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July 12, 2022

Luke Vernon (Ridgeline Ventures) - Why family offices are great investment partners for brands, investment timelines and do brands need product innovation to succeed?

Luke Vernon (Ridgeline Ventures) - Why family offices are great investment partners for brands, investment timelines and do brands need product innovation to succeed?

My guest today is Luke Vernon, Managing Partner of Ridgeline Ventures. Ridgeline Ventures is an independent investment group that provides founders and brands a unique alternative to traditional investment firms. Some of their investments include Cotopaxi, Bobo’s, OROS, and Pro’s Closet. Previously he was the CEO of Eco products, which he grew from $1mm to $80mm. We discuss his learnings as an operator, why he invests in consumer brands where other investor interest has softened, the benefits of being a family office and how he thinks about investment timelines.

  1. What were three of your biggest learnings growing Eco Products from $1mm to $80mm?
  2. Since you also started Luke’s Circle and helps companies find talent, what is the key to hiring the right people?
  3. After Eco Products sold, what eventually got you thinking of becoming an investor?
  4. How did Ridgeline Ventures form?
  5. Why doesn’t Ridgeline take outside capital?
  6. There’s been alot of funds that have pivoted or moved away from investing in consumer brands. What are the opportunities that you’re focused on?
  7. What’s your due diligence process?
  8. Pricing strategy in each channel
  9. How to scale the operations of the business
  10. How long does it take to scale?
  11. Food manufacturing
  12. Self manufacturing
  13. Great vehicles to finance CAPEX
  14. What were some of your learnings during COVID?
  15. How can a board provide value to a company?
  16. What’s one thing you think is overlooked when investing in consumer businesses?
  17. What’s one book that inspired you personally and one book that inspired you professionally?
    1. Endurance by Ernest Jackelin
    2. Blue Ocean Strategy
  18. What’s the best piece of advice that you’ve received?
Transcript

WEBVTT 1 00:00:02.439 --> 00:00:16.559 Oh, hello and welcome to the consumer VC. I am your host, 2 00:00:16.600 --> 00:00:19.800 Mike Gelb, and on this show we talked about the world of venture capital 3 00:00:20.039 --> 00:00:25.160 and innovation in both consumer technology and consumer products. If you're enjoying this content, 4 00:00:25.239 --> 00:00:29.480 you could subscribe to my newsletter, the consumer VC DOT sub stack dot 5 00:00:29.480 --> 00:00:33.159 com, to get each new episode and more consumer news delivered straight to your 6 00:00:33.200 --> 00:00:37.520 inbox. Our guest today is Luke Vernon, managing partner of ridgeline ventures. 7 00:00:37.719 --> 00:00:43.520 Ridgeline ventures is an independent investment group that provides founders and brands a unique alternative 8 00:00:43.560 --> 00:00:48.320 to traditional investment firms. Some of their investments include code Paxi, Bobo's Oros 9 00:00:48.439 --> 00:00:52.719 and prose closet. Previously, he was the CEO of ego products, which 10 00:00:52.719 --> 00:00:56.759 he scaled from one million to eighty million. We discussed his learnings as an 11 00:00:56.799 --> 00:01:02.039 operator, why he invests in consumer brands currently, where other investor interests has 12 00:01:02.079 --> 00:01:06.640 softened the benefits of being a family office, and how he thinks about investment 13 00:01:06.640 --> 00:01:11.840 timelines. Without further ADO, here's Luke. Luke, thank you so much 14 00:01:11.840 --> 00:01:15.239 for joining me here today. How are you doing? Fantastic, great to 15 00:01:15.359 --> 00:01:19.079 be here. Oh, it's an absolute pleasure to have you on the show. 16 00:01:19.079 --> 00:01:21.719 Thanks so much again for spending time with me and for doing this. 17 00:01:21.760 --> 00:01:26.959 I really appreciate it. So you were an entrepreneur. You helped grow ECO 18 00:01:26.040 --> 00:01:30.400 products. You scaled it from one million to eighty million. What were some 19 00:01:30.519 --> 00:01:36.799 of your learnings from that whole experience? Well, it was such an unbelievable 20 00:01:36.840 --> 00:01:40.959 ride. I mean we went one year one of the in the basically first 21 00:01:40.959 --> 00:01:45.400 four or five years we went from one million to thirty six million and beyond 22 00:01:45.439 --> 00:01:48.439 after that, and I think there were, you know, a few really 23 00:01:48.480 --> 00:01:53.719 important things. Number one is I've never done anything like that before and that 24 00:01:53.799 --> 00:01:56.840 was my first time in a in a role like that leading to business. 25 00:01:57.040 --> 00:02:00.719 And I think one lesson was just because someone hasn't done it doesn't mean that 26 00:02:00.760 --> 00:02:05.079 they can't do it, and I try to carry that with me as an 27 00:02:05.079 --> 00:02:07.599 investor today. For me, I had to surround myself with a lot of 28 00:02:07.919 --> 00:02:12.479 c e o s and really understand like what made them really good leaders, 29 00:02:12.879 --> 00:02:15.800 and so I think for me it really really helped uncover the value of personal 30 00:02:15.840 --> 00:02:22.240 growth and investing in yourself. I think another one being is to not focus 31 00:02:22.319 --> 00:02:24.439 so much on the outcome or the exit, and we built that business for 32 00:02:24.560 --> 00:02:30.479 many, many years around focusing on selling it to a strategic acquire and when 33 00:02:30.479 --> 00:02:34.719 you do that, I found, any way, that oftentimes the goal post 34 00:02:34.879 --> 00:02:38.919 change over time and you don't really know what a buyer is going to want 35 00:02:38.960 --> 00:02:40.680 in your business. When you get to that point that you think it's you 36 00:02:40.719 --> 00:02:45.319 know they're going to be interested in buying it. And the reality is is 37 00:02:45.360 --> 00:02:49.199 that we made some decisions to build a business that we thought someone want to 38 00:02:49.199 --> 00:02:53.639 buy and we went out to sell the business and weren't successful in it and 39 00:02:53.759 --> 00:02:58.280 so we took a few years to kind of retool it and kind of restructure 40 00:02:58.319 --> 00:03:02.159 it to actually be the the most successful business that it could be. And 41 00:03:02.199 --> 00:03:06.639 I think the third just being that you know, just because investors say no 42 00:03:06.800 --> 00:03:09.680 doesn't mean that you can't still have a very successful business. We did raise 43 00:03:09.759 --> 00:03:14.560 venture capital and angel capital, but the reality is it was very little and 44 00:03:14.879 --> 00:03:16.719 we had a lot of people saying no to us. We we raised less 45 00:03:16.759 --> 00:03:22.599 money than we probably Um, you know, wanted to at different milestones and 46 00:03:22.639 --> 00:03:24.599 I think you know just because you know, you see the media and you 47 00:03:24.599 --> 00:03:29.400 see the news around uh, you know, capital raises doesn't mean that that's 48 00:03:29.400 --> 00:03:32.680 always the most successful path. You know, for for every business. That's 49 00:03:32.719 --> 00:03:36.719 really, really interesting. I love to dig in when you say that you 50 00:03:36.840 --> 00:03:43.120 built the business that where for a potentially a strategic require. What's different? 