1.2.8 The Pitch Process: A VC’s perspective. Interview with Eurie Kim, Forerunner Ventures


I’m Karl Ulrich, I’m a professor at The Wharton School. And I’m very lucky to be joined today by Eurie Kim whose a partner at ForeRunner Ventures. Eurie, thanks for coming in. >> Thank you for having us. >> First, just a disclaimer, you were my student >> I absolutely was. >> I don’t think that presents any conflicts at all, but I just want to get that out of the way, you’re my student. And it’s so great to see you now in this role. >> Thank you. >> Tell us a little about ForeRunner. What is ForeRunner about? >> Sure, ForeRunner is an early-stage venture Venture Capitol Firm. We are dedicated to investing in the evolution of commerce. >> Mm-hm. >> And, that means all kinds of things, but, effectively, we’ll take a consumer lens, to the opportunities we evaluate. And really think about, how the consumer is changing, what the product or service is being offered, and how technology really brings that to the market in a new way. >> There are thousands of venture capital firms, especially in this area. What is that makes ForeRunner different? Is it that industry focus? >> You know, it is. I mean, we call it a thematic focus because some people will say you just invest in e-commerce. And e-commerce is just one thing, but commerce is everything. Any transaction, any product or service that you might buy. You could be a business customer or you could be an end consumer. And so for us we feel our differentiation is really the lens that we look at, and kind of how we think about this opportunity to disrupt a particular market from the consumer perspective. And then we have a very active management approach, so we spent a lot of time with our founders. I think a lot of firms do try to add a lot of value in different ways, but we find that we are more quality over quantity. So we have a smaller portfolio, it’s more concentrated, and we do take a pretty partnership approach to that. >> Well speaking of portfolio, give us an example of a company or two that you’ve invested in? >> Picking the babies, which ones should I take? >> Yeah, we’ll just draw randomly then. >> The ones that people will know are in the earlier vintage when my partner first started the firm, so those will include companies like Bonobo, Warby Parker, which is obviously a Wharton alum team, even Birchbox and HotelTonight. So those are sort of the first generation of commerce companies that have really risen to being more well known. I think now what’s interesting is
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it’s not just the apparel brands or product brands that we’re investing in. We invest in tools and technologies as well. We have a really interesting B to B platform, so business to business platform, that is disrupting the off priced inventory space. So apparel’s a multi trillion dollar business, a lot of it actually happens off price, so on sale. And brands and retailers have a lot of challenges figuring out what to do with that inventory. So this team in New York called INTURN is creating a digital platform to connect brands and retailers. To be able to more effectively clear their off priced inventory. >> For bulk purposes? >> Bulk purposes exactly. So that’san example of something that’s maybe not necessarily product based. Within the product world, for instance, people might not think that we’re Investors in kind of the health care arena. We have a company called Curology, which is a direct to consumer prescription skincare brand. And now this is disrupting acne and anti-aging medication which ultimately, maybe people would think of as healthcare, but it’s actually a consumer brand. So the dermatologist that’s started it, has proprietary formulations. I’m really trying to disrupt how people can experience the efficacy of real acne medication, so that’s another brand that we’ve worked with. >> I’m sure that when you tell people you’re an venture capitalist, that their wheels start turning, they imagine all kinds of things. What do you think is the biggest misconception about what venture capital is that you encounter? >> Gosh that’s a really good question. You know I think that people don’t realize it’s actually, it’s a very difficult job. Because you’re a venture capitalists by nature Because you’re so excited about the future and innovation, and supporting new developments. But the majority of our job is actually to say no. >> Yeah. >> And so when I first started, I didn’t realize how hard it would be to be sitting next to someone who’s presenting to you their dream. They’ve worked on it for however long. They quit their job, they put in all their money to bring this to life, and more often than not we have to say no. So it’s really difficult part of the business. >> Yeah, tell us a little bit about the numbers. You say you have to say no a lot. >> Yeah. >> So how often do you have to say no? >> So we’ll about 1000 to 1200 deals a year. I think that’s pretty standard deal flow for a venture capital firm or for a particular smaller group. But what’s different is that’s all in commerce for us. So other firms will do a lot of different types of sectors or market kind of areas. We’ll have 95% of ours all be commerce related. And of those we invest in about 1%. >> 1%, so you do 10 investments out of 1000. >> 10-15. >> Yeah, I’ll