1 00:00:00,600 --> 00:00:04,120 Speaker 1: You're listening to Taking Stock with Bim Box and Kathleen 2 00:00:04,160 --> 00:00:08,120 Speaker 1: Hayes on Bloomberg Radio. I want to invest in consumer 3 00:00:08,200 --> 00:00:12,320 Speaker 1: brands and retail. Want to construct a portfolio that includes 4 00:00:12,480 --> 00:00:16,600 Speaker 1: trying to find the next hot thing. Well, you probably 5 00:00:16,640 --> 00:00:19,200 Speaker 1: want to consult with Martin Dolphy. He is a managing 6 00:00:19,239 --> 00:00:22,800 Speaker 1: partner of M three Adventures. He can be followed on 7 00:00:22,840 --> 00:00:27,360 Speaker 1: Twitter at Dolphy Vc. And Martin joins me in the studio. Martin, 8 00:00:27,440 --> 00:00:29,520 Speaker 1: thanks for coming in, Thanks for having me them. Tell 9 00:00:29,600 --> 00:00:31,960 Speaker 1: people a little of your background so that they understand 10 00:00:31,960 --> 00:00:34,040 Speaker 1: where you're coming from and what you're trying to accomplish. 11 00:00:34,360 --> 00:00:38,199 Speaker 1: Sure UM. I began my career in investment banking UM 12 00:00:38,440 --> 00:00:41,440 Speaker 1: I was a consumer analyst and then made the jump 13 00:00:41,479 --> 00:00:44,600 Speaker 1: over to private equity UM In two thousand and six 14 00:00:44,600 --> 00:00:46,640 Speaker 1: and seven, I was involved with the acquisition of American 15 00:00:46,640 --> 00:00:50,520 Speaker 1: Apparel and brought that company public UM and from from 16 00:00:50,560 --> 00:00:53,600 Speaker 1: that point forward I had an interest in consumer and 17 00:00:53,640 --> 00:00:57,400 Speaker 1: retail investing. I ended up joining Creative Arts Agency in 18 00:00:57,440 --> 00:01:01,760 Speaker 1: there and and running their consumer and fashion group. So 19 00:01:01,960 --> 00:01:04,880 Speaker 1: began doing business development, a lot of collaborations with Target 20 00:01:04,959 --> 00:01:07,800 Speaker 1: and H and M and Top Shop for brands like 21 00:01:07,920 --> 00:01:11,880 Speaker 1: Rag and bone marquesa opening ceremony and um. And then 22 00:01:11,920 --> 00:01:14,720 Speaker 1: from from that point forward, UM, you know, really wanted 23 00:01:14,760 --> 00:01:17,240 Speaker 1: to put some some money to work in the in 24 00:01:17,240 --> 00:01:21,480 Speaker 1: the sector. So early early last year began a venture 25 00:01:21,520 --> 00:01:25,120 Speaker 1: capital firm that invests in early stage consumer companies and 26 00:01:25,120 --> 00:01:28,360 Speaker 1: that this is M three Ventures. M three Ventures tell 27 00:01:28,440 --> 00:01:31,240 Speaker 1: us about M three Ventures and the kinds of companies 28 00:01:31,440 --> 00:01:35,319 Speaker 1: or the kinds of strategy that you're looking to support. 29 00:01:36,920 --> 00:01:39,120 Speaker 1: The first filter is high growth, so we've got to 30 00:01:39,120 --> 00:01:42,919 Speaker 1: see companies at least with a percent year over year growth. 31 00:01:42,959 --> 00:01:46,120 Speaker 1: Typically we'll will wait until they get out to uh 32 00:01:46,160 --> 00:01:50,280 Speaker 1: five to ten million in annual revenues UM. With consumer brands, 33 00:01:50,280 --> 00:01:51,480 Speaker 1: I think you want to let them go a little 34 00:01:51,480 --> 00:01:53,960 Speaker 1: bit further to make sure there's a real sustainable business there. 