51 00:03:43.199 --> 00:03:46.840 What did you differently where you build a business for a potential, you know, 52 00:03:46.879 --> 00:03:52.680 acquisition from a strategic versus maybe what you would have done in in hindsight? 53 00:03:53.039 --> 00:03:57.240 Yeah, I would say it stemmed, apart from focusing more on growth 54 00:03:57.280 --> 00:04:00.439 than on underlying fundamentals of the business, this kind of almost the growth at 55 00:04:00.479 --> 00:04:08.840 all costs mentality of going out getting distribution and different buyers value different distribution and 56 00:04:08.879 --> 00:04:13.319 different, you know, channels differently and so um. So it's not just 57 00:04:13.439 --> 00:04:15.680 about going out and growing at all costs. It's about, you know, 58 00:04:15.720 --> 00:04:19.839 I think what we realized in our industry was that profitability, gross margins, 59 00:04:19.839 --> 00:04:24.800 were very, very important, really managing trade spend Um, you know, 60 00:04:24.839 --> 00:04:30.360 efficiently and and building something that was defensible and had a mote. And I 61 00:04:30.399 --> 00:04:34.480 think initially we thought that we would grow so fast and that, you know, 62 00:04:34.519 --> 00:04:39.480 being the first company in the industry to really produce a line of commercially 63 00:04:39.519 --> 00:04:44.720 compost able and high recycled content packaging that people would naturally you know, strategic 64 00:04:44.800 --> 00:04:47.399 choirs would naturally gravitate towards wanting to own it, and the reality is they 65 00:04:47.399 --> 00:04:50.240 all kind of felt like they could do it themselves and do it just as 66 00:04:50.279 --> 00:04:53.959 well, and so we really had to prove ourselves that we had, you 67 00:04:53.959 --> 00:04:57.480 know, some defense ability and some uniqueness and that we were doing things very 68 00:04:57.480 --> 00:05:01.519 differently. That's really helpful. Eventually sell ego products right to a strategic now, 69 00:05:01.759 --> 00:05:09.439 after ego products is sold, what eventually got you thinking of becoming an 70 00:05:09.480 --> 00:05:13.279 investor? Well, truth be told, I mean, Mike, starting a 71 00:05:13.360 --> 00:05:16.720 business, as you know, it's hard, it's mortal and I've started a 72 00:05:16.800 --> 00:05:23.480 few on my own and you know, it's not just the process of you 73 00:05:23.560 --> 00:05:26.639 know what you go through to raise money and to get a product on shelf 74 00:05:26.720 --> 00:05:30.879 or online, and it's to me one of the bigger challenges was almost the 75 00:05:31.000 --> 00:05:34.680 ups and downs on not just a daily basis but an hourly basis, both 76 00:05:34.720 --> 00:05:40.240 mentally emotionally everything. You're carrying a lot of weight when you're running a business 77 00:05:40.279 --> 00:05:44.600 and starting a company for a lot of other people's livelihoods and I have so 78 00:05:44.720 --> 00:05:47.000 much respect for founders who do that. And at the same time, I 79 00:05:47.079 --> 00:05:50.959 just found in my career, as I was progressing through it, that I 80 00:05:51.040 --> 00:05:55.560 really wanted to have my hands and multiple businesses and try to make an impact 81 00:05:55.920 --> 00:06:00.879 as much as I could multiple businesses as opposed to be just kind of focused 82 00:06:00.920 --> 00:06:04.199 on on one. And I also felt like I had learned so much from 83 00:06:04.240 --> 00:06:08.519 some of the board members and investors that were involved in ECO products and some 84 00:06:08.600 --> 00:06:11.639 of the other, you know, companies and so forth, that I wanted 85 00:06:11.680 --> 00:06:14.959 to kind of share some of those lessons and help companies, you know, 86 00:06:15.000 --> 00:06:17.319 try to grow and scale through some of the things that I've learned, and 87 00:06:17.519 --> 00:06:20.959 certainly I still have a lot more to learn today, but I just felt 88 00:06:20.959 --> 00:06:25.199 like there was also a different way to do things, you know, originally, 89 00:06:25.199 --> 00:06:29.360 and we don't have outside investors today in our business, and I felt 90 00:06:29.399 --> 00:06:31.920 like as we were raising capital, as we took on venture capital, that 91 00:06:31.920 --> 00:06:39.439 there were always some dynamics around, whether it's fun structure or different requirements that 92 00:06:39.480 --> 00:06:43.079 investors, you know, may have in their firms and funds, that can 93 00:06:43.480 --> 00:06:48.720 sometimes impact the best decision for the business. So I really wanted to kind 94 00:06:48.720 --> 00:06:53.120 of take all that pressure off and take some of those kind of artificial, 95 00:06:53.680 --> 00:06:57.639 you know, decision parameters off, and that's kind of that kind of drove 96 00:06:57.680 --> 00:07:00.680 some of my decision and ultimately, you know, that's that's how we think 97 00:07:00.680 --> 00:07:04.920 about it at ridgeline too. So I was thinking that personally, in terms 98 00:07:04.959 --> 00:07:09.639 of what you actually enjoyed, it was maybe thinking more broadly and being able 99 00:07:09.720 --> 00:07:13.839 to help maybe across category rather than having to focus on, you know, 100 00:07:13.920 --> 00:07:17.839 going back to storring to business and focusing on, you know, solving one 101 00:07:17.920 --> 00:07:21.079 problem, one thing. And also, you say, like inspiration from the 102 00:07:21.160 --> 00:07:26.000 board members that you had and those roles and knowing, you know, since 103 00:07:26.040 --> 00:07:30.959 obviously you've had incredible experience growing companies, share those learnings with entrepreneurs, which 104 00:07:30.000 --> 00:07:34.360 makes, I mean, a ton of sense. So how did ridgeline ventures 105 00:07:34.399 --> 00:07:40.040 form? Yeah, my partner, Eric started it and he had a very 106 00:07:40.079 --> 00:07:46.120 successful business previously in his career that he grew and stepped away from and he 107 00:07:46.319 --> 00:07:50.199 really wanted to kind of change the paradigm in investing as well. I wanted 108 00:07:50.160 --> 00:07:55.199 to invest in private companies and he wanted to do it in a space that 109 00:07:55.240 --> 00:07:58.399 he was really passionate about, which is health and wellness, helping people live 110 00:07:58.439 --> 00:08:03.040 a healthier lifestyle, and so he set aside a substantial portion of his capital 111 00:08:03.160 --> 00:08:05.879 to do that and to start investing, and that's where we ended up meeting, 112 00:08:05.920 --> 00:08:09.920 because he was looking for help and support to, you know, really 113 00:08:09.959 --> 00:08:15.120 open the office here and Boulder and start investing and build our portfolio. And 114 00:08:15.160 --> 00:08:18.000 so we hit it off and and really that that was the idea, is 115 00:08:18.079 --> 00:08:24.120 trying to take away the traditional kind of boundaries on investing and on investment firms 116 00:08:24.279 --> 00:08:28.759 and have autonomy over our decisions and really doing it in a in a way 117 00:08:28.800 --> 00:08:33.480 that felt really, really genuine to what we believed in and what our values 118 00:08:33.519 --> 00:08:35.039 are. And, you know, kind of underlying all