20VC HelloFresh CEO on Why When You Raise VC You Only Have Two Options, Why Your IPO Price is Irrelevant, Why Timing is So Important in Going Public & Why D2C is Not Dead with Dominik Richter

In a dynamic conversation, Dominic Richter, co-founder and CEO of HelloFresh, delves into the intricacies of steering a direct-to-consumer giant through the complexities of venture capital, IPOs, and the future of the industry. He shares his journey from aspiring footballer to leading HelloFresh, highlighting the importance of discipline and resilience gleaned from sports. Richter emphasizes the strategic value of tackling operational challenges, which create significant competitive moats, and candidly reflects on fundraising close-calls and the decision to IPO. He also discusses the growth of HelloFresh, including its acquisition of Factor, and the nuances of scaling in the U.S. market. Additionally, Richter touches on his approach to hiring, the influence of competition, and his long-term vision for the company, underscoring a philosophy that prioritizes problem-solving and innovation over short-term stock prices.

• Venture capital raises necessitate a decision on the company's future, whether to sell or go public.
• The category's trading conditions can significantly influence the timing and feasibility of an IPO.
• The first-day stock price is considered inconsequential to the long-term performance and strategy.

"When you raise a lot of venture capital, you need to make a decision. Are you going to sell that company or are you to take it public?"

This quote highlights the critical decision-making point for companies post-venture capital fundraising, emphasizing the choice between selling or IPO-ing.

"The way that our category traded would have not allowed us to ipo the business at any other point in time."

This quote suggests that market conditions specific to the company's industry play a crucial role in the timing and success of an IPO.

"First day price completely irrelevant."

This quote downplays the importance of the initial stock price on the first day of trading, implying that long-term strategy and company performance are more important.

• The podcast features discussions with leaders from direct-to-consumer (DTC) businesses, including Allbirds and HelloFresh.
• Insights are shared on the current state and future of DTC, fundraising, IPOs, and business strategies.
• HelloFresh is highlighted as a leading DTC business with significant operational scale.

"Stay recently we had Joey, founder and CEO at Allbirds on the show to discuss the current state of direct consumer and the future ahead."

This quote introduces the topic of DTC businesses and sets the stage for a conversation about their current and future dynamics.

"Joined by one of the largest direct consumer businesses of the last decade, Dominic Richter, co-founder and CEO at HelloFresh."

This quote introduces Dominic Richter, emphasizing his role in scaling a significant DTC business.

• Notion is presented as a versatile tool that simplifies workflow by integrating notes, documents, and projects.
• AI capabilities within Notion can automate tasks and enhance productivity without the need for separate tools.
• The use of Notion is promoted as a way to support the podcast.

"What was supposed to simplify your workflow just made it way more complicated. Unless, of course, you're in notion."

This quote critiques the complexity of using multiple digital tools and positions Notion as a simpler, integrated solution.

"Automate the tedious tasks like summarizing meeting notes or finding next steps, freeing you up to do the deep work."

This quote highlights the benefits of AI in automating routine tasks, allowing users to focus on more significant work.

• Mercury is introduced as a user-friendly and efficient business banking solution.
• The platform is praised for its ease of use and aesthetics, providing a positive user experience for startups.
• Navan is a travel and expense management app that offers cost savings and rewards for employees.

"Mercury has been a breath of fresh air."

This quote conveys a positive response to the Mercury banking platform, suggesting a refreshing improvement over traditional banking experiences.

"Navan rewards your employees with personal travel credit every time they save their company money."

This quote explains Navan's unique incentive program, which aligns employee savings with personal rewards.

• Dominic Richter shares his childhood ambition of becoming a footballer and the lessons learned from sports.
• The transition from a potential sports career to academia and then to the financial sector is discussed.
• Richter's entrepreneurial drive led him away from Goldman Sachs and towards founding HelloFresh.

"I always wanted to become a footballer. That's what I did most in my youth, basically playing football each and every day."

This quote reflects Richter's childhood passion for football and his dedication to the sport.

"I think that was a mistake on my side."

