20VC Lightspeed's Nicole Quinn on Why We Are Not In A Consumer Downturn, Why M&A Has Not Been This Exciting For A Long Time & Why Amazon Is Never Your Friend

In a conversation with Harry Stebbings on "The 20 Minute VC," Nicole Quinn, a partner at Lightspeed Venture Partners, discusses her journey from a finance background at Morgan Stanley to the venture capital world, focusing on consumer markets and investments in companies like Cheddar, Zola, and Rothy's. Quinn emphasizes the importance of brands as a network effect and the power of content as a moat against competition, particularly from giants like Amazon. She also shares insights on the changing landscape of consumer startups, the rise of digitally native vertical brands (DNVBs), and the significance of data in understanding customer behavior. Quinn predicts voice as the next significant platform and stresses the continued relevance of the app ecosystem despite challenges. Lastly, she touches on the current consolidatory environment in e-commerce and the need for diversity in Silicon Valley.

• Nicole Quinn is a partner at Lightspeed Venture Partners, a leading venture fund.
• Lightspeed's portfolio includes Snapchat, Nest, Stitch Fix, App Dynamics, and Maxlev firm.
• Nicole's focus is on the consumer market with investments in Cheddar, Zola, and Rothy's.
• Prior to Lightspeed, she worked at Nutmeg and Morgan Stanley, where she covered consumer e-commerce and brands.
• Nicole worked on IPOs for Facebook, Groupon, and Pandora.
• She has also appeared on Apple TV's "Planet of the Apps."

"Now Nicole is a partner at Lightspeed, one of the world's leading venture funds, with a portfolio including the likes of Snapchat, Nest, Stitch, Fix app, dynamics and Maxlev firm, just to name a few."

This quote introduces Nicole Quinn as a partner at Lightspeed Venture Partners and highlights some of the high-profile companies in their investment portfolio.

• Nicole was influenced by her inquisitive mother and competitive, entrepreneurial father.
• Her father, at 78, launched a new startup in London and is seeking seed funding.
• Nicole's academic background in mathematics led her to finance.
• She spent nearly a decade at Morgan Stanley on the equity research and sales side, covering retail and e-commerce.
• Nicole worked with companies pre-IPO, focusing on positioning them for IPO and scalable growth.
• She then joined Nutmeg, a consumer fintech startup, focusing on brand marketing and fundraising.
• Nicole brought her experience from Morgan Stanley and Nutmeg to Lightspeed.

"I was always the math student, so naturally went into finance and then I nearly spent a decade at Morgan Stanley... And then I went to a consumer fintech startup... Nutmeg... and then tried to take those lessons and bring those lessons over to Lightspeed."

This quote explains Nicole's journey from her mathematical background to her roles in finance, specifically at Morgan Stanley and Nutmeg, and how she brought her experiences to her current role at Lightspeed.

• Nicole covered ASOS when it was just starting, and the stock was valued at 3 pence.
• She learned the importance of sticking with something that is working and not discounting early success.
• Nicole emphasizes the value of supporting founders and being the best partner throughout a company's growth.

"I remember covering asos when the stock was three p... if something's working, then you just got to really stick with those founders and continue to be the best partner you can."

This quote reflects Nicole's philosophy on investment, highlighting the importance of recognizing and supporting successful ventures from an early stage.

• Nicole spends time with Digitally Native Vertical Brands (DNVBs) or Digitally Vertically Integrated Native Brands.
• These brands prioritize selling through their own channels to own the entire customer experience.
• Owning the customer journey allows these companies to gain insights into customer behavior, preferences, and loyalty.
• The key to success for DNVBs is the data they collect on their customers.

"So I spend a lot of my time with digitally native brands or DVNBs digitally vertically integrated native brands... owning the entire customer journey is key to these companies success and to the data that they have about who their customer is."

This quote defines Digitally Native Vertical Brands and emphasizes the importance of owning the customer journey to collect valuable data for business success.

• Nicole is attracted to data that shows customers' love for a brand.
• Key data points of interest include Net Promoter Score (NPS), repeat purchase behavior, and referral programs.
• Data that indicates customers are returning and referring others to the brand is particularly exciting for Nicole.

"For me personally, it's any data that shows me that the customer truly loves this brand... It's also data surrounding the referral program to show that people are not just coming back themselves, but they're also telling their friends about this."

This quote highlights the types of customer data that Nicole finds valuable, focusing on customer love for the brand, repeat purchases, and referral behavior.

• Referrals are often driven by motivations other than financial incentives.
• People enjoy sharing their discovery of new products, which can be tied to ego.
• Data shows a pattern of customers returning and referring others.

Maybe they're referring their friends not for money. There's quite often other motivations. Quite often it's the ego of saying, oh, I found this amazing new product, you have to try it too.

This quote emphasizes the psychological and social factors that motivate consumers to refer products to friends, highlighting that financial incentives are not the only drivers of referral behavior.

• Nicole Quinn views brand as a significant network effect in consumer markets.
• User economics and total addressable market (TAM) are less crucial if the brand fails to attract customers.
• A strong brand can create a "moat" around a business, ensuring customer retention and referrals.