that is working with 119 00:08:35.080 --> 00:08:39.279 people that we really like and that we really want to spend time with, 120 00:08:39.320 --> 00:08:41.320 because this, you know, as you know, Mike, it's it's harder 121 00:08:41.320 --> 00:08:46.399 divorced an investor than as a spouse, and and so choosing the right investors 122 00:08:46.480 --> 00:08:50.639 just so important. So that really was the genesis of Ridgeline. So when 123 00:08:50.919 --> 00:08:56.320 Eric started ridgeline ventures and and had this thesis of, you know, something 124 00:08:56.320 --> 00:09:00.799 that's very passionate that he's about, which is health and well this and, 125 00:09:01.120 --> 00:09:03.279 you know, wanting to focus as well on the innovation side of health of 126 00:09:03.279 --> 00:09:07.559 wellness, since it's, you know, private companies. When did you get 127 00:09:07.600 --> 00:09:11.279 involved and how do you break down like health and wellness, because it's such 128 00:09:11.320 --> 00:09:15.000 a large you know, I mean there's a lot of categories that kind of 129 00:09:15.000 --> 00:09:18.440 sit under it. How do you think about health wellness as well? I 130 00:09:18.480 --> 00:09:20.759 got involved kind of pretty much right away, early on, when when he 131 00:09:20.799 --> 00:09:24.799 made that decision invest in that space and and I think how we've defined it 132 00:09:24.919 --> 00:09:30.720 is products and companies that we feel good about putting on our website and that 133 00:09:30.799 --> 00:09:35.240 we feel good about either feeding to our kids having our kids wear, and 134 00:09:35.279 --> 00:09:41.000 that really just have a positive impact on the world and on consumers. And 135 00:09:41.080 --> 00:09:43.919 that can be, you know, pretty broad, like the world of Desserts 136 00:09:43.919 --> 00:09:46.919 and indulgence, for example. There's lower sugar, there's better for you, 137 00:09:46.960 --> 00:09:50.919 there's dairy free, there's clean ingredients, and I think for us it's a 138 00:09:50.919 --> 00:09:56.080 lot of that is a personal decision, but underwriting it is just alignment in 139 00:09:56.320 --> 00:10:01.679 values more than anything. So there's a couple of categories that we call off 140 00:10:01.759 --> 00:10:05.320 limits and we just won't invest in, but for the most part, you 141 00:10:05.320 --> 00:10:07.159 know, if we believe that a company is having a positive impact in the 142 00:10:07.200 --> 00:10:11.480 world, is somehow contributing to people, you know, being healthier better for 143 00:10:11.519 --> 00:10:16.720 the planet, then that's all in games. For us. Cool, that's 144 00:10:16.720 --> 00:10:18.639 great. It's okay. So it's quite broad, but obviously it's health of 145 00:10:18.679 --> 00:10:24.000 wellness within consumer. Now Ridgeline it's you don't take any outside capital. Is 146 00:10:24.039 --> 00:10:28.200 that right? Yeah, we we haven't today. Doesn't mean we won't in 147 00:10:28.200 --> 00:10:30.879 the future, but we haven't so far. Yeah, got it. got. 148 00:10:30.879 --> 00:10:33.879 It's a what's the strategy there as well? You know, being a 149 00:10:33.080 --> 00:10:37.240 somewhat you know, family office. I think it's too pronged. You know. 150 00:10:37.360 --> 00:10:41.559 Number one is the autonomy that comes with investing your own capital and the 151 00:10:41.600 --> 00:10:46.600 flexibility that has afforded us in terms of picking the companies, in terms of 152 00:10:46.639 --> 00:10:50.320 the stage we invest in, you know, the types of businesses. I 153 00:10:50.320 --> 00:10:54.120 think the other thing is that as we think about the future and continuing to 154 00:10:54.159 --> 00:10:58.120 build Ridge line and if we do raise outside capital at some point in future, 155 00:10:58.159 --> 00:11:03.360 we have a pretty sell track record now under our belt and which we've 156 00:11:03.399 --> 00:11:09.200 invested our own capital in a pretty meaningful way to demonstrate that we know what 157 00:11:09.200 --> 00:11:13.799 we're doing. And so I think, I think those are two important kind 158 00:11:13.840 --> 00:11:16.440 of approaches for us as we think about building this for the long term. 159 00:11:16.639 --> 00:11:22.519 There's been a couple advantages for us. Just the timeline has been nice Um, 160 00:11:22.559 --> 00:11:24.879 you know, not getting caught right away as we kind of build our 161 00:11:24.919 --> 00:11:30.039 investor track record of having to deploy a fund within the first, you know, 162 00:11:30.120 --> 00:11:33.120 three to five years and really kind of financially engineered businesses to try to 163 00:11:33.120 --> 00:11:37.279 harvest returns and so forth, that we've been able to really focus on building 164 00:11:37.279 --> 00:11:41.799 the best foundation. I think at the same time, it's helped us build 165 00:11:41.919 --> 00:11:46.279 a really strong competency around how do you mitigate risk, because for us, 166 00:11:46.320 --> 00:11:50.159 like going to zero is just not an option. We don't want to lose 167 00:11:50.200 --> 00:11:52.240 any of our own money, as we wouldn't want to lose anyone else's money. 168 00:11:52.440 --> 00:11:56.159 So we just don't think about it from the standpoint of, you know, 169 00:11:56.600 --> 00:12:00.759 if we have ten portfolio companies, once a home run, three, 170 00:12:01.200 --> 00:12:03.519 you know, re doubles, three return capital and three year losers. So 171 00:12:03.639 --> 00:12:07.000 we just for us we want every single one to be a winner, and 172 00:12:07.039 --> 00:12:11.679 a winner could be across a broad spectrum of you know, returns. But 173 00:12:11.000 --> 00:12:13.840 going to zero, frankly, we just, you know, something we just 174 00:12:15.320 --> 00:12:16.919 you know, really aren't aren't willing to do. Well, I think this 175 00:12:16.960 --> 00:12:22.000 is also kind of interesting as well, and I actually had a conversation with 176 00:12:22.000 --> 00:12:24.679 this with a few people last week. How do you think about, you 177 00:12:24.679 --> 00:12:28.080 know, fundraising for consumer or the current landscape venture capital for consumer? And 178 00:12:28.480 --> 00:12:31.080 I kind of feel like I love your perspective of this too. A lot 179 00:12:31.120 --> 00:12:35.799 of investors have shifted away from consumer. Not to call him out, but 180 00:12:35.840 --> 00:12:39.200 like the software more oriented investors, and part of the reason, I feel 181 00:12:39.399 --> 00:12:45.039 is because I think of what you described in terms of portfolio construction and that 182 00:12:45.080 --> 00:12:48.679 you don't really have power law dynamics as much in working with consumer brands. 183 00:12:50.080 --> 00:12:54.360 It's more so it looks like which, you know, that's kind of traditional 184 00:12:54.480 --> 00:12:56.600 venture capital, like kind of like you have those power law dynamics. You 185 00:12:56.639 --> 00:13:00.519 might have quite a few companies that go to zero right, but U in 186 00:13:00.600 --> 00:13:05.200 consumer it more looked like maybe like a private equity portfolio done at, you 187 00:13:05.240 --> 00:13:09.120 know, earlier stage, because you do have a lot more winners, even 188 00:13:09.120 --> 00:13:11.919 though those winners might not, you know, be like fifty x and that 189 00:13:13.000 --> 00:13:15.879 it could get to in software right, or dred x. How do you 190 00:13:15.960 --> 00:13:20.159 think about like the current maybe like investor landscape when it comes to consumer, 191 00:13:20.240 --> 00:13:22.840 and do you see that consumer has maybe gone out of favor in some areas? 