35 00:01:54,400 --> 00:01:57,520 Speaker 1: And um, you know, we look for founders that have 36 00:01:57,680 --> 00:02:02,320 Speaker 1: strong track records of running running great management teams. Typically 37 00:02:02,440 --> 00:02:05,320 Speaker 1: the things we get involved with have millennial underpinnings, so 38 00:02:05,360 --> 00:02:10,320 Speaker 1: their customers are young and engaging, and they leverage technology 39 00:02:10,400 --> 00:02:13,880 Speaker 1: to inter interact with the consumers better. I'm just gonna 40 00:02:13,919 --> 00:02:16,320 Speaker 1: give you one name from your portfolio, so maybe use 41 00:02:16,360 --> 00:02:18,360 Speaker 1: that as an example, and we'll go through some of 42 00:02:18,360 --> 00:02:22,160 Speaker 1: the others, but Carbon thirty eight. Yeah, Carbon thirty great 43 00:02:22,160 --> 00:02:24,760 Speaker 1: team Katie Warner Johnson and Caroline Gogla help people what 44 00:02:24,800 --> 00:02:26,720 Speaker 1: it is. We don't, Yeah, they so they it's an 45 00:02:26,720 --> 00:02:30,600 Speaker 1: online marketplace that sells women's activeware brands. So you go 46 00:02:30,680 --> 00:02:32,520 Speaker 1: to Carbon thirty eight dot com. You get a drop 47 00:02:32,560 --> 00:02:36,959 Speaker 1: down menu, there's fifty women's activeware brands and um and 48 00:02:37,120 --> 00:02:39,160 Speaker 1: they you know, they buy it wholesale and mark it 49 00:02:39,240 --> 00:02:41,640 Speaker 1: up at retail and they've had phenomenal growth. Will do 50 00:02:41,639 --> 00:02:44,080 Speaker 1: about twenty million and revenue this year, did did seven 51 00:02:44,200 --> 00:02:48,760 Speaker 1: last year and um, you know, great team. We also 52 00:02:48,800 --> 00:02:51,560 Speaker 1: invested in a Spiritual Gangster, which is a yoga brand 53 00:02:51,600 --> 00:02:55,320 Speaker 1: based out of Phoenix. Um. Great team, husband wife team 54 00:02:55,320 --> 00:02:57,480 Speaker 1: that used to own a dozen yoga studios. They sell 55 00:02:58,120 --> 00:03:03,880 Speaker 1: uh soft goods a pair Errol through Equinoxes, Bloomingdale's and 56 00:03:03,960 --> 00:03:07,839 Speaker 1: lots of independent yoga boutiques. Yeah. I was gonna say 57 00:03:07,840 --> 00:03:11,400 Speaker 1: that you're not just focused on clothing and and and retail. Mean, 58 00:03:11,480 --> 00:03:13,240 Speaker 1: for example, I know that you've got a company called 59 00:03:13,320 --> 00:03:17,040 Speaker 1: Soma that is part of the portfolio. Tell us about Soma. Yeah. 60 00:03:17,040 --> 00:03:19,000 Speaker 1: Some uh some is a great company based out of 61 00:03:19,000 --> 00:03:23,079 Speaker 1: San Francisco. Run by a game Mike del Ponte um, 62 00:03:23,120 --> 00:03:28,120 Speaker 1: they produced beautiful kind of decanter quality UH water UH 63 00:03:28,240 --> 00:03:31,320 Speaker 1: filtration products. The easiest way to think about it is 64 00:03:31,360 --> 00:03:35,400 Speaker 1: it's almost like Apple design meets the Britta beautifully designed 65 00:03:35,680 --> 00:03:40,200 Speaker 1: UH biodegradable products. The filters you get bi monthly in 66 00:03:40,240 --> 00:03:43,360 Speaker 1: the mail, so six of the revenues through UH filter 67 00:03:43,440 --> 00:03:47,320 Speaker 1: subscription and you're filtering through burnt coconut shells. So something 68 00:03:47,360 --> 00:03:50,760 Speaker 1: that you know better than some of the plastics products 69 00:03:50,760 --> 00:03:52,960 Speaker 1: in the market. How do you how do you figure 70 00:03:52,960 --> 00:03:55,520 Speaker 1: out what the valuation is of a company that is 71 00:03:55,560 --> 00:03:59,080 Speaker 1: growing so quickly. I mean, it's easy to figure out 72 00:03:59,080 --> 00:04:01,400 Speaker 1: in the in the public mark cut