volunteer a misconception. People often think these are vast enterprises, venture capital firms. How many people, how many investment professionals, are looking at a thousand plans a year? >> So, in our team we have three investment professionals. Myself, the founder of our firm, Kirsten Green. We have an associate, Nicole Johnson, and so we will be making the final investment decisions. And then we have two other members for our team. Melissa who is in New York and she actually in terms of thinking about how we support our portfolio companies, she has deep expertise across marketing. Whether it is paid channels, branding, how to think about building a marketing team. And as we were growing ourselves as a firm and thinking, what are we really good at and why do founders want to work with us? It was because we had a view on marketing and customer acquisition and so we felt it was really important to add that skill set to the team. And so we all collaborate, it’s a very flat organization. Everyone takes part of deals. We’re saying due diligence, closing the transaction and then ultimately managing the portfolio. >> So to put that in, just to do the arithmetic in rough terms. So you personally will say no to 300 people a year, something like that. That is, if you just take the 1,000, it’s about 300. >> Yeah, it’s 300 or 400. >> Yeah, and say yes to 3. >> And with that, I would say that we have a pretty robust deal process. >> Yeah. >> And we’ll get in the 1000 to 1500 deals. I would say 80% of those are probably straight passes. >> Yeah, before you even do it. >> We have to get through them somehow. There’s gotta be a lens, and so we have certain themes that we’re looking at. We may have just invested in a apparel company. So portfolio diversity wise, we just can’t do another one right then after. And so there’s a lot of factors that I do think are misconception with venture, is that, well you say you like this kind of business. You’ve invested in Warby and Bonobos, and so this’ll be the perfect deal for you. I think one thing people have to realize is that I’ve just done a deal in your space, I can’t do another one. So, kind of thinking about diversity is one thing that we do a lot. >> Yeah, all right, so if you only say yes to ten deals a year, what do you do all day? >> [LAUGH] >> Tell me what you day is? >> Carl, I ask myself that all time time. We’re so busy, I don’t know why. Let me think here. Let me think about this. >> Well this ain’t [CROSSTALK] tell us about a typical day. >> Typical day I come in. i usually have at least two or three new deal meetings. >> Yeah. >> Those will be An hour each. >> And that would be somebody who’s made it through the first screening? >> Made it through the first screening, we’ve received a draft, we’re interested, we want to learn more, so we want to meet them, the founder or the team. And that’ll be an introductory meeting and we’ll have obviously some thoughts and questions. And then with any given week that there’s usually a couple of portfolio companies that have compressing issues whether it’s strategic planning, or it’s prepping for a board meeting or thinking about certain new hires, so we might be interviewing people to help them. Might be doing reference calls.
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I took a couple of interviews for one of our companies bloom that, which is a flower delivery service here in San Fransisco. But they did a big launch this week, so PR wise, I took a couple interviews of them with journalists.
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Then we’ll do some internal stuff. We have a leadership platform which is only available to our portfolio company leaders, and we’ll create original content for that. We will develop sort of a resource database. If you’re looking for a PR firm you can just go in there and pull down PR firm and there’s all the people that we know of that we’ve worked with and people in the portfolio have worked with and so we’re constantly building out that. And then I would say some of it is thinking about new themes,
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reaching out to founders in our network we don’t do as much outbound sourcing as I think some firms do. But that’s the benefit of having a bit of a focus because now people know if you have a commerce related business we’re a great place to check in. And our co-investors know that as well. So the day goes by fast, but I would say it’s a really, it’s a lot of portfolio work. >> Yeah. >> A lot of just continued thought leadership and pushing our own thinking on what’s happening in our space. >> Yeah. One of the things that strikes me as hard about your business, is you don’t really know how you did for seven to ten years. It’s almost worse than being a professor [LAUGH] where it takes us a long time to see any results. So how do you think about the success factors on sort of a daily, weekly, monthly basis? >> Yeah, it’s a good one. So we do copious quarterly reporting for our own limited partners. We call them LPs. And. >> And maybe it would be worth spending two minutes explaining how the industry works. >> Yeah. >> So if the money you’re investing. >> yeah. >> This comes from his office. >> So venture capital firms are, it’s capital that will be mainly institutional. It will come from endowment, fund to funds foundations.