I certainly believe that brand is a key network effect.

Nicole Quinn affirms the importance of brand as a network effect in the consumer industry, suggesting that it plays a central role in a company's ability to maintain and grow its user base.

A brand. A little bit of science and a little bit of magic all rolled into one.

This quote, referencing Emily from Glossier, encapsulates the dual nature of a brand as both a strategic and enigmatic element that contributes to a company's success.

• Nicole Quinn believes TAM is not as important as many think.
• Great consumer companies often start in small markets but expand the market itself.
• The focus should be on the potential growth of the market, not its current size.

So this is contrarian, but I actually don't think that TAM is very important.

Nicole Quinn challenges the conventional emphasis on TAM, suggesting that the potential for a company to expand the market is more significant than the market's current size.

• Lightspeed considers high margins crucial, comparing e-commerce companies to SaaS businesses.
• Some digitally native vertical brands achieve high margins comparable to software companies.
• High-margin consumer brands are considered as attractive as enterprise solutions.

So if we're bringing a 30% gross margin ecommerce company to the table, then that to us is not going to quite hit the bill or cut the mustard.

This quote reflects Lightspeed's standard for investment in e-commerce companies, indicating a preference for businesses with exceptionally high margins.

You look at cosmetics, for example, and a lot of these cosmetics brands have 95% margins.

Nicole Quinn points out the high profitability of certain consumer sectors, such as cosmetics, where margins can rival those of SaaS businesses.

• Not all consumer sectors require losing money on initial customers to scale.
• E-commerce and brand-focused businesses can be profitable quickly, often using retail stores as cost-neutral marketing channels.
• Lightspeed invests in companies that can scale profitably from the outset.

That statement is not necessarily true in e-commerce land.

Nicole Quinn counters the belief that consumer businesses must initially lose money, indicating that it does not always apply to e-commerce and brands.

• Nicole Quinn suggests we are between major technological platforms, with voice as the likely next big platform.
• Amazon's Alexa has made significant inroads into homes, suggesting a potential shift in consumer interaction.
• The goal is to identify companies that can transcend platforms and tap into key consumer trends.

So this fallow period that you speak of, I like to think of this as we are in a period between platforms and we don't yet know what the next platform is going to be?

Nicole Quinn provides a perspective on the current state of consumer technology, proposing that we are in a transitional phase awaiting the next dominant platform.

• There is a debate over whether Amazon stifles competition or expands market opportunities.
• Nicole Quinn agrees with Kirsten Green and Henry McNamara that Amazon can increase market size but warns that Amazon is not necessarily an ally to other businesses.

Amazon is not your friend. They are maybe increasing the size of the market opportunity...

This quote reflects Nicole Quinn's nuanced view of Amazon, acknowledging its role in market expansion while cautioning against viewing the company as a benign partner.

• Amazon's dominance in e-commerce creates challenges for other companies.
• Companies need to establish moats to protect against Amazon's ability to replicate successful business models.
• Brand and content are cited as significant moats that can prevent Amazon from taking market share.
• Glossier is highlighted as an example of a company that successfully used content to connect with customers and create a moat.

"They are making companies' lives very, very difficult. And anything that's working, they see and they decide to go after."

This quote emphasizes the competitive threat Amazon poses to other e-commerce businesses by replicating successful strategies.

"Brand is definitely a moat and content is another really interesting moat that I like to think about."

This quote underlines the importance of building a strong brand and creating compelling content as defensive strategies against competitors like Amazon.

• The current environment in e-commerce is consolidatory, with many acquisitions occurring at high revenue multiples.
• Large beauty brands like Estée Lauder and L'Oréal are acquiring smaller companies to drive growth and innovation.
• The valuation of a company is ultimately determined by what acquirers are willing to pay.
• Big companies acknowledge a lack of internal innovation and rely on acquisitions to address this gap.

"I believe M&A has not for a very long time been this exciting."

This quote captures the speaker's view that the current period is particularly dynamic for mergers and acquisitions in e-commerce.

"Something is only worth what someone's willing to pay for it."

This quote highlights the subjective nature of company valuations in the context of acquisitions.

• The impact of acquisitions on venture capital funds depends on the stage of investment and the valuation at entry.
• For larger venture capital funds, billion-dollar acquisitions are necessary to significantly affect returns.
• Capital efficiency and the potential for an IPO are critical considerations for investors evaluating e-commerce companies.

"We definitely need billion dollar plus acquisition to move the needle for our funders."

This quote reflects the scale of acquisitions required to make a substantial impact on large venture capital funds' returns.

"Remember that stitch fix only raise their seed and series A before getting to the point that they're currently at."

The speaker uses Stitch Fix as an example of a capital-efficient company that achieved significant growth with minimal fundraising.

• Nicole Quinn describes her involvement with the reality show "Planet of the Apps" as a positive and enjoyable experience.
• The show aimed to democratize entrepreneurship by featuring founders from across the U.S., not just Silicon Valley.
• Nicole Quinn is passionate about companies that serve the broader population, exemplified by her investment in Holler, an online dollar store.