Richter expresses regret about joining Goldman Sachs, suggesting it was not aligned with his true interests and talents.

"I want to run things, I want to be at the helm of things, I want to invent things, I want to run a business, I want to be the one making decisions."

This quote captures Richter's inherent entrepreneurial spirit and desire for leadership and innovation.

• Richter emphasizes the importance of passion in entrepreneurship, especially when facing challenges.
• He recounts early mistakes at HelloFresh, such as logistical issues with potato deliveries, and the learning opportunities they provided.
• The discussion includes the value of naivety in starting a business and the competitive advantage gained from overcoming complex challenges.

"We didn't know them because otherwise we would have never started that business."

This quote suggests that ignorance of certain challenges can be beneficial, as awareness might have deterred the founders from starting HelloFresh.

"We had to source, I don't know the number any longer, but something like 10,000 potatoes. And you actually source 10,000 potatoes, which is like two big truck loads. And then the trucks actually collapsed, and a highway was actually closed down because our trucks collapsed and the whole highway was full of potatoes"

This anecdote illustrates a specific logistical failure in HelloFresh's early days, highlighting the steep learning curve for the company.

• Richter argues that complex business models create significant competitive moats due to the difficulty of replicating their success.
• He believes that mastering multiple operational aspects is crucial to building a sustainable business.
• The conversation touches on the advantages of having fewer competitors initially and the compounding benefits of solving complex problems early on.

"I like complex businesses. If you figure them out, you create really big, competitive moats."

This quote explains Richter's preference for complex businesses and the strategic advantage they can offer in terms of creating barriers to entry for competitors.

"You need to be world class. You need to build muscles in a lot of different dimensions."

Richter uses an athletic metaphor to describe the need for a business to excel in various operational areas to succeed.

• The podcast discusses the differing philosophies between HelloFresh and some of its competitors, such as Blue Apron.
• Richter credits HelloFresh's success to its focus on deep understanding, in-house development, and building core competencies.
• The importance of identifying which parts of the value chain to own is highlighted, along with the strategic decisions that change with business stages.

"We've always had a big appreciation for understanding things in the most detail."

This quote emphasizes HelloFresh's commitment to in-depth knowledge and mastery of its business processes.

"I don't think you need to vertically own everything."

Richter acknowledges that while some aspects of the business should be owned, it's not necessary or strategic to control every part of the value chain.

• Emphasizing the importance of product market fit in early stages.
• Outsourcing non-essential functions to focus on product development and customer feedback.
• At a certain point, insourcing mission-critical tasks to avoid dependency and understand business aspects better.
• Decision to integrate with more suppliers directly for margin improvement and product quality.

"It's all about finding product market fit. In these times I think it makes total sense to say everything that doesn't have to do with product market fit you want to outsource."

This quote highlights the priority of achieving product market fit and the strategy of outsourcing non-critical functions to conserve resources and focus.

"But at some point I think it's really important that if you actually say like, hey, this is mission critical for my success. I don't want to have any dependency on somebody else."

Here, the speaker emphasizes the strategic shift from outsourcing to insourcing for critical business components to maintain control and ensure success.

• Retaining control over performance marketing due to its impact on customer lifetime value (LTV) and customer acquisition costs (CAC).
• Building an internal team for growth and not depending on external parties for key business operations.

"We also never said we want to outsource anything that has to do with performance marketing, for example, because as a direct to consumer company, right, that's one of the biggest sensitivity on your LTV, to caCs, is your CAC."

The speaker explains the rationale for keeping performance marketing in-house, emphasizing its critical role in the direct-to-consumer business model.

• Discussing the balance between increasing customer acquisition costs due to market saturation and decreasing costs due to brand recognition and word of mouth.
• The need to consider market tenure and category specifics to understand the net effect on customer acquisition costs.

"On the one hand side, you tend to penetrate much more deeply into a specific, total addressable market. And that generally means that your customer acquisition cost goes up."

This quote discusses how deeper market penetration can lead to higher customer acquisition costs.

"And then you need to look really at the category, weighing out the other one. But you're describing well the two dynamics."

