Why Maveron Plans More Venture Investments in Consumer Startups
[Clarified 3/27/13, 9:43 am. See below.] Maveron, the venture capital firm co-founded in Seattle by Howard Schultz and Dan Levitan, plans to make more frequent early investments in tech-enabled consumer businesses.
The firm, which expanded by opening a San Francisco office in 2009, has always focused on investing in companies that aim their products and services at consumers. Over the past two years, Maveron has zeroed in specifically on a seed strategy, betting $100,000 to $250,000 on entrepreneurs with big ideas for remaking commerce, education, and health and wellness. In that time, it has made upwards of 15 seed investments, including three already in 2013.
Now Maveron aims to make about one investment each month in early stage consumer-oriented companies “for the foreseeable future,” Levitan tells Xconomy.
Maveron, which has about $800 million of capital under management, is investing from its fourth fund, raised in late 2008. The firm looks all over the country for opportunities, but because of the high-touch approach it takes with early stage investments, it favors companies located closer to home.
Levitan says the proliferation of mobile devices and the integration of consumer businesses and lifestyles makes this the right time to accelerate the pace of early stage investing. “I think the opportunity to build scalable brands in the three areas we focus on are as good or greater than ever before,” he says.
Also, amid “a general tightening of dollars allocated to VC” many firms have shifted attention away from the consumer category toward enterprise technology investments, Levitan notes.
“We’re trying to make a statement that consumer isn’t dead,” he says.
The consumer segment remains attractive because it has become more cost effective thanks to the same cloud computing revolution that has lowered capital requirements for all technology startups. Moreover, consumer-focused companies can benefit from lower-cost viral marketing to upend industries in ways that weren’t possible a few years ago.
Levitan says the only way you could build a high-end beauty products brand 25 years ago was to get prominent placement “on the first floor of Bloomingdale’s, Macy’s, and Bon Marche.” Now, a company like Julep, which Maveron backed at the seed stage, is building a beauty brand through social media channels first and foremost.
“It’s an example of really using virality as a way to create low cost, high-engagement customer acquisitions,” he says.
With its seed program, Maveron is looking for entrepreneurs who are thinking big and taking advantage of these broader trends.
“Our outlook is very entrepreneur-first driven, meaning we make people bets in these seed deals more than anything else,” he says, adding that the firm is confident it can find enough entrepreneurs who are passionate, quantitatively driven, and obsessively focused on big ideas in the consumer market to keep up the deal-a-month pace.
Maveron has made recent investments in companies nurtured in accelerator programs, such as 2012 TechStars Seattle graduate Tred, it has incubated companies in-house, such as Lively, and it has let startups use its office space as they got going, the most successful of these being Zulily, which started in its offices in 2009. [An earlier version of this paragraph suggested that Zulily was “incubated” at Maveron, when in fact it only used the venture firm’s office space. Lively was incubated by Maveron, however.]
While the accelerator and entrepreneur-in-residence programs are important ways to educate and assist promising business leaders, the great ones have something more, Levitan suggests.
“I think great companies are created by truly extraordinary leaders, and I think that these incubators and classes can teach people certain things, but truly great leaders, that are truly motivated to do extraordinary things—I think it’s kind of hard to teach that,” he says.
Selecting that extraordinary talent is even more important in light of the well-documented shortage of Series A capital, which Levitan says is real. He says it’s healthy for the VC industry because it means less money is chasing after the same number of opportunities.
“Creating great companies is really hard,” he says. “It’s not going to happen most of the time.”
The Series A crunch “is forcing us to be very direct with our seed funding recipients,” Levitan adds. “You’re buying yourself 18 months of runway. Here’s what it’s important to prove in that time.”
Lastly, I was curious about how much attention Starbucks honcho Schultz devotes to Maveron 15 years after he co-founded the firm. While Schultz provided Maveron’s funding base, these days, “the vast majority” of the firm’s capital is from traditional institutional investors, Levitan says.
“Howard’s got more than a full-time job running Starbucks,” Levitan tells me, having just wrapped up a call with Schultz. “He’s busy.”
That said, Schultz is still a source of deals and will help make connections when asked, Levitan says.
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