a recent team offsite, I was curious to compare how the geographic focus of our investments has evolved from True Fund I compared to our initial investment data for True Fund VI.

Fund I (Vintage 2006)
34 Total Investments
25 Bay Area Investments (74%)

Other Geographies:

North Carolina
New York

Fund VI (Vintage 2018)
25 Initial Investments (including investments in process, but not yet closed)
5 Bay Area Investments (20%)

Select Other Geographies:

Toronto (3x)
NYC (3x)
LA (2x)
Boston (2x)
Fully Distributed (2x)

Also interesting, of our 5 Bay Area investments in Fund VI – 3 are companies building platforms at the intersection of AI, robotic automation, and biology for discovery or delivery of new potential therapies in healthcare.

(To compare, the total portfolio of Fund VI has a similar market mix to our previous funds – 20% consumer web + media, 40% enterprise + infrastructure software, and 40% other – which includes categories like consumer hardware, enterprise robotics, CPG, and computational biology)

This is an interesting shift for our portfolio over the past 12 years and one we believe will continue as the current emerging technology ecosystems continue to mature and new ones start to form across the globe.  (See our recent post on Toronto or our initial post on the topic related to Montana for more detail)

A core belief of True from the beginning is that great Founders are everywhere – our early investments from Fund I showcase that belief and we’re starting to see that early commitment to other geographies pay off in our performance data – both in terms of cash returns to our LPs and our large ownership stakes in high growth, high performance, scaling private companies outside of the Bay Area.

To add some additional context, two of our largest investments returns to date were based outside of the Bay Area – Ring in Los Angeles + Duo Security in Ann Arbor.  Looking at our portfolio today, many of our high potential private holdings are spread across the United States, Canada, and Europe including Peloton in NYC, Tray.io in the UK, Deep Genomics in Toronto.

This trend is probably best seen with where we’re allocating our investment dollars for our Select Funds.  We raised our first Select Fund in 2016 with the strategy of investing in the later stage rounds of our best performing portfolio companies.  Our most recent Select Fund (True Select III) was raised in 2018 and over 70% of the dollars deployed from this fund to date have been into companies based outside of the Bay Area.

In closing, I want to emphasize that we’re excited about this continued trend and want to work with the best Founders working on the most ambitious ideas – and believe they can be found anywhere in the world.

We’re very excited about the number of new ecosystems that are emerging across the United States (and the world) and we will continue to work to discover the best Founders to where ever  they are located.

With that context, if you’re looking for a strong lead for your pre-seed or seed round and you think we could be a good fit – please reach out – we’d be excited to hear from you.


Persistence in Venture Capital Returns (Research + Thoughts)

Interesting NBER working paper on persistence in venture capital returns over time


From the abstract:

We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm’s first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.

It is interesting to read their analysis with the context of an earlier paper titled “Is a VC Partnership Greater than the Sum of its Partners?”


From the abstract:

This paper investigates whether individual venture capitalists have repeatable investment skill and to what extent their skill is impacted by the VC firm where they work. We examine a unique dataset that tracks the performance of individual venture capitalists’ investments across time and as they move between firms. We find evidence of skill and exit style differences even among venture partners investing at the same VC firm at the same time. Furthermore, our estimates suggest the partner’s human capital is two to five times more important than the VC firm’s organizational capital in explaining performance.

If you agree with the conclusion of the second paper (which is that VC returns are driven by individual partners not firms) – the first paper’s conclusions make sense – there is a short-term advantage to a firm by having a particular manager as part of the firm – but when that individual partner leaves – the skill + value leaves with them.

In general, I think this is true of traditional venture capital – but I think two sets of activities that are more natural to emerging firms may start to change this for them


Focus on Firm Brand versus Partner Brand

Many traditional venture capital firms have had a focus on individual partners and their performance versus the firm’s performance.

This could lead to better deal flow for the individual (as well as better access to cheaper capital to downstream capital for his or her investment portfolio) – but the performance of a particular portfolio company is attributed to an individual versus the broader team or firm brand.