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Sometimes you’ll have intercapital firms raise from individuals or strategics. That’s a strategy we have even employed throughout the former, which is institutional firms were kind of signing up for a long-term relationship, so that when we raise fund two, fund three, fund four, that they are still around. I think that you can have a lot of amazing people in your fund that are individuals that have capital. But as you grow your business, can you continually put in more money if you’re just a family? Maybe not. >> Right. >> So Kirsten, who started the firm, she has always thought strategically about how do you build a business for the long term, not just one fund today. And so we have amazing LP’s that are investors on our front, and it’s something that’s interesting but when we’re fundraising, we’re basically just like the founders. We go, we have a pitch to add, we’ve got a financial model, we’ve got here’s our team, here’s all the stuff we’ve done, our attraction and so it seems very much like we are in fact the founder pitching to ourselves. It’s a little bit of a strange dynamic. >> Meaning they don’t return your phone calls either. >> Exactly. >> [LAUGH] >> When they have time, you change your entire schedule to go meet them wherever they want to meet, and kind of have that humility as well. So we know how you feel, the founder perspective.
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So anyways, so we’re investigating on behalf of all of the capital that’s been invested into our fund.
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And we track metrics, whether it’s revenue to plan
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or new customers, or new users. We’ll figure out with each company as they’re onboarded what are the key metrics that actually start to build up to some semblance of what success could look like. In the early days there was not much going on, so anything is positive. Assuming it’s moving forward. But over time we start to realize okay well, if this is a business that requires marketplace dynamics. Well then who’s a buyer, who’s a seller? Are the buyers becoming sellers? Okay, then how much are they buying? So you start thinking about what numbers really help support a view. And I think what’s fun for us is, in a world where people are talking a lot about heightened valuations and mark downs and all this stuff. We look at our portfolio and we say, we avoided the crazy mark up situation, and we feel really confident that the valuation that our companies have are warranted. But one statistic we actually pulled for our own pitch stack was that our portfolio has $900 million, almost $1 billion of revenue. >> Wow. >> Just companies in our portfolio. >> That’s actual revenue. >> Actual revenue. And I think that’s really notable. So we work really hard to to invest in companies that have real business models. >> Yeah. >> And are really sort of offering to the consumer, whoever the consumer is, I think that’s a little different than maybe audience faced businesses. Or things that are a little bit more intangible and take a long time to figure out what the monetization would be. >> Right. I have a lot of you people tell me they want to be venture confidence, and you probably hear that yourself. But tell us a little bit about how you got into the business and what advice you’d give to someone. >> Sure. I think it’s such a serendipitous path for a lot of people. There’s a handful of folks who can just go the finance route, or banker, or it was in school. You came out and you went to a big firm, and that’s great. But more and more I think Venture capitals about what your unique perspective is, what you have to the table that might attract the founder. And honestly founders have so much diversity. So I connect with you as a partner, I’m more likely to come to you for investment capital. If it’s somebody that I feel, like doesn’t understand where I came from or what I’m even trying to do, then no matter what fancy brand the firm is, it’s happening such that doesn’t make as much of a difference to the founders. So as a result, my quick background is, I started off at management consulting at bay here in San Francisco. It was the best starting point in a career that I could ever have. You learn how to be a good business person, you learn how to be analytical, you learn how to think about what is important for a business to be sound. And at the time i was able to get into the retail practice pretty quickly, I already had a passion for the consumer perspective and put up my hand and said this is what I want to learn more about ,so managed to do that and I also. >> Within Bane? >> Within Bane, and we had several. >> Were really large retail clients that were great brains in the market. But really thinking, and this was a long time ago, so they were thinking more like okay how do you generally grow? What’s the market expansion plan? What’s the cost reduction plan? So general stuff. And then private equity was pretty hot back then, and so I got into a private equity group and was learning what investing looked like. But really the consultants that supported those Investments we’re thinking about is this a good business? What opportunity is there in the market and what does this business think to look like to make it an attractive investment. So it’s a little bit more tactical. But through that, I ended up moving over to a private equity firm that was consumer retail specific. So really tying the gap between investing and retail more closely, and that was at Castanea partners which is a firm in Boston and they really have an active management approach too. So you invest in few companies but you spend a lot of time with the companies. Really helping the founders, ultimately the family that ran the business or the founder