right, but these 73 00:04:01,400 --> 00:04:04,880 Speaker 1: are all private. In the private market, typically uh, you know, 74 00:04:04,960 --> 00:04:06,960 Speaker 1: you're paying for a growth store. You're paying up for 75 00:04:07,000 --> 00:04:10,280 Speaker 1: a growth story a little bit um. The you know, 76 00:04:10,320 --> 00:04:13,000 Speaker 1: the multiples that we observe in the market are typically 77 00:04:13,280 --> 00:04:17,320 Speaker 1: three to four times trailing twelve months revenues and you know, uh, 78 00:04:17,360 --> 00:04:19,200 Speaker 1: you know, three three to two and a half to 79 00:04:19,279 --> 00:04:23,320 Speaker 1: three times current year annual revenues UM. Most of the 80 00:04:23,360 --> 00:04:25,760 Speaker 1: time at this stage in the companies, they're just focused 81 00:04:25,760 --> 00:04:29,440 Speaker 1: on top line growth UM. That's that is changing you know, 82 00:04:29,440 --> 00:04:31,760 Speaker 1: in the in the kind of broader macro climate, companies 83 00:04:31,800 --> 00:04:34,640 Speaker 1: are trying to tighten up margins and make sure they're 84 00:04:34,640 --> 00:04:37,800 Speaker 1: they're building a sustainable business. But UM, you know, it's 85 00:04:37,839 --> 00:04:40,160 Speaker 1: key to have a really, really great growth story if 86 00:04:40,160 --> 00:04:43,000 Speaker 1: we're going to get involved. Now, there's one company called 87 00:04:43,120 --> 00:04:47,000 Speaker 1: Janue and this I gotta say is something I've never 88 00:04:47,040 --> 00:04:51,839 Speaker 1: seen before. This is clothing, but it is for professionals, 89 00:04:52,120 --> 00:04:55,720 Speaker 1: and I mean professionals in the healthcare industry. Yep, yeah, 90 00:04:55,760 --> 00:04:59,520 Speaker 1: so yeah, John who's based out of Los Angeles. UM, 91 00:05:00,080 --> 00:05:05,000 Speaker 1: great guy runs it. Former private equity yakaipa UH investor 92 00:05:05,520 --> 00:05:08,520 Speaker 1: and UH an Indian family that actually has ties to uh, 93 00:05:08,560 --> 00:05:10,560 Speaker 1: you know, apparel and manufacturing over there. So so they 94 00:05:10,560 --> 00:05:14,360 Speaker 1: produce better design scrubs basically, and you know, it's a 95 00:05:14,480 --> 00:05:18,480 Speaker 1: very sleepy market, lots of kind of incumbents, large companies 96 00:05:18,480 --> 00:05:22,440 Speaker 1: and uh they basically have better form fit and um 97 00:05:22,480 --> 00:05:25,360 Speaker 1: you know, they have an anti microbial feature in their 98 00:05:25,400 --> 00:05:28,479 Speaker 1: garments to um and they're just doing fantastic. How do 99 00:05:28,520 --> 00:05:32,520 Speaker 1: you find most of these companies, Uh, it comes from 100 00:05:32,960 --> 00:05:40,240 Speaker 1: existing founders, existing LPs and M three ventures, industry lawyers, UM, 101 00:05:40,680 --> 00:05:43,920 Speaker 1: third party providers and then when I was at uh 102 00:05:44,000 --> 00:05:46,800 Speaker 1: ci A, you know, it was fairly visible in the marketplace. 103 00:05:46,839 --> 00:05:49,080 Speaker 1: We get a lot of inbound stuff and and and lastly, 104 00:05:49,560 --> 00:05:52,200 Speaker 1: you know, my partner Tracy dub was recently at Sandbridge 105 00:05:52,279 --> 00:05:54,880 Speaker 1: Capital along with Tommy Hill Figure and a lot of 106 00:05:54,880 --> 00:05:56,520 Speaker 1: the guys over they're doing a lot of great investments. 