192 00:13:24.519 --> 00:13:26.279 Yeah, I think you nailed on the head, because I think going 193 00:13:26.279 --> 00:13:31.240 back five, eight years ago and even over the past few years, there 194 00:13:31.279 --> 00:13:33.960 seemed to be any way, a lot of kind of traditionally, you know, 195 00:13:35.039 --> 00:13:37.759 tech oriented investors who really did, you know, tech more than anything 196 00:13:37.799 --> 00:13:43.080 else, who started to invest in consumer and I think in part because of 197 00:13:43.120 --> 00:13:46.159 competitiveness of tech deals, I think in part because wanting to diversify and finding 198 00:13:46.519 --> 00:13:52.720 opportunities. But I think the reality is that further elevated valuations across consumer and 199 00:13:52.759 --> 00:13:56.399 I think the reality is it's just harder to get ten x, fifty x, 200 00:13:56.519 --> 00:14:00.399 hundred x, you know, you know return like they might getting, 201 00:14:00.559 --> 00:14:03.159 you know, a couple of their portfolios across tech. And so I think 202 00:14:03.320 --> 00:14:07.200 over the next few years, I you know, and particularly in the next 203 00:14:07.240 --> 00:14:09.840 year or two, I think we're going to see the client and tech investors 204 00:14:09.840 --> 00:14:13.159 wanting to invest in consumer. If you look at some of the private equity 205 00:14:13.159 --> 00:14:16.559 reports out there, like being capital, for example, they're their annual poor 206 00:14:16.039 --> 00:14:22.360 consumers actually one of the worst performing sectors across across private equity, and almost 207 00:14:22.360 --> 00:14:28.440 seventy GDP has spent on consumer consumption. Right. So it's still I mean 208 00:14:28.480 --> 00:14:31.840 it's still a massive driver and I think, I think for us you know, 209 00:14:31.919 --> 00:14:35.000 that's kind of where we have our operating experience, like all of our 210 00:14:35.039 --> 00:14:39.279 partners have, you know, run businesses. Um We understand consumer very, 211 00:14:39.360 --> 00:14:41.559 very well. We know all the Inter you know a lot of the nuances 212 00:14:41.639 --> 00:14:46.639 around supply chain, around, you know, manufacturing and Channel Strategy and pricing. 213 00:14:46.639 --> 00:14:50.399 Strange there's just a lot of nuances, as as there are in other 214 00:14:50.480 --> 00:14:52.000 sectors too. But I feel like, you know, it's it's such a 215 00:14:52.039 --> 00:14:56.759 core competency for us that we feel like that's kind of where we have, 216 00:14:56.240 --> 00:14:58.960 you know, I have, the strength to be able to generate returns. 217 00:15:00.360 --> 00:15:01.679 I certainly agree with you. I also think too, when it comes to 218 00:15:01.720 --> 00:15:07.559 tech and software investors, that and I think sometimes the word DBC brand it 219 00:15:07.799 --> 00:15:13.000 could be a little bit dangerous, because I kind of feel like DDC brand 220 00:15:13.080 --> 00:15:18.759 sometimes entails that these businesses are fundamentally different to a retail business or a wholesale 221 00:15:18.799 --> 00:15:22.759 business. And maybe what gets really excited about you know, software tech investors 222 00:15:22.000 --> 00:15:28.279 is that you're using obviously technology e commerce to market and, you know, 223 00:15:28.320 --> 00:15:31.960 distribute your product, and so it sounds like it's almost like a software product, 224 00:15:33.039 --> 00:15:35.759 but of course the product itself is not actually technical. In a lot 225 00:15:35.759 --> 00:15:41.000 of ways when the vast majority of businesses actually on the product side like it 226 00:15:41.080 --> 00:15:43.960 needs to work in retail in order for it to, you know, be 227 00:15:45.080 --> 00:15:50.679 a large company. Right. So there's also been like that maybe like confusion 228 00:15:50.720 --> 00:15:54.240 about it as well, where BDOC is a channel but it's not actually like 229 00:15:54.759 --> 00:15:58.279 a fundamental business change to like a business, you know what I mean? 230 00:15:58.679 --> 00:16:03.799 Totally agree, totally great and any business that is a DDC business and their 231 00:16:03.799 --> 00:16:07.240 examples of some that have stayed D Toc. But but at some point there's 232 00:16:07.279 --> 00:16:11.519 the question of how do we get continued growth, and that can come from 233 00:16:11.559 --> 00:16:15.960 new products and it can come from new distribution and new channels and cost structure 234 00:16:17.039 --> 00:16:21.919 and infrastructure required to go to retail is very different than an infrastructure required to 235 00:16:21.960 --> 00:16:26.000 do DTOC. is very different from an infrastructure to have your own brick and 236 00:16:26.000 --> 00:16:29.720 mortar and so I think that's spot on. I also think that, I 237 00:16:29.759 --> 00:16:33.759 guess, going back to investor landscape across consumer to me there's, you know, 238 00:16:33.840 --> 00:16:38.159 I think there's a real value and focus and, like entrepreneurs, one 239 00:16:38.159 --> 00:16:44.879 of the most common things we see is just chasing the shiny object and inability 240 00:16:44.919 --> 00:16:48.879 to really kind of focus on the core and build a core until you're really 241 00:16:48.879 --> 00:16:52.200 proven and ready to expand. And I think for us that's, you know, 242 00:16:52.240 --> 00:16:55.279 that's something that we take to heart and how we're building our business, 243 00:16:55.320 --> 00:16:57.600 that we want to you know, focus and and I think, you know, 244 00:16:57.679 --> 00:17:03.679 consumer I think investors who maybe have been investing from other areas into consumer. 245 00:17:03.039 --> 00:17:06.319 You know, hopefully, you know, that will prove out well for 246 00:17:06.359 --> 00:17:08.319 all those entrepreneurs and investors and at the same time, I think it may 247 00:17:08.359 --> 00:17:11.799 prove that, you know, focus is going to be really important, whether 248 00:17:11.839 --> 00:17:15.880 you're starting a business or whether you're investing. So, with all this being 249 00:17:17.000 --> 00:17:21.480 said and how when it comes to obviously, return timeline, for in a 250 00:17:21.519 --> 00:17:25.839 traditional vetro capital fund, it's maybe quite different to you know, ridgeline because 251 00:17:26.039 --> 00:17:30.039 you have, are able to have and pursume more flexibility since you don't have 252 00:17:30.079 --> 00:17:33.000 outside investors. How do you think about returns? And also, I know 253 00:17:33.079 --> 00:17:37.480 that when you said you started, you know, ECO products and we're part 254 00:17:37.480 --> 00:17:42.079 of that company, one of the big learnings was about let's not try to 255 00:17:42.119 --> 00:17:45.440 build this or let's build this as hell to a strategic and that ended up, 256 00:17:45.599 --> 00:17:48.559 you know, not maybe being the right strategy of the time and you 257 00:17:48.559 --> 00:17:52.559 had to pivot your strategy. How has that influenced you as an investor when 258 00:17:52.559 --> 00:17:56.920 