that ran the business think about how to scale. So you’ve got a great. Company, you’re 20 million in revenue, you’ve got a few million in cashflow. What do you want to do with it? You want to grow it to, 50 stores, or do you stay at five stores? And so those are all the foundation of just tactical skills that I learned, but I always had a passion for entrepreneurship. Wanted to start something. Had a bunch of ideas. But, it was always like, I think I need to learn this I think I need to learn that. At a certain point I thought, I’ve learned a lot, I should probably just do it. I don’t know if I have the right idea but I could just get out there and do it. At the time actually when I went to Wharton, it was a time where I had an Idea, maybe didn’t have quite all the pieces aligned to just go out there myself and have a team. I didn’t know anything about the industry I was thinking about disrupting. And so Wharton was a great place where I took all these entrepreneurial management classes. I was able to write my business plan, my financial model, my marketing strategy, my consumer research all in classes at Wharton, which was so fun. Actually thought of a bunch of ideas in your class but they didn’t work. [LAUGH] And I spent a lot of time watch Wharton entrepreneurial programs, venture initiation programs. >> Mm-hm. >> Spent my summer launching the company. So it really took my time at Wharton and threw it into starting a business. And after that, for family reasons, after graduation I had to come back to the bay area. >> Yeah. >> And so it didn’t make sense for me to continue my business in New York. >> Yeah. >> So I said, okay, well, personal things always happen. >> Sure. >> And you’ve got to be flexible, so I said being here, they’re an amazing team. I love everything I’ve done there. Why don’t I go back, reinvigorate my network in the bay area. Think about what ecommerce is looking right now, and it was definitely percolating more and more. And so I spent another two years back at bay doing exactly that. And I think that was the best decision for me at the time, because it actually got a sort of top level view of the way traditional companies were thinking about the changes in the industry. And then when I met Kirsten through a business school classmate of mine and my cohort, she was really pulling together the thesis for enough happening in the commerce space and technology being at this critical mass that it was time that a firm could really focus on this space. And so we met and there was nothing there. A foreigner was one investor, Kirsten, 20 companies in her angel portfolio and no office. >> Yeah. >> And that in itself is like starting a start up company. So I think my experience, because having done all these different things, allowed me to say, I can leave this amazing company right before promotion, leave all this money on the table and just try this thing. And at worse, it’ll be interesting. It’ll be a ride and I’ll learn a lot. So. >> Now that was how long ago? >> It was in late 2011. >> Wow. >> We started early, 2012, so almost four years. >> Yeah, yeah. >> Time flies. >> Yeah. So if I go to the website, I click on about us. I’ll see five women. Five lovely women by the way. >> Thank you. [LAUGH] >> [LAUGH] And five lovely women, is that, let’s forget the lovely part. But is it accidental that it’s five women?
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>> It actually is accidental. So when I met Kirsten, she had met a bunch of different people. She was looking for maybe a partner, maybe not, definitely someone to help get this thing off the ground. And we both happen to be women and happen to have a lot in common, so we really connected. Then when we hired Nicole as our analyst, she was reaching out actually to get a different job. She was trying to get a job at Everlane. [LAUGH] She’s like, I kind of want to be in marketing, I don’t know, and I’m like okay, that’s a great idea. It’s a great firm, great brand, tell me about what you like about it, and as we’re talking I went, this is somebody who has a lot of analytical skills. Marketing is a great place for that person, but kind of just pitch what you think about being in venture capital, which I can’t imagine. I don’t even have any finance background. You don’t really need it all the time, so I managed to bring her on board. But that was also accidental. And when we were thinking about extending to marketing expertise. [INAUDIBLE] And so I think it was accidental because we were looking for people who are passionate and smart about what we were doing. >> Mm-hm. >> And thinking about the expertise that we were trying to build into the team. I think what’s not accidental about it is when you think about it from a consumer landscape. Then you do find that, hey, women happen to be a lion’s share of the consumer dollars. So people who are passionate about our space may be over next to being women. We find that in our portfolios about 60% male founders, 30% female founders, 60 40. But again not by design, just happens to be so. And so, we often think about it, should we hire a male counter part. Just because we’re all female and maybe that’s discrimination. >> Mm-hm. >> And I thought, we should just hire the best person. >> Yeah. >> And we would be so happy if a guy wants to come in and bring his perspective and a new idea and and new sort of role in the team, and that would be awesome. >> Mm-hm. >> He would obviously need to have got of a lot of sisters because we. >> [LAUGH] >> Definitely behave like a big family. >> Yeah. >> But I think that we’ve also benefitted from having our perspective because