Examples of how this manifests is inclusion of investments by partner on a firm’s website or the annual enthusiasm around the Midas List.  (There are definitely counter examples to this – one example being Benchmark Capital)

In the emerging groups, such as Y-Combinator and Indie Bio – I think this is one of the most powerful parts of their model. Companies are highly associated with the investment firm – not an individual partner – and the downstream effect is that the firm gets to keep the “equity” value of its investments versus attribution being given to an individual partner

For YC – this is how they showcase their best performing portfolio companies (which includes only batch information – no information on who worked with any specific team)


Similarly – Indie Bio (as an example of a vertical within SOSV) has done an amazing job positioning itself as the first call for the best scientists who want to become entrepreneurs and building a system that can screen thousands of companies to end up with 14 or 15 per batch

Having invested in a small fund by SOSV to invest in every company in Batch 2 and Batch 3 – we have been fortunate to have a close relationship with their team and have been able to watch watch how their brand has driven amazing top of the funnel demand (thousands of applications per batch) while the number of companies they select has remained the same (and has increased the quality of each batch over time)

For both YC + Indie Bio – they have built firm brands that will last beyond their individual team members and portfolio company outcomes will have a positive effect on sourcing of future opportunities and will enable existing + future portfolio companies to access more + cheaper capital


Network Effects

The ability to cross pollinate learnings from within a portfolio is powerful – but requires a culture of trust (and probably non-attribution of individual partner performance) to work

For True – we saw this in our consumer hardware portfolio – where our early investment in Fitbit led to a number of other consumer hardware investments.

Initially, we were one of the few seed investors in the space – but as the market matured – the ability to access other Founders or teams who had scaled or faced similar challenges was a powerful tool in being able to win investments with the best new companies.

Some of this we did in formal events – but the goal was to get out of the way and normalize cross company collaboration within the portfolio – initially at the Founder level, but over time – we’ve seen it within functional senior leadership groups (ie in marketing, product, or engineering)

These are some of the events we hosted to start the conversation in specific markets – but we’ve seen this flywheel work in other markets including CPG, Computational Biology, Open Source Software, Insurance, Cryptocurrencies, and more.





As a specific example of how this can work in the portfolio, the initial Ring Video Doorbell used the same Wifi Chip as the Fitbit Aria scale.

During our investment process with Ring, the Fitbit team shared what they had learned about the wifi chip + helped work with the Ring team to use those learnings to help them best place the chip in the device.

This knowledge sharing helped our firm win the investment and then ultimately drove better performance of the company (and the on going relationship between the companies ultimately helped as technical learnings could flow back + forth between their groups)

First Round Capital + other firms have other programs that look to drive similar coordination – and I think the firms that do this well – will be stronger and ultimately have more predictable outsized returns over time.

If I’d Known What We Were Starting – Ray Dillinger


And the Trustless nature of Bitcoin was the main thing that convinced me Satoshi wasn’t scamming. He built a highway with no toll bridge. People could use Bitcoin without creating any obligation to pay him anything ever. He wasn’t selling coins, he was giving them away for solving hashes. He reserved nothing for himself.

He wasn’t trying to line his own pockets at the expense of others. In fact I don’t think I’ve ever encountered someone so completely uninterested in personal wealth. You know the old saw about being able to get a lot done if you don’t care who gets the credit? Satoshi doesn’t want the credit. Two years later he walked away and left the pseudonym behind. And hard as this may be to believe, it looks like he doesn’t even want to be paid for it. As far as we can tell he mined approximately a million Bitcoins and has never sold a single one of them.

Bill Janeway on Productive Bubbles (2015)

In a bubble you stop worrying about whether there’s gonna be more money behind you. The coordination failure through time is eliminated. That’s the functional role that bubbles can play at the frontier of the innovation economy. And this is simply a-a follow on to suggest theoretically that you should expect to see in bubble conditions riskier start-ups, further out crazier ideas, ones that might require so much money to get going. “Geez we’re gonna start a new automobile company. From scratch?” That only under something resembling bubble conditions would anybody take it seriously. And then Nanda and Rhodes-Kropf went out and actually looked at the data and what they found was that going back now 15 years start-ups that were founded during the dotcom, telecom, internet bubble at the end of the 90’s had a, a bimodal distribution. It wasn’t a normal distribution. More of them failed completely. But those that succeeded, succeeded bigger. There was an actual empirical demonstration of the phenomenon of financing risk that they talked about and the coordination failure that a bubble solves.

Source: Bill Janeway on Productive Bubbles