you're looking at deals? It's influenced us from the standpoint of, you know, 259 00:17:56.960 --> 00:18:00.599 when we go into an investment and whether we're buying a company and whole 260 00:18:00.720 --> 00:18:04.279 or we're investing in a growth equity round. As much as we can is 261 00:18:04.319 --> 00:18:08.720 focusing everyone on building the best business possible and what are the decisions that need 262 00:18:08.759 --> 00:18:12.759 to be made right now to build the strongest kind of most fundamentally sound business 263 00:18:14.160 --> 00:18:18.880 and that, over time, will create the best options for whatever type of 264 00:18:18.920 --> 00:18:23.400 monetization method makes sense in the future for shareholders. And so we have six 265 00:18:23.519 --> 00:18:30.759 years under our belt as investors and we are at a variety of stages of 266 00:18:30.799 --> 00:18:33.640 our with all of our companies. We invest most of our businesses we invested 267 00:18:33.720 --> 00:18:37.440 when they were fifteen million or less in revenue and we have companies now, 268 00:18:37.519 --> 00:18:41.160 six years in, who are, you know, several of who are approaching 269 00:18:41.200 --> 00:18:47.119 hunter or over a hundred and several that are smaller than that. And for 270 00:18:47.240 --> 00:18:49.480 us, if we were to put a timeline on those investments, I think 271 00:18:49.519 --> 00:18:55.519 there's the chance that we could be leaving value on the table. And you 272 00:18:55.559 --> 00:18:57.480 know, I think a typical kind of you know, if we had a 273 00:18:59.119 --> 00:19:02.759 common fund struck, sure we could be asking ourselves the question how do we 274 00:19:02.839 --> 00:19:06.839 monetize an investment in order to, you know, generate the track record to 275 00:19:06.880 --> 00:19:11.759 go raise another fund, and I think we would not be able to obtain 276 00:19:11.880 --> 00:19:14.880 the same type of returns over the long run if we were to do that 277 00:19:15.039 --> 00:19:18.000 then hold. So I hainte. You know, we'll have a couple of 278 00:19:18.000 --> 00:19:21.359 exits over the next you know, to three years, hopefully if we're if 279 00:19:21.400 --> 00:19:25.599 we're fortunate. But I think if you look at that, then we'll actually 280 00:19:25.599 --> 00:19:30.440 be operating within the same kind of timeline as as most investment firms. We 281 00:19:30.519 --> 00:19:33.640 just haven't, from the onset, put the confines of a you know, 282 00:19:33.720 --> 00:19:37.440 tenure structure on us. So I would love toose guys as well how you 283 00:19:37.480 --> 00:19:41.680 evaluate founders and how you actually invest in businesses. So kind of what's your 284 00:19:41.359 --> 00:19:45.680 criteria all the way from maybe like top of funnel of how you think about 285 00:19:45.720 --> 00:19:49.359 as well, sourcing opportunities, and then all the way down to your actual 286 00:19:49.440 --> 00:19:53.279 due diligence process. Sure, yeah, well, sourcing for us has been 287 00:19:53.480 --> 00:19:57.759 entirely from so far with all of our investments, has been through relationship based 288 00:19:57.839 --> 00:20:00.799 channels. We haven't that are bought a business that's been, you know, 289 00:20:00.880 --> 00:20:04.039 quote, a bank deal or auction deal at this point. It doesn't mean 290 00:20:04.079 --> 00:20:07.640 that we wouldn't in the future, but we just we just haven't. We 291 00:20:07.799 --> 00:20:10.519 you know, we we really spend a lot of time getting to know the 292 00:20:10.599 --> 00:20:14.880 team and getting to the founders and that being a driving part of our decision 293 00:20:14.920 --> 00:20:18.160 process. So when we think about our criteria, we have what we call 294 00:20:18.160 --> 00:20:22.599 it just kind of eight first line criteria that we go through. It stems 295 00:20:22.680 --> 00:20:25.880 from is it a backable team and a group that we want to work with 296 00:20:25.920 --> 00:20:27.400 and believing can help lead? And if there are gaps, do we help? 297 00:20:27.480 --> 00:20:30.359 Do we believe that we can help fill those with our network? Second 298 00:20:30.440 --> 00:20:33.160 being, is it in a big market and could it be a big company? 299 00:20:33.640 --> 00:20:37.000 So, you know, will it could it turn out to be, 300 00:20:37.160 --> 00:20:40.359 you know, really sizeable business? There being, is it a do they 301 00:20:40.359 --> 00:20:42.720 have a sound channel strategy and is there a place on the shelf that actually 302 00:20:42.720 --> 00:20:45.599 exists? You know, there's a lot of a lot of products out there 303 00:20:45.680 --> 00:20:51.279 that it's a great product, but the reality is retailers might not have a 304 00:20:51.279 --> 00:20:53.920 place for it on their shelf or they might not be willing to allocate enough 305 00:20:55.200 --> 00:20:56.799 space for it. For the criteria being, you know, do we believe 306 00:20:56.839 --> 00:21:00.160 in the product and do we do we feel like it meets a consumer need 307 00:21:00.559 --> 00:21:06.119 and then doesn't have sufficient growth margins being the fifth criteria, the sixth being 308 00:21:06.480 --> 00:21:10.440 is the company APP profitability or have an attainable path to profitability, and that's 309 00:21:10.480 --> 00:21:15.039 something that's very important to us and we continue to believe that over time that's 310 00:21:15.039 --> 00:21:19.119 going to really prove out to be very important for strategic buyers. Seventh being 311 00:21:19.200 --> 00:21:23.400 is an operationally sound both from a supply chain and manufacturing perspective? And an 312 00:21:23.440 --> 00:21:29.000 eighth, are the valuation expectations in line with what we believe is fair and 313 00:21:29.039 --> 00:21:30.720 we're not trying to get just the best deal out there. We want to 314 00:21:30.720 --> 00:21:34.359 win win for for all parties. So so that's kind of the criteria that 315 00:21:34.400 --> 00:21:37.839 we go through. But underwriting all of it, more most importantly, is 316 00:21:37.880 --> 00:21:41.119 just the team. What are some of the ways that you analyze teams? 317 00:21:41.119 --> 00:21:45.440 Because, of course, I'd imagine, I mean, the markets actually probably 318 00:21:45.440 --> 00:21:48.680 a different one in maybe deals aren't moving as fast, but I'm going to 319 00:21:48.759 --> 00:21:52.880 assume that deals are still still moving pretty fast. How, then, do 320 00:21:52.960 --> 00:21:57.920 you analyze teams, build trust, build confidence that in these entrepreneurs where you 321 00:21:57.960 --> 00:22:03.200 feel comfortable making investment. As much time as we can spend with them ahead 322 00:22:03.240 --> 00:22:06.599 of time. Sometimes, will you know, we may do things on a 323 00:22:06.599 --> 00:22:08.880 personal basis, try to try to spend time with them outside of just kind 324 00:22:08.880 --> 00:22:15.920 of normal business conversations. In some cases we have had strategic planning sessions where 325 00:22:15.960 --> 00:22:19.240 we've kind of facilitated strategic planning sessions for the founder in the in the team 326 00:22:19.240 --> 00:22:22.519 to really kind of get to know each other under that environment and understand how 327 00:22:22.559 --> 00:22:27.400 they think and operate. We check references, reviewed and looked at