"It was originally will I am's idea, so he pitched it to the propagate guys."

This quote explains the origin of "Planet of the Apps" as a concept pitched by musician will.i.am.

"The show really democratized entrepreneurship because we looked across the entire country for founders."

The speaker emphasizes the inclusive nature of the show, seeking to represent diverse entrepreneurial ventures from across the nation.

• In a crowded market, it's crucial for venture capital firms to have a clear brand and set of values.
• Content creation is an essential part of establishing a VC brand and differentiating in the market.
• VC firms should communicate their focus areas and expertise to attract the right opportunities and partnerships.

"I think it's important that people know what you stand for, what your values are, and what sectors you're spending your time on."

This quote stresses the significance of a clear and communicated brand identity for venture capital firms in a competitive environment.

• Nicole Quinn recommends Phil Knight's "Shoe Dog" for lessons on the founder's journey and brand importance.
• Her personal favorite book, read multiple times, is Enid Blyton's "The Folk of the Faraway Tree."

"My favorite book, and the only book that I have read seven times is Enid Blyton's folk of the Faraway tree."

The speaker shares her favorite book, indicating a personal connection and repeated enjoyment from the story.

• Specialization is critical in VC, particularly in areas like e-commerce, brands, digital health, voice, etc.
• Being a specialist ensures better insights, board membership, and networking within the industry.
• A VC should be supportive and provide peripheral vision to the founder, not take control.

"So my view is that this business is one of specialization and so it's important whether it be e commerce, brands, digital health, voice or whatever next space we move into that I know the space extremely well."

This quote emphasizes the importance of specialization in venture capital, suggesting a deep understanding of specific sectors leads to more effective investment and support.

"It's not the VC's job to grab the wheel. At the end of the day, it is your job to have the periphery vision."

This quote highlights the VC's role as a supportive guide rather than a controller, providing strategic oversight and connections without steering the company.

• The App Store is not dead, but becoming a home screen app is increasingly difficult.
• Daily active users (DAUs) are a critical metric for app success and positioning.
• For social media apps, a DAU/MAU ratio of over one-third is desirable, over 50% indicates daily use.

"Disagree. But I do think that it is increasingly hard to be a home screen app."

Nicole Quinn disagrees with the idea that the App Store is dead but acknowledges the challenge of an app becoming essential to users.

"If you're a social media app, then we want it to be over a third. If it can be over 50%, then it really is a daily use case."

This quote outlines the benchmarks for successful engagement rates in consumer apps, particularly social media, where high DAU/MAU ratios signal strong user retention and daily relevance.

• Nicole Quinn reads Lean Lux, Business of Fashion, and Glossy religiously.
• She appreciates the quality of content provided by these sources, particularly Lean Lux by Paul Mumford.

"Well, given how much I love the space, I always read religiously. Lean Lux, business of fashion and glossy."

This quote reflects Nicole Quinn's commitment to staying informed and her preference for certain industry publications that focus on the intersection of technology and fashion.

• Nicole Quinn advocates for greater diversity across all levels of startups and Silicon Valley.
• She believes diversity leads to learning, growth, and better outcomes.
• Diversity should be present in partnerships, boardrooms, and company composition.

"Well, very timely right now, but I have to say greater diversity across the board."

Nicole Quinn identifies diversity as a key area for improvement in the startup ecosystem, emphasizing its timeliness and importance.

"We learn, grow and mature through being around people who are different from us."

The quote underscores the value of diversity in fostering personal and professional development, which can lead to superior results in business environments.

• Rothy's is a digitally native vertical brand that uses recycled plastic bottles for shoes.
• The company's woven technology results in comfortable, sustainable footwear.
• Nicole Quinn was impressed by Rothy's customer experience, word-of-mouth marketing, and product quality.

"Why you said yes, that will definitely be Rothy's. I have never seen word of mouth like this company."

This quote explains Nicole Quinn's decision to invest in Rothy's, highlighting the exceptional word-of-mouth marketing that the company has achieved.

"The product itself is just better than any other shoe I've experienced."

Nicole Quinn's personal experience with Rothy's product contributes to her confidence in the investment, as she finds the shoes superior in comfort and quality.

• Lattice is a performance management solution for growing companies.
• It offers features like 360 performance review cycles, continuous feedback, OKR goal tracking, and one-on-one meetings.
• Lattice is trusted by companies such as Coinbase, Plangrid, Birchbox, and Wepay.

"With Lattice, it's easy to launch 360 performance review cycles as often as you want."

The quote describes the flexibility and ease of use provided by Lattice's performance management tools, which can be customized to a company's needs.

• Recurly provides an enterprise-class subscription management platform.
• It aims for rapid value without extensive integration efforts.
• Recurly can increase revenue by 7% and reduce churn rates.

"And that's why thousands of customers from twitch to HubSpot to CBS Interactive Trust Recurli as their subscription management platform."

This quote presents Recurly as a trusted solution for managing subscriptions, with notable clients that indicate its effectiveness and reliability in the market.