107 00:05:56,760 --> 00:05:59,360 Speaker 1: She has, she has great deal flows. Well, is there 108 00:05:59,800 --> 00:06:03,839 Speaker 1: a certain dollar amount or percentage that you're willing to 109 00:06:03,880 --> 00:06:08,320 Speaker 1: invest in companies at this level? Yeah, we typically are 110 00:06:08,520 --> 00:06:10,640 Speaker 1: entry level check will be between half a million and 111 00:06:10,640 --> 00:06:14,440 Speaker 1: a million in a company, with the intention to follow 112 00:06:14,440 --> 00:06:17,560 Speaker 1: on invest in subsequent rounds and try to maintain ownership position. 113 00:06:18,320 --> 00:06:22,200 Speaker 1: I'm you know, we're not so focused on a particular 114 00:06:22,240 --> 00:06:25,080 Speaker 1: ownership percentage. More and more important is that we get 115 00:06:25,320 --> 00:06:27,880 Speaker 1: started with the right companies and really build a great 116 00:06:27,880 --> 00:06:31,480 Speaker 1: base of portfolio companies. What do you believe is the 117 00:06:31,520 --> 00:06:37,200 Speaker 1: biggest uh sort of illusion or misconception about investing in 118 00:06:37,440 --> 00:06:42,560 Speaker 1: startup companies in this space that it's fad driven is 119 00:06:42,600 --> 00:06:44,679 Speaker 1: one thing that a lot of people talk about. Also, 120 00:06:44,720 --> 00:06:48,400 Speaker 1: can these companies get large? Which what everyone wants to 121 00:06:48,440 --> 00:06:53,239 Speaker 1: be Horby Parker or Bnobo's far fetched. A billion dollar 122 00:06:53,960 --> 00:07:00,320 Speaker 1: you know, unicorn. Um. Yeah, I mean, UM, there's you 123 00:07:00,320 --> 00:07:01,760 Speaker 1: you do have to kind of know how to pick 124 00:07:01,800 --> 00:07:03,680 Speaker 1: the right ones. And you know, I think we've been 125 00:07:03,680 --> 00:07:05,400 Speaker 1: around the space long enough to kind of have a 126 00:07:05,839 --> 00:07:09,279 Speaker 1: good sense of that. UM. But UM, they can certainly, 127 00:07:09,279 --> 00:07:11,000 Speaker 1: you know, they can certainly scale if you if you 128 00:07:11,040 --> 00:07:14,360 Speaker 1: provide the right business development resources around them and and 129 00:07:14,520 --> 00:07:16,880 Speaker 1: UM yeah, I mean you're back to the right founders 130 00:07:17,120 --> 00:07:22,400 Speaker 1: talking about spending the money once they've raised it is 131 00:07:22,440 --> 00:07:26,600 Speaker 1: there is change in the split. So for example, you 132 00:07:26,720 --> 00:07:30,440 Speaker 1: might spend upwards a thirty to forty percent on marketing, 133 00:07:30,560 --> 00:07:34,240 Speaker 1: another thirty percent on the technology, and maybe another thirty 134 00:07:34,280 --> 00:07:38,680 Speaker 1: percent on the h sort of back office industrial production 135 00:07:38,720 --> 00:07:42,400 Speaker 1: of the actual goods that's just selling. Yeah, A good 136 00:07:42,520 --> 00:07:45,680 Speaker 1: good portion of the working capital capital typically goes to 137 00:07:46,160 --> 00:07:49,720 Speaker 1: funding inventory UM and you also want to carve out 138 00:07:49,720 --> 00:07:52,000 Speaker 1: a good piece of that for a proper marketing budget. 