kind of, 328 00:22:27.839 --> 00:22:33.240 you know, done personality tests and assessments to understand kind of what drives 329 00:22:33.720 --> 00:22:37.000 individuals. So just looking at a lot of companies and a lot of founders, 330 00:22:37.000 --> 00:22:41.440 you can start to kind of pattern recognize what fits with you and what 331 00:22:41.519 --> 00:22:44.200 doesn't, and I think that that's a big part of it. But it 332 00:22:44.240 --> 00:22:45.960 all stems from just being able to spend a lot of time with them. 333 00:22:47.079 --> 00:22:51.160 How do you think? And we talked about distribution marketing. You touch on 334 00:22:51.200 --> 00:22:55.119 those things. What about product there's been a debate as well on the show 335 00:22:55.519 --> 00:22:59.240 and and also I post about as well as I've gotten great comments both ways 336 00:22:59.559 --> 00:23:07.079 about consumer do you have to have a differentiated product to be a large company 337 00:23:07.079 --> 00:23:10.319 where it makes sense? I mean you could build a very, maybe successful 338 00:23:10.359 --> 00:23:12.960 business, but maybe not one that you know needs investor money. But, 339 00:23:14.160 --> 00:23:18.200 Katie, build a large business where investment money makes sense, where you actually 340 00:23:18.279 --> 00:23:22.559 don't have maybe, um I P or a sense of product differentiation or just 341 00:23:22.599 --> 00:23:26.160 how do you think about PDUCT differentiation in general? Yeah, I think it. 342 00:23:26.440 --> 00:23:29.079 mean, it's a great debate and I could probably argue both ways. 343 00:23:29.119 --> 00:23:33.160 To be honest with you. I think my my more common thought is that 344 00:23:33.240 --> 00:23:38.960 I have is that product differentiation is ultimately really important and I think the best 345 00:23:38.960 --> 00:23:42.920 product supported by the best team is going to be the winning business and the 346 00:23:42.920 --> 00:23:47.920 winning formula. So you can have a similar product. And it all depends 347 00:23:47.960 --> 00:23:49.319 on the size of the market. I mean there's some markets that are big 348 00:23:49.400 --> 00:23:55.680 enough where you can have multiple winners and I think that's you know. So 349 00:23:55.839 --> 00:23:59.160 so it really kind of depends on category in sector. But at the end 350 00:23:59.160 --> 00:24:03.200 of the day, if you have a product that's easily replicated and low defensibility, 351 00:24:03.240 --> 00:24:06.640 then I think number one, not only is it going to be harder 352 00:24:06.640 --> 00:24:08.680 to attract investors. Number two, you're gonna have to you know, the 353 00:24:08.720 --> 00:24:12.160 strategy, the winning strategy is probably gonna be run faster than everyone else, 354 00:24:12.680 --> 00:24:17.359 and that's fine for a little bit Um that also means that you might not 355 00:24:17.400 --> 00:24:21.079 be as efficient with your money that other people could. You know, could 356 00:24:21.160 --> 00:24:23.799 replicate it or, you know what's what's on trend today might be off trend 357 00:24:23.839 --> 00:24:27.119 tomorrow. So at the end of the day, I think defensibility is, 358 00:24:27.240 --> 00:24:30.759 to me, is the more you know more important attribute. So and I 359 00:24:30.799 --> 00:24:36.039 guess that that go kind of two ways. One defensibility and the product itself 360 00:24:36.200 --> 00:24:38.960 or defensibility in the brand itself. So that makes sense. What do you 361 00:24:40.000 --> 00:24:44.119 find when you're meeting with entrepreneurs? Besides raising money? What are you finding 362 00:24:44.160 --> 00:24:48.880 that entrepreneurs need or struggle with maybe the most when you meet with them, 363 00:24:48.960 --> 00:24:52.039 and maybe what how you also think about how that place your strength in terms 364 00:24:52.079 --> 00:24:56.599 of value that you can provide. I think probably the more the most common 365 00:24:56.880 --> 00:25:00.480 or a couple of the most common ones are. It's just the broad question 366 00:25:00.559 --> 00:25:03.640 of, you know, how do I grow? How do I get the 367 00:25:03.680 --> 00:25:07.000 business from, you know, here to there? And a lot of that 368 00:25:07.039 --> 00:25:12.559 stems from distribution strategy and channel strategy and not having the capital to invest internally 369 00:25:12.559 --> 00:25:15.599 in the right team and or, you know, not know how how to, 370 00:25:15.799 --> 00:25:18.720 you know, find and spot the right talent and, you know, 371 00:25:18.759 --> 00:25:22.759 and maybe not not knowing how to kind of coach that talent to I think 372 00:25:22.920 --> 00:25:27.480 another one being pricing strategy being a really important one, that each channel having 373 00:25:27.480 --> 00:25:30.960 a, you know, a different approach in that regard and how do you 374 00:25:30.000 --> 00:25:34.799 kind of balance that over time? And then in general being you know, 375 00:25:34.839 --> 00:25:38.839 how do you just scale operations of the business and, you know, knowing 376 00:25:38.839 --> 00:25:44.079 when to add add certain people and knowing when, you know you need to 377 00:25:44.119 --> 00:25:48.480 think more about different supply chain and redundancy. So I think it's a broad 378 00:25:48.519 --> 00:25:52.000 spectrum. When does it make sense in your mind, if you also have 379 00:25:52.079 --> 00:25:56.400 any examples as well, to be great, but when to diversify channels, 380 00:25:56.599 --> 00:26:03.680 your sales channels? Maybe that's going from e commerce to going to actually building 381 00:26:03.720 --> 00:26:08.359 out your whole fale retail business, or or maybe that's already in a series 382 00:26:08.359 --> 00:26:11.880 of sores and it's it's going and diversifying and getting into another series of stores. 383 00:26:12.000 --> 00:26:17.279 How do you think about channel diversification? Well, we like to see 384 00:26:17.640 --> 00:26:19.640 some diversification from the start I mean, I know, you know, as 385 00:26:19.640 --> 00:26:22.240 a startup you can't do it all, obviously, but when you get to, 386 00:26:22.880 --> 00:26:26.079 you know, the size of called five million, ten million, fifteen 387 00:26:26.079 --> 00:26:32.279 million, ideally you will have tested enough channels to know what works and what 388 00:26:32.319 --> 00:26:34.720 does and you'll have a little bit of a base in several different channels. 