The speaker notes the importance of category-specific factors in understanding the net effect on customer acquisition costs.

• Capital allocation as an essential but not exclusive focus for CEOs.
• Importance of resource allocation, including organizing and optimizing team performance.
• Capital allocation gaining importance in mature businesses for investing in high ROI projects.

"I think capital allocation is a very important part of your job, but it's more than capital allocation, right? It's resource allocation."

The speaker broadens the concept of capital allocation to include the overall management of resources, not just financial capital.

"Probably capital allocation becomes more and more important. The more mature your business is, and the less it is about building and the more it is about allocating the capital that you have at the highest ROI projects."

Here, the emphasis shifts to the growing importance of strategic capital allocation in mature phases of a business.

• Successful track record in mergers and acquisitions (M&A).
• Allocating generated cash flow to operations, technology, and automation.
• Highlighting a successful M&A decision with the acquisition of Factor, a readymail company.

"I think I have a pretty good track record in m and a. Over the last four years, we've generated about 1.5 billion in cash flow from operations."

The speaker shares their successful experience with M&A and its role in the company's financial strategy.

"The best capital allocation decision, nonetheless, was probably one of the m and a deals that we did."

This quote points to a specific M&A deal as an example of effective capital allocation.

• Expansion into new markets and categories post-IPO.
• The decision to explore other direct-to-consumer verticals that share characteristics with meal kits.
• Trial and error in developing new product lines, leading to the acquisition of companies with expertise in desired areas.

"We also said there's a good opportunity to actually go into a premium category and into a sort of like everyday value category."

The speaker discusses the strategy of diversifying product offerings to cater to different market segments.

"We first had a big discussion about, is that something we should incubate ourselves back in 2019?"

This quote reveals the company's internal debate on whether to develop new verticals in-house or through acquisition.

• The relationship between product quality, operational efficiency, and margins.
• Importance of managing inventory and production processes to maintain quality.
• Owning large-scale cooking facilities to control product quality.

"I would say it's one component of it, how much money you invest, but a lot is how do you cook that? How do you prep it?"

The speaker highlights the operational factors that influence product quality beyond just the cost of ingredients.

"We have two of the three biggest cooking facilities in North America."

This quote points to the scale of operations and the importance of controlling the production process for quality assurance.

• Reflections on the experience of being a public company.
• The impact of daily stock price fluctuations on team morale and the importance of focusing on long-term company health.
• The necessity of going public for companies that have raised venture capital and wish to maintain control.

"It's not the easiest to have a daily reflection of everything that's going on on a screen and a value put on you every day instead of every two years or so."

The speaker reflects on the challenges of being a publicly traded company with daily stock price evaluations.

"But if you want to keep being in charge and you have raised venture in the end you need to go public."

This quote explains the rationale behind going public for venture-backed companies that want to retain control.

• Observing the trend of market segmentation and the rise of niche meal kit providers.
• The expectation of having major brands alongside smaller niche players in consumer categories.

"You tend to have the gorillas in a certain category and you tend to have a much more fragmented long tail because you also have long tail tastes and some niches."

The speaker acknowledges the coexistence of large and niche players in consumer markets, including meal kits.

• Considering the potential effects of a recession on the meal kit industry.
• Balancing cheaper alternatives with the convenience and value of meal kits.

"I was thinking, does that help you or does that hurt you? People can get food cheaper if they go to kind of more discount supermarkets, but then also they may not be going out to restaurants and they may get it instead."

The speaker speculates on the dual impact of a recession on consumer behavior and the meal kit business.

• In economic downturns, people reduce spending on eating out and increase consumption of home-cooked meals.
• Existing customers of food delivery services tend to show loyalty by ordering more.
• Tough economic times make customer acquisition challenging, especially for new routines with comparable or higher costs.
• Companies can navigate economic cycles without severe negative impacts if they adapt correctly.

"One of the first buckets people start saving is they're going less to restaurants. That's definitely what you have seen in previous recessions." "I think our existing customer base actually shows very good retention."

These quotes highlight observed consumer behavior during economic downturns, emphasizing the shift from dining out to eating at home and the importance of customer retention for businesses like food services.

