In this episode of the 20 minutes VC, host Harry Stebbings interviews David Pakman, a partner at Venrock and a key investor in Dollar Shave Club, to discuss the company's journey and recent acquisition. Pakman, who has a background as an Internet entrepreneur and co-creator of Apple Computers Music Group, delves into his investment strategy, focusing on the significance of low churn rates and large market demand for subscription services. Despite initial difficulty in raising capital, Venrock's belief in Dollar Shave Club's potential and its non-consensus investment approach paid off, leading to a successful exit through an acquisition by Unilever. Pakman also touches on the evolving landscape of consumer products, highlighting the necessity for companies to adopt a direct-to-consumer model and leverage data to improve their offerings.
"Welcome back to another episode of the 20 minutes VC with your host Harry Stebings. And you can add me on Snapchat at htebbings with two B's for all the backstage footage and passes into the top VC's offices." "But for the show today, we're celebrating the acquisition of Dollar Shave Club. And when we thought about this episode, we thought who better to have as a guest than one of Dollar shave's biggest advocates and lead investors in the a and B round, David Pakman."
The introduction sets the stage for the episode, highlighting the significance of the Dollar Shave Club acquisition and the credentials of the guest, David Pakman.
"I'm a computer science engineer. I went to work at Apple for about five years. I did software product marketing there as a product manager and then I started the music group. After Apple, I left and either worked at or started two or three different Internet companies." "And after three Internet entrepreneur episodes, I joined Venroc about eight years ago as a partner and I focus on early stage tech investing."
David Pakman describes his journey from engineering to venture capital, emphasizing his experience in the tech industry and his role at Venrock.
"When I saw the dollar Shave club launch video, just like everyone else did on their launch day in March of 2012, I was blown away by the comedy. I thought the marketing was fantastic. I loved the value proposition." "But what intrigued me the most was hey, this is a huge market where churn is likely to be really low." "I flew to LA quickly and sat down with Michael and his team and started to go through the numbers and I was very specifically focused on let me see churn. Let me see what the early cohort churns are. And they were extraordinarily low."
David Pakman explains that Dollar Shave Club's marketing, large market potential, and low churn rates were key factors in his decision to invest in the company.
"In the case of dollar shave, there were a couple of things that were interesting about its origin. It had raised about a million dollar seed round from many well known vcs." "But surprisingly, a number of the firms who were already seed investors either did not engage with the company around its series A or took a look and passed." "But it was a signal that there's something about this company or category that investors don't love, and that's generally true of e commerce."
David Pakman discusses the unexpected lack of competition in investing in Dollar Shave Club's Series A round and the general investor skepticism towards e-commerce.
"I'm so intrigued there. Party rounds are such an interesting debate for me. Do they still prevail largely in the funding environment today, or have we seen a quelling of them in hopefully more rational environments?"
Harry Stebings expresses curiosity about the occurrence of party rounds in funding, prompting a discussion on the topic.
I think now we're six or seven years into the last cycle and larger VCs, many have already tried and some have abandoned the seed strategy.
The quote explains that larger venture capital firms have been engaging with seed funding strategies for several years but are now pulling back from this approach.
Venroc took the lead in both the A and the B, which is quite rare.
This quote highlights Venroc's unusual decision to lead consecutive funding rounds for Dollar Shave Club, indicating a strong belief in the company's potential.
There was no lead to be found... I had to articulate a funding strategy that if the company needed to raise lots more know Venoc is not a mega fund, we could not fund the company through to its exit.
The quote explains the absence of a lead investor for the Series B round and the need for a strategic funding approach due to Venroc's limited capacity to support Dollar Shave Club to an exit.
We talk about being non consensus at the time of our investment, provided it is consensus later.
This quote reflects Venroc's investment philosophy of initially going against the grain with the hope that the market will eventually recognize and agree with their early assessment.
We went from 20 million in year two to 60 million in revenue in year three... Gillette had not still to this day, has not reacted in a competent way that put any pressure on dollar shave club.
The quote details Dollar Shave Club's revenue growth and the competitive landscape, which contributed to attracting broader investor interest and securing further funding.
We have an investment thesis about consumer products... we concluded that Amazon would not be able to do that in this category.
This quote explains Venroc's analytical approach to investment, particularly regarding the potential threat posed by Amazon's entry into the market, which they determined was unlikely to impact Dollar Shave Club significantly.
"So I think Michael really understands what makes a compelling story that consumers respond to. He's a storyteller, right? I mean, he literally has comedic experience and built viral videos for companies before. So he sort of understands how he tells story."
This quote explains the importance of storytelling in marketing and how Dubin's background in comedy and video production contributed to the success of Dollar Shave Club's marketing campaigns.
"Unilever offers that right now as an acquirer. They operate in every country. They have massive distribution and marketing resources. They've got great production ability. They basically offer that to the companies they acquire."
The quote emphasizes the strategic decision to sell to Unilever, highlighting the benefits of leveraging Unilever's established global presence and resources to accelerate Dollar Shave Club's growth.
"I think there is pressure now on all of the large consumer products companies to become DTC. And you can either buy or build or both."
This quote highlights the current market pressure on traditional consumer product companies to adopt a direct-to-consumer model to remain competitive, suggesting that acquisitions will continue as companies seek to integrate DTC capabilities.
"We had a great experience with Nest, where we learned from an incredible team that you can take a very popular, very large consumer products category... and you could not just innovate and advance the state of the art, but you could actually create a premium product and own sort of the premium segment that didn't exist before."
The quote reflects the insight gained from Nest's success in innovating within a traditional product category, leading to interest in other areas capable of similar disruption and premium positioning.
"It's going to be a shift away from oil internal combustion engine cars to electric cars."
This quote explains the transition in the automotive industry towards electric vehicles, moving away from traditional internal combustion engines.
"Cars are going to drive themselves, and autonomous vehicles need really good software and lots of data, two things that incumbent car companies aren't very good at."
Here, David Pakman emphasizes the importance of software and data for the development of autonomous vehicles, pointing out a weakness in current car manufacturers' capabilities.
"We think cars will be sold direct to consumer. The way Tesla is doing it, much better experience and fits with the things I was talking about before."
David Pakman suggests that the direct-to-consumer sales model, used by Tesla, enhances the customer experience and aligns with the industry's evolving trends.
"So we're intrigued by the idea of cars that can get better over time."
The concept introduced here is that cars, like smartphones, can receive updates and new features without needing to purchase a new vehicle, which represents a significant shift in how we perceive automobile ownership.
"Carol Dweck's book is my absolute favorite from, I would say, the last two years. It sort of taught me the growth mindset that so many people talk about now."
David Pakman expresses his admiration for Carol Dweck's book, which promotes the idea that intelligence and abilities can be developed over time.
"I'm definitely focused on not letting anything stand in my way mentally, not letting me, myself be self defeated."
This quote underlines David Pakman's determination to avoid self-imposed limitations, which is essential for personal development and productivity.
"They are super unique marketers that really understand how to have conversations with their customers."
David Pakman highlights Dollar Shave Club's exceptional marketing skills, which contribute significantly to their success in the e-commerce space.
"They were very, very helpful early on, I can tell you that."
The quote reflects on the vital assistance provided by Science Studio in the initial stages of Dollar Shave Club's development.
"They are an incredible team. I think there are 53 people from Apple, 70 total people now that built and managed and delivered iPhones, iPads, Apple Watch and iPods in use by more than a billion people."
David Pakman explains his investment in Pearl, emphasizing the team's impressive background and their potential to disrupt the automotive industry.