389 00:26:34.720 --> 00:26:40.440 And I think what can be hard is that companies that maybe historically have been, 390 00:26:40.960 --> 00:26:45.279 you know, retail oriented products that don't, you haven't yet invested in 391 00:26:45.319 --> 00:26:47.799 d two C and you know, believe it or not, there's still a 392 00:26:47.839 --> 00:26:49.799 lot out there that are kind of in that boat. You know, it 393 00:26:49.839 --> 00:26:53.039 can be hard to prove the unit economics going into d two see if you 394 00:26:53.079 --> 00:26:56.079 don't have a high enough a o V and depending on what Kak is, 395 00:26:56.400 --> 00:26:59.960 and so it can be a pretty big lift to try to build that big 396 00:27:00.200 --> 00:27:03.160 us. And just the inverse, like we talked about, if you're focused 397 00:27:03.240 --> 00:27:06.640 only on DTWOC, to go into a retail channel and, you know, 398 00:27:06.680 --> 00:27:10.200 have a different sales team and, you know, build competency around how do 399 00:27:10.200 --> 00:27:12.680 you manage brokers, I think that can be equally as big of a lift. 400 00:27:12.759 --> 00:27:15.279 So for us, for us it's you know, and I think for 401 00:27:15.640 --> 00:27:19.160 you know, just building a business in general. I think diversification is really 402 00:27:19.200 --> 00:27:22.640 important to understand, you know, in an early age, to understand what's 403 00:27:22.680 --> 00:27:26.720 going to hit and then you you kind of put fuel on the fire and 404 00:27:26.759 --> 00:27:30.599 the channels that are really really making, you know, working the best. 405 00:27:30.000 --> 00:27:36.640 That's really helpful within the broader health of wellness. What are some particular categories 406 00:27:36.759 --> 00:27:40.759 that you're really excited about and maybe some also categories that and they could be 407 00:27:40.799 --> 00:27:45.000 also attractive to other investors and maybe, if there's any categories we might have 408 00:27:45.160 --> 00:27:48.640 like a conterion take or one that it may not seem that excited on the 409 00:27:48.640 --> 00:27:52.319 surface, but you think that actually is a lot of potential for innovation. 410 00:27:52.680 --> 00:27:56.759 I'll say one because we're invested in two different apparel companies and a lot of 411 00:27:56.839 --> 00:28:02.640 investors shy away from apparel, and I'll say the reason why we have invested 412 00:28:02.640 --> 00:28:06.480 in apparel. I mean, for one, we felt like the teams were 413 00:28:06.599 --> 00:28:11.720 very exceptional in those businesses. Number two, we felt like the markets were 414 00:28:11.880 --> 00:28:17.400 enormous and specific areas that the brand's code of Paxi and Oros apparel being the 415 00:28:17.400 --> 00:28:19.759 two companies, what they were going after, the target consumers. There was 416 00:28:19.839 --> 00:28:25.880 just plenty of room for disruption. Code of Paxi being more style oriented and 417 00:28:25.880 --> 00:28:27.319 and a little bit more fashion ry and with some technical, you know, 418 00:28:27.440 --> 00:28:33.480 packs and gear, and Oros is a very technical type driven fabric and I 419 00:28:33.519 --> 00:28:37.440 know you had Michael Marksburry on the show, so you understand both of the 420 00:28:37.440 --> 00:28:41.160 businesses and and I think for us, you know, it's certainly apparel can 421 00:28:41.200 --> 00:28:45.559 be more capital intensive. At the same time, if you build a really 422 00:28:45.559 --> 00:28:51.640 good product, there's opportunity to really target your core consumer and there are good 423 00:28:51.680 --> 00:28:53.920 margins in apparel and I think once you get to scale it can be a 424 00:28:55.039 --> 00:28:57.839 very solid business. It's just you know, how long will it take to 425 00:28:57.880 --> 00:29:02.720 get to scale? So I think that's one where we've gone a direction that, 426 00:29:02.920 --> 00:29:04.799 you know, maybe a lot of investors kind of shied away from. 427 00:29:04.960 --> 00:29:10.440 I think manufacturing as well, like on the food side, and even other 428 00:29:10.480 --> 00:29:14.279 types of manufactured like we're investors in the pros closet, which is the largest 429 00:29:14.839 --> 00:29:18.759 UM seller of pre bikes in the world, soon to be the largest seller 430 00:29:18.799 --> 00:29:22.079 of all bikes Um, you know, in the world, and they effectually 431 00:29:22.160 --> 00:29:26.039 kind of remanufactured bikes. They take used bikes bring them into their you know, 432 00:29:26.119 --> 00:29:29.759 hundred thirty Thousand Square fift facility and on the other side it looks like 433 00:29:29.799 --> 00:29:33.200 a brand new bike and it's really incredible. And you know, and in 434 00:29:33.240 --> 00:29:36.920 the food world, we're invested in and own a couple of food businesses that 435 00:29:37.079 --> 00:29:41.000 self manufacturer and I think there was a movement by a lot of investors of 436 00:29:41.079 --> 00:29:45.599 the past several years to move away from manufacturing heavy businesses, you know, 437 00:29:45.680 --> 00:29:52.519 asset light businesses, to the ones that co packed and we actually like manufacturing 438 00:29:52.519 --> 00:29:56.480 oriented businesses because you can control more your supply chain, you can control your 439 00:29:56.519 --> 00:30:00.759 product quality, you can control a lot more factors, you know, that 440 00:30:00.839 --> 00:30:07.000 help you scale and grow your business and there's something from an investor standpoint that 441 00:30:07.119 --> 00:30:11.960 owning assets actually you know, just it's just more comforting and security of a 442 00:30:11.960 --> 00:30:15.559 certain extent than just simply a brand. What were some of your learning to 443 00:30:15.599 --> 00:30:19.359 drink covid? I was totally wrong from the standpoint and when covid hit, 444 00:30:19.799 --> 00:30:22.440 I thought the markets were gonna, you know, be hammered for a long 445 00:30:22.519 --> 00:30:26.960 time. I thought it was gonna consumer sentiment would be really challenged for a 446 00:30:26.960 --> 00:30:30.119 long time, and boy was that wrong on that one. So take this 447 00:30:30.279 --> 00:30:33.240 for for what it's worth, but I think some of the lessons being that 448 00:30:33.680 --> 00:30:37.480 you do need to, you know, be prepared to move quickly. I 449 00:30:37.519 --> 00:30:41.599 think our companies did react very, very quickly with plans in place to figure 450 00:30:41.640 --> 00:30:45.559 out how to how to move, you know, how to work remotely, 451 00:30:45.720 --> 00:30:49.720 how to modify their supply chains. So from that standpoint, I think are, 452 00:30:49.759 --> 00:30:52.200 you know, companies do really well and that was a lesson in that 453 00:30:52.279 --> 00:30:56.559 regard. I think from an investor standpoint, I think just having patients being 454 00:30:56.960 --> 00:31:03.160 very important. We were thin two weeks away from closing on a deal when 455 00:31:03.400 --> 00:31:07.440 kind of mid March, when covid kind of really hit hard, and we 456 00:31:07.559 --> 00:31:11.680 talked with the seller about negotiating a ninety day extension and, you know why, 457 00:31:11.759 --> 00:31:15.039 it made sense for not just us but also them to kind of see 458 00:31:15.079 --> 00:31:18.160 how this played out, and it worked out really well and we ended up 459 00:31:18.160 --> 00:31:22.599 moving forward with the investment. And so I think just patients being really important 460 00:31:22.599 --> 00:31:26.160 in times of uncertainty, in a real big time of uncertainty right now. 461 00:31:26.440 --> 00:31:29.279 Some people say that, you know, the markets have gone down as low 462 00:31:29.279 --> 00:31:32.400 as they have. You know, I think there could be another floor that 463 00:31:32.400 --> 00:31:34.480 that we could see, you know, for a while longer, and so 464 00:31:34.519 --> 00:31:41.359 I think just patients is so important and the valuation that you buy a company 465 00:31:41.559 --> 00:31:45.160 or invest in in a company at the end of the day drives a lot 466 00:31:45.200 --> 00:31:47.680 of returns. In my opinion, it's you know, I have a hard 467 00:31:47.720 --> 00:31:51.799 time agreeing with the philosophy that the