• The DTC landscape has changed significantly from its early days.
• Early DTC success was achieved by rebranding outdated products and leveraging a few growth channels.
• Modern DTC companies require a unique value proposition and sophisticated marketing strategies.
• Despite challenges, the DTC model remains viable, with successful new companies and exits each year.

"A very different time than what it was maybe five or seven or eight years ago when the whole direct to consumer boom started." "But still, every single year you have great direct to consumer companies being started."

These quotes reflect on the evolution of the DTC business model, indicating the increased complexity and competition in the space, while also acknowledging the ongoing opportunities for success.

• Not all DTC companies should pursue venture capital; some may benefit from smaller funding rounds and a focus on profitability.
• The speaker's personal experience includes advising founders on funding strategies.
• Certain business characteristics, such as high-frequency transactions and large market potential, can justify venture capital investment.

"I don't think you can make a plain or broad statement that applies to all companies." "I think we have a number of particular features, characteristics of our business model, why it makes sense to raise venture."

These quotes discuss the nuanced approach to venture capital for DTC companies, suggesting that while venture capital isn't universally appropriate, it can be justified for businesses with certain characteristics.

• Fundraising processes often begin too late, leading to close calls with financial stability.
• The speaker recounts moments when their company was days away from potential bankruptcy.
• The key to managing stress includes having a profitable business and engaging in stress-relieving activities like sports.

"We definitely started fundraising processes too late, and it was very, very close to actually closing around and getting it done." "So I think in the early days, there were one or two occasions where we were literally like three to five days before thinking about filing for chapter eleven."

These quotes reveal the speaker's experiences with the pressures of fundraising and the importance of timing in securing financial stability for a company.

• Success and wealth can be fleeting; long-term satisfaction comes from being at peace with oneself.
• The speaker is motivated by solving problems at scale and the challenge of competition.
• Personal growth is likened to a race against oneself rather than external factors.

"In the end, it's always a race against yourself and against your mind and how you feel about things." "I would describe it with problem solving at scale."

These quotes delve into the speaker's personal philosophy on success and motivation, emphasizing internal fulfillment over external achievements.

• U.S. market size demands different strategies, including faster scaling and higher salaries.
• European companies in the U.S. must adapt to intense competition and different venture capital dynamics.
• Attention to detail and an engineering mindset can be advantageous in the U.S. market.

"The differences really all go back to just the massive size of the domestic market in the U.S." "It's a lot more cowboy math that you need to do."

These quotes discuss the unique challenges and strategies required for a European company to succeed in the U.S. market, highlighting the importance of adapting to the market's scale and competitive landscape.

• The timing of an IPO is more crucial than the initial share price.
• Public perception can impact company morale and market performance, but it's not the sole determinant of success.
• The speaker believes that establishing a solid track record post-IPO will lead to fair valuation over time.

"The price at which you go public is completely irrelevant." "I sometimes think that public markets, in their mind, have the idea that a company is finished or negative."

These quotes reflect on the speaker's perspective on the process and implications of taking a company public, emphasizing the long-term over immediate market reactions.

• Importance of long-term IPO pricing over short-term.
• The irrelevance of the first-day IPO price compared to 12-month and multi-year performance.
• Timing of the IPO in relation to market conditions and macroeconomic factors.
• Risks of aiming for perfect market timing and potential need for emergency fundraising.
• The company's approach to share structure, avoiding preferences and ratchets.
• The value of going public when the opportunity arises and proving oneself in the public market.
• Historical context of companies failing to IPO due to over-optimization.

"I think it's irrelevant. First day price, completely irrelevant. The price after twelve months, after two years, yes, that starts being relevant. The price after three years, that's what you should be optimizing for."

This quote emphasizes the speaker's belief that short-term IPO pricing is not significant, advocating for a focus on longer-term financial performance as a measure of success.

"We never had any structure. We never had any ratchets. We always were very conservative on that end, and we wanted to go kind of like very quickly towards having common shares."

The speaker reflects on their conservative approach to share structure, emphasizing the importance of simplicity and speed in moving towards common shares, avoiding complex financial instruments.

