- NEWS & ANALYSIS
Allen Wagner March 21, 2014
The recent high-profile IPOs of zulily and Potbelly Sandwich Works have brought more visibility—and deal flow—for Seattle-based venture capital firm Maveron. But Dan Levitan, the firm’s co-founder, said in a recent interview withPitchBook that while recent successful portfolio company exits have helped distinguish Maveron from other VC firms within the entrepreneurial community, it hasn’t and won’t change the way the consumer-focused fund makes investments and goes about its business.
Founded in 1998 by Levitan and Starbucks CEO Howard Schultz, Maveron has prided itself on a few distinguishing factors within the VC world. First off, the firm is solely focused on investments in the consumer industry. This, Levitan said, allows the firm to leverage its partners’ vast experience in the sector to not only spot trends and make the right investments, but cultivate long-term relationships with entrepreneurs across several consumer spaces, such as education, web-enabled consumer services, and health and wellness. It’s these relationships that the firm believes are the foundations for success.
“From the very beginning we’ve been consumer only,” said Levitan. “But more than a sector, our primary focus is on people. We’re looking for extraordinary entrepreneurs who can create very large businesses. After 15 years and backing almost 100 entrepreneurs, I think it’s that rare person who has a combination of attributes that gets through the challenges of a startup and is able to really create value.
“Our first priority is getting to know entrepreneurs. We back people we know well enough to deeply believe that they have the capability to create something world class.”
Investing in Entrepreneurs
How does Maveron measure that capability and come to a decision to fund an entrepreneur? Clayton Lewis, a partner focused on healthcare and wellness, said the firm grades entrepreneurs over the course of numerous meetings, interviews and scenarios across 10 different attributes Maveron has developed over time.
“What we’ve done is look at the investments we’ve made in the past and asked, ‘what are the attributes of all the entrepreneurs we’ve backed and who have been the most successful?” said Lewis. “All of us spend a lot of time discussing what attributes we think are most important to be looking for as we’re getting to know these people. Then when we have the [funding] conversation, we discuss how they’ve done to date, what they aspire to do and what we’re looking for.”
This focus on the entrepreneur and developing long-term relationships has helped drive some of the firm’s biggest successes and has been instrumental in Maveron’s funding of novel ideas in the consumer space, from zulily and Potbelly to Julep, a vertically integrated beauty company, and Koru, a platform that connects young graduates with businesses seeking workplace-ready individuals.
“If you were to look at our portfolio, zulily is an example of a multiple-year relationship; Julep is an example of a relationship with an entrepreneur we’ve known for a very long time,” noted Levitan. “I’m not saying [long-term relationships] are all we’re going to do, but I think we are more than happy to take product risk with people we believe in.”
Maveron is able to take a more active approach, because unlike larger funds, the Seattle-based firm tends to make smaller initial investments in companies with the understanding that the partners will be more engaged with the entrepreneur on his or her idea, product or service. This allows for more flexibility when investing in soon-to-be portfolio companies.
There is a lot of temptation [to go big], particularly when the press asks ‘how big is the fund?’ What’s more important is what’s in the fund.
The partners at Maveron agree that there’s no one formula to VC investing, but that the combination of a small fund size and very targeted focus on the consumer sector is the right strategy for success for them.
“There are a lot of different formulas for success in venture capital, but there are far more formulas for mediocrity,” said Levitan. “What we’ve learned over the years is that one of our formulas for success is a smaller fund, where one or two significant wins can really have a positive impact. The challenge for successful venture capitalists is having the discipline to stay small and keep the fundraising within the same parameters as they originally achieved success in. I think there is a lot of temptation [to go big], particularly when the press asks ‘how big is the fund?’ What’s more important is what’s in the fund.”
Consumers & the Future
Many are no doubt familiar with which companies have been in Maveron’s previous funds. Even if you weren’t sure, you’ve probably heard of zulily, Potbelly, Shutterfly, Groupon and eBay—all companies Maveron has backed throughout the years.
Now’s the time for Maveron to back a new crop of companies and entrepreneurs, as it raises its fifth fund, expected to close later this year.
As a consumer-only firm with plenty of experience investing in the space, Maveron’s partners have numerous ideas on the future of consumer goods and services, many of which could be the backbone of their future portfolio companies.
Here’s what each partner had to say about new trends in the consumer space:
Levitan: “The last three years has seen the most fundamental shift in how consumers relate to brands via the emergence of tablets and smartphones in everyday life. If you think about the interaction with a brand, it’s radically changing day-to-day, and that provides a whole lot of new use cases. A lot of the things we’re looking at are mobile-enabled. At Maveron, we don’t look at these new ideas and emerging companies from the technology side as much as we look at it in terms of integrating products and services into consumers’ lives. But I think that opens up a whole bevy of opportunities.
“When I think back to 1998, when we started Maveron, the whole point was we had a lot of consumer sensibility and experience in offline brands. We saw that the technology was coming and integrating into consumers’ lives. I’m not sure that in 1998, however, we had the clarity to predict that the smartphone would be as ubiquitous and as relevant as it is today. But it’s an example of the importance of how these technologies are reaching into people’s homes and lives in ways that they never did before.”
Rebecca Kaden, principal at Maveron’s San Francisco office: “Another trend we think about is this idea of the merging of the online and offline worlds. Now a lot of technology has a reaction in the physical world, whether that be you press a button on your phone and a car shows up or you walk near your door and the door opens. That kind of merging of the online and offline worlds is a macro trend that we see across the categories that we look at.”
Lewis: “With all the disruption with healthcare reform and a lot of employers dropping their health plans, what we’re starting to see is consumers be much more engaged in thinking through the cost of their healthcare and the implications of that. This, linked with aging baby boomers and their desire to stay young, has consumers focused on ways to stay well as opposed to fixing illness.”
Jason Stoffer, partner: “College hasn’t changed since the time of Aristotle, but over the next decade our idea of college is going to go away. What we used to see was that a bachelor’s degree was a prerequisite for a middle-class lifestyle. Now a bachelor’s degree for many students is a prerequisite to moving back onto their parents’ couch. This is because the academic world is decoupled from the employer world. I think what we’re going to see is this work backwards, where what’s going to win are colleges or alternative institutions—like our investment in General Assembly—where the education or training leads to a tangible job outcome.”
For more of the PitchBook Blog’s VC coverage, clickhere.