valuation doesn't matter. I mean it does 468 00:31:51.920 --> 00:31:56.039 matter because because if you've, you know, invest too high, especially in 469 00:31:56.079 --> 00:32:00.559 the consumer space, you know you have too high of a hurdle in your 470 00:32:00.559 --> 00:32:04.680 next round if you don't show the growth on that business and and then it 471 00:32:04.839 --> 00:32:07.480 just makes the returns that much more difficult to get. No, exactly, 472 00:32:07.519 --> 00:32:13.559 because also, you know, exits in consumer they're just typically not as big 473 00:32:13.880 --> 00:32:16.400 as you know, software and tech and you know, even getting like a 474 00:32:16.400 --> 00:32:21.920 billion dollar outcome, it's extremely rare, if not impossible. It's still amazing 475 00:32:22.039 --> 00:32:28.200 how many entrepreneurs we see who who will look for a four or five times 476 00:32:28.279 --> 00:32:34.519 or even ten times you know revenue multiple because they point to pe ratio of 477 00:32:34.599 --> 00:32:38.240 public company or they point to a you know, strategic acquisition that was done 478 00:32:38.240 --> 00:32:42.839 at some crazy multiple. The reality is when you're raising a minority kind of 479 00:32:42.880 --> 00:32:45.039 growth equity round, or even when you're selling a business and it's a small 480 00:32:45.079 --> 00:32:50.480 sub twenty million dollar business. If you expect the valuation, that kind of 481 00:32:50.640 --> 00:32:55.640 outlier valuation, then you're setting yourself up for a very challenging future because the 482 00:32:55.759 --> 00:33:00.160 valuation that that investor comes in at every Ester is gonna want to at least 483 00:33:00.279 --> 00:33:05.319 three x their money. So you can do the math of what does the 484 00:33:05.400 --> 00:33:08.480 valuation have to be to three x the money and what is your revenue have 485 00:33:08.559 --> 00:33:13.000 to be on a normal, you know, kind of adjusted basis, you 486 00:33:13.039 --> 00:33:16.680 know multiple, and can you get to that level the next time? Unique 487 00:33:16.680 --> 00:33:22.359 capital and it's oftentimes it's nearly impossible for founders to pencil out. But at 488 00:33:22.359 --> 00:33:25.640 the same time there's so much capital out there is still investing in it that 489 00:33:27.119 --> 00:33:30.960 you know, these valuations are still happening and I think over the next kind 490 00:33:30.000 --> 00:33:34.960 of year or two it's gonna flush out a little bit. What's one book 491 00:33:35.519 --> 00:33:38.599 that's inspired you personally? In one book that's inspired you professionally? My favorite 492 00:33:38.599 --> 00:33:45.799 book of all time is a book called endurance about Ernest Shackleton voyage across Antarctic 493 00:33:45.839 --> 00:33:51.519 Cup and to me this was so pivotal, I think personally and even professionally, 494 00:33:51.599 --> 00:33:54.359 but it just showed the value and having a good team show the value 495 00:33:54.400 --> 00:34:00.640 of having a good leader. It's also this just incredibly Um all consuming read 496 00:34:00.720 --> 00:34:05.279 that you just want to turn every page until it's done. And when you 497 00:34:05.319 --> 00:34:10.920 think they've hit the hardest point of their journey, another even more difficult obstacle 498 00:34:12.000 --> 00:34:15.960 comes. It's unreal. So highly recommend that one. From a professional standpoint, 499 00:34:15.960 --> 00:34:22.039 blue ocean strategy was one of my favorites many years ago and at ECO 500 00:34:22.079 --> 00:34:25.920 products I bought that for our management team to read and I think it really 501 00:34:27.320 --> 00:34:30.679 at least for me, it helps shape how I thought about really zigging when 502 00:34:30.679 --> 00:34:35.159 others are zagging and trying to be innovative and different and you don't have to 503 00:34:35.280 --> 00:34:38.239 follow a you know, a certain template or cookie cutter formula to build a 504 00:34:38.280 --> 00:34:43.440 business. Awesome, awesome. We've had quite a few folks recommend endurance. 505 00:34:43.480 --> 00:34:46.519 I still need to read it because everyone has that same reaction when they describe 506 00:34:46.639 --> 00:34:50.599 endurance, so I definitely need to put that on my reading list. My 507 00:34:50.679 --> 00:34:53.920 final question to you is, what's the best piece of advice that you've received 508 00:34:54.199 --> 00:34:57.920 or something that you kind of see yourself and your head over and over again? 509 00:34:58.440 --> 00:35:01.440 I think one, you know, maybe that that I'll just state here 510 00:35:01.480 --> 00:35:07.559 because there's probably entrepreneurs listening and having started businesses myself, and that was after 511 00:35:07.199 --> 00:35:10.760 one of the companies I started did not succeed, a mentor of mind told 512 00:35:10.760 --> 00:35:15.559 me, Luke, you are not your business, your identity is not your 513 00:35:15.599 --> 00:35:19.599 business, and you know, after you go through the process of starting a 514 00:35:19.599 --> 00:35:22.840 company and if it isn't as successful as you want or if it doesn't succeed, 515 00:35:23.559 --> 00:35:27.880 you feel like your whole identity is tied up in that and if it 516 00:35:27.920 --> 00:35:30.639 fails, you feel like a failure. It's so easy to feel that way 517 00:35:30.760 --> 00:35:36.599 and being able to separate yourself from Your Business and your identity from Your Business, 518 00:35:36.639 --> 00:35:39.079 to me, is one of the most important ways to bounce back, 519 00:35:39.679 --> 00:35:44.119 because you can. You know you can remake yourself and remake your career and 520 00:35:44.159 --> 00:35:47.719 reshape it so easily, and so it's just separating your identity from your business 521 00:35:47.800 --> 00:35:52.559 is one of the underlying things that I remember most from what a mentor mindset. 522 00:35:52.960 --> 00:35:55.559 I really do love that piece of advice because, especially in the early 523 00:35:55.599 --> 00:36:00.199 innings, when you're working what it seems like you know all day and all 524 00:36:00.280 --> 00:36:04.440 my building your business and your business is your life. It's really important to 525 00:36:05.320 --> 00:36:08.079 make sure you don't tie that up with your identity, especially if things don't 526 00:36:08.079 --> 00:36:13.079 go kind of according to plan, since you know very small percentage of entrepreneurs 527 00:36:13.079 --> 00:36:16.400 their business has actually become businesses right, and so don't also kill yourself and 528 00:36:16.519 --> 00:36:20.880 kind of tying your identity to your business. Totally agree, Luke. This 529 00:36:20.960 --> 00:36:22.639 has been so much fun. Thank you so much for your time. Thanks 530 00:36:22.639 --> 00:36:24.960 for having me, Mike. Appreciate it. And there you have it. 531 00:36:24.960 --> 00:36:28.960 It was amazing chowning with Luke. I hope you all enjoyed it. If 532 00:36:29.000 --> 00:36:30.679 you enjoyed this episode, I love it if you'd write a review on the 533 00:36:30.679 --> 00:36:35.320 apple podcast. You're also welcome to follow me your host, Mike, on 534 00:36:35.360 --> 00:36:38.599 twitter at Mike Gelb, and also follow for episode announcements at Consumer VC. 535 00:36:38.920 --> 00:36:47.920 Thanks for listening, Everyone, oh