• The CEO's discomfort with being the center of attention.
• The need for CEOs to push themselves in areas they may not enjoy.
• The importance of public storytelling and communication for CEOs.

"I don't particularly enjoy being the center of attention. I can be fairly good at it, but I just don't enjoy it that much."

This quote reveals the CEO's personal challenge with public attention, highlighting the tension between personal preferences and professional demands.

• Early-stage recruitment focused on frugality and personal networks.
• Importance of convincing personal connections to join one's company.
• Transition to hiring for raw intelligence over experience in growth stages.
• The value of developing domain experts from smart hires.
• The speaker's contrarian hiring approach compared to board expectations.

"After that period, you have the opportunity for a couple of years to hire for raw smartness."

The speaker discusses the strategy of hiring individuals with raw intelligence during the company's growth phase, indicating a belief in the potential of smart people to become domain experts.

• The benefits of in-person collaboration for team building and mentorship.
• The impact of in-person work on engineering practices like mob programming.
• The advantages of physical presence for strategy alignment and planning.
• Acknowledgment of remote work's efficacy under clear milestones and delivery expectations.

"There is a huge value in that. Everything that has to do with planning, that has to do with aligning on strategy, figuring out architecture, playing thoughts back and forth, these things work way better."

This quote highlights the advantages of in-person collaboration, particularly in the context of planning and strategic alignment.

• The predominance of tactics over strategy in business operations.
• The belief in setting a long-term strategy and focusing on tactical execution.
• The CEO's approach to strategy as a stable, long-term plan.

"Everything around tactics is much more important than strategy."

The speaker asserts the importance of tactical execution in achieving business success, suggesting that a stable long-term strategy allows for a focus on day-to-day operations.

• The CEO's interest in understanding the business operations of Premier League football clubs.
• The desire to learn about the decision-making and sophistication within sports businesses.

"I probably would love to be the CEO of a Premier League football club for a."

The CEO expresses a hypothetical interest in leading a Premier League football club, reflecting a fascination with the sports industry and its management complexities.

• Viewing competition as a source of innovation and inspiration.
• The importance of paying attention to direct competitors and other market players.
• The arrogance of ignoring the learnings and experiments of competing companies.

"I think it's extremely arrogant to not pay super close attention to competition."

This quote underscores the speaker's belief in the value of observing and learning from competitors as a means to drive innovation and avoid complacency.

• The CEO's view on money as a threshold for comfort, not a primary motivator.
• The distinction between financial comfort and the intrinsic motivation for work.

"There is a certain threshold where probably some things become a lot easier and a little bit more comfortable, but it's not the main motivator."

The speaker reflects on the role of money, suggesting that beyond a certain point, it does not primarily drive their actions or decisions.

• The importance of questioning norms and forming one's own views.
• The necessity of thinking from first principles and being contrarian.
• The belief that to achieve exceptional success, one must challenge the status quo.

"I think you have to be contrarian to out execute and outperform the 99.9% of others."

The speaker advises that to truly excel, one must adopt a contrarian approach and not simply follow popular opinion or trends.

• The CEO's perspective on the integration of work and life.
• The fluidity between professional development and personal enjoyment.
• The challenge of the traditional work-life balance paradigm.

"Work is part of life. I don't think the two need to be in balance."

This quote portrays the CEO's view that work and life are not separate entities that require balancing but rather integrated aspects of a fulfilling existence.

• The CEO's reading habits, including the number of books read annually.
• The impact of the Elon Musk biography on the CEO's understanding of SpaceX and business.

"I probably read about 25 to 30 books a year."

The speaker shares their reading habits, indicating a commitment to continual learning and intellectual growth.

• The CEO's intention to continue leading HelloFresh in the future.
• The aspiration to expand the company's business lines and solve problems at scale.
• The condition that personal enjoyment and problem-solving remain central to the CEO's role.

"I think most likely I'll still be running HelloFresh."

The speaker expresses a long-term commitment to leading HelloFresh, provided that the work continues to be personally fulfilling and problem-oriented.