139 00:07:52,040 --> 00:07:54,320 Speaker 1: Typically these companies want to hire a couple of C 140 00:07:54,520 --> 00:07:57,800 Speaker 1: level executives, like a good CMO to come in UM 141 00:07:57,880 --> 00:08:00,920 Speaker 1: and UH and CFO. So usually you know, tht pent 142 00:08:00,960 --> 00:08:02,880 Speaker 1: of the work, you know, the use of proceeds schedule 143 00:08:02,920 --> 00:08:06,840 Speaker 1: will be for for new hires UM and UM. You know, 144 00:08:06,880 --> 00:08:11,080 Speaker 1: content creation and yeah, I mean pretty simpt all is 145 00:08:11,080 --> 00:08:15,320 Speaker 1: that typically go to things like social media. Yeah, there's 146 00:08:15,360 --> 00:08:18,080 Speaker 1: a lot of different strategies, you know, marketing through social 147 00:08:18,160 --> 00:08:21,000 Speaker 1: channels like Instagram and Facebook and Snapchat. Now it's a 148 00:08:21,000 --> 00:08:24,760 Speaker 1: bit but you know, big UM channel that people are utilizing. Yeah, 149 00:08:24,800 --> 00:08:28,440 Speaker 1: and there's typically they have internal people the marketing groups 150 00:08:28,480 --> 00:08:32,640 Speaker 1: that will UM spend in different areas and evaluate UM 151 00:08:32,679 --> 00:08:36,160 Speaker 1: conversion rates and a o V S and and different 152 00:08:36,280 --> 00:08:40,080 Speaker 1: what are ao vs. Average order value UM and KPI 153 00:08:40,240 --> 00:08:42,599 Speaker 1: s key performance indicators. Those are things you want to 154 00:08:42,640 --> 00:08:45,160 Speaker 1: look at in these e commerce based businesses to make 155 00:08:45,200 --> 00:08:48,640 Speaker 1: sure that your marketing spend is converting properly in you're 156 00:08:48,760 --> 00:08:51,400 Speaker 1: you're getting the most out of your spend. What's the uh, 157 00:08:51,800 --> 00:08:54,600 Speaker 1: not the biggest mistake you've made, but was there something 158 00:08:54,679 --> 00:08:57,040 Speaker 1: that's happened in the last six months that you wish 159 00:08:57,120 --> 00:08:59,439 Speaker 1: that you had known previously and said, g you know, 160 00:08:59,520 --> 00:09:02,720 Speaker 1: if I don't known that sooner, I wouldn't have done that. Yeah, well, 161 00:09:02,760 --> 00:09:05,080 Speaker 1: look what we're learning this is you know, a first 162 00:09:05,080 --> 00:09:08,079 Speaker 1: time fund for us and UM. You know, I think 163 00:09:08,160 --> 00:09:10,240 Speaker 1: looking back over the year where we picked a great 164 00:09:10,320 --> 00:09:13,720 Speaker 1: group of eight companies, the portfolio will do about sixty 165 00:09:13,800 --> 00:09:17,600 Speaker 1: five million dollars on a consolidated basis this year did 166 00:09:18,240 --> 00:09:22,440 Speaker 1: last year. But the one thing I'd say, looking back 167 00:09:22,520 --> 00:09:26,240 Speaker 1: with maybe change. We followed um some known investors into 168 00:09:26,320 --> 00:09:29,600 Speaker 1: one particular deal kind of based on their previous track record, 169 00:09:30,000 --> 00:09:32,200 Speaker 1: and that's the one that's probably went a little sideways 170 00:09:32,240 --> 00:09:34,520 Speaker 1: out of the eight Um, it's back on track now. 171 00:09:34,600 --> 00:09:36,960 Speaker 1: It's actually there's a pending acquisition involved with that one. 172 00:09:37,080 --> 00:09:39,880 Speaker 1: But you gotta have your own personal conviction around these. 173 00:09:40,080 --> 00:09:42,400 Speaker 1: Got to stay passionate about what you believe in. Yeah, 174 00:09:42,480 --> 00:09:45,079 Speaker 1: definitely well done. Thanks very much for coming in and 175 00:09:45,160 --> 00:09:47,719 Speaker 1: spending time with me. Thanks for having Martin Dolphy is 176 00:09:47,800 --> 00:09:51,400 Speaker 1: a managing partner for M three Adventures. He can be 177 00:09:51,480 --> 00:09:55,640 Speaker 1: followed on Twitter at dolphy Vc. We're gonna take you 178 00:09:55,720 --> 00:09:58,520 Speaker 1: through to the clothes on Wall Street. This is taking Stock, 179 00:09:58,600 --> 00:10:01,439 Speaker 1: I'm Pim Fox, and this is Bloomberg.