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it’s definitely unique in the market. A voice at the boardroom table that is different. >> Mm-hm. >> And the way of thinking about deals that’s a little bit different. >> Yeah. >> So we collaborate with a lot of other firms on the market and their teams are primarily male, 100% male. So we aren’t going to go out of our way to try to infuse diversity for the sake of it. I think we’re going to stick whoever is best at the job is going to stay on top. >> Entrepreneurship is itself quite male, skewed quite male. Venture capital, even more so. And venture capital has certainly, particularly in the Bay Area, have taken a lot of heat recently for just how male it is. Putting aside the particular lens you have because of your perspective on shopping and commerce as women and certain kinds of industries. Do you think you manage the business differently? Do you think there are ways you make decisions, the way you manage the business. Do you think it’s different than what we find at an all-male venture accounting firm. >> I think it is. It’s hard to tease out exactly how but we find that when we collaborate on diligence notes, I think, male or female aside we’re just extremely diligent, period. >> Right, yeah. >> We have extensive work that we do. >> Yeah. >> A lot of venture capitalists, will go on gut and pattern recognition, that’s something that we care about a lot. There’s huge value to that. >> Yeah. >> Because if you’ve already seen everything in a market, you don’t need to do much of market research to figure out what feels like it’s closer to the right answer than not, and we do do that as well. But, I think that our general perspective is just some venture capital firms will really over-index on technical team. >> Yeah. >> Like if there’s not amazing engineering staff and understanding exactly how much coding experience they have then it’s no go. I don’t look at our deals that way. >> Yeah. >> We don’t necessarily need some crazy PhD that can code all kinds of stuff. We need somebody who understands what our shopping experience needs to look like. >> Mm-hm. >> Or what a mobile experience needs to look like. And what is the most simple way to get to that answer. I don’t think it’s technology for the sake of technology. And so we just happen to be looking at different type of outcomes. And I think that people are always going to be really important for any investor to feel comfortable that you’ve got the right team here. Again, there’s always emphasis on multiple time entrepreneurs or teams that are really sort of, why this team, this problem, so it makes sense. But for us, we’ll also think about Why this founder might have a sort of magnetic quality that’s going to draw people to him or her, whether it’s customers, investors, PR people, and most importantly recruits. So it’s different, again, a different lens but not necessarily a different number of things that we’re looking at. And I think for our deal, so we have, I think on our website, there’s a bunch of capitalists are always looking for a big market, big idea, big problem scalable solution.
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We agree. Those are all things that we are also looking at, but we look at what is an unfair marketing advantage. What is special about this particular idea that’s going to get an off money better and faster than someone else who is just paying for every single customer? And I think that’s a question that doesn’t necessarily get asked a lot. We also ask a lot about business model, unit economics, really early on because, again, we’re not quite so sure how to invest in these general ideas that maybe one day make money. Maybe they don’t, but they seem interesting. It’s not really our perspective, so there’s a different perspective. >> I want to wrap up by asking you to give some advice to young entrepreneurs. So you say no a lot. So you’ve seen good pitches, you’ve seen bad pitches, you’ve seen what it takes, what’s lacking. The first time entrepreneur who is interested in attracting venture financing, what advice would you give them? >> I would say think really long and hard as to why you want venture capital. >> Mm-hm. >> Because you’re signing up for a path. >> Yeah. >> You can’t get off. >> Yeah. >> And if your business is not one that really can support that level of fast growth and skill, and you’re not ready for that ride.
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It’s not just something to be able to tell your friends you did. It’s a promise that you are signing up for this journey, and you’re not going to stop until you win. And I think that level of pressure is not necessary for every successful business. There are other ways to fund a business that it doesn’t necessarily take on that much pressure. I think a lot of times companies that otherwise could have stayed in business will go out of business because of the capital structure they took. So I mean that’s more of a friendly word of caution. In order to get a venture capitalist’s attention if you decided that that is the path you want to go, I would say really think about our perspective. Now I’ve got a portfolio.
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Our business is that of having winners that are returning 10, 20, 30, X our fund. Why is your business going to be the one to do that? You know, I get it. It’s a good idea. It’s neat. It grabs attention.
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We’re investing all ideas we see, because we see tons of them. It has to be great. >> Yeah. >> It has to be something that has potential to crush it. >> Yeah. >> And so, if you have an idea that’s starting to percolate, think about what the big vision is and think about what it would take to get this little idea to become something bigger, and really talk about that, because that’s what people are going to get excited about. >> All right, well thanks so much for coming here and sharing your wisdom. >> You’re so welcome thank you for having me.

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