20VC The Metrics That Matter In EarlyStage Consumer, Why Moats Matter More Than Brand Today and How VCs Deal with S Hit The Fan Moments with Jason Stoffer, Managing Partner @ Maveron

In this episode of "20 Minutes VC," host Harry Stebbings interviews Jason Stauffer, Managing Partner at Mavron, a consumer-only venture fund. Stauffer discusses his journey from a middle-class upbringing to a venture capitalist, emphasizing the importance of understanding unit economics, creating defensible brands, and the strategic value of moats in today's brand-centric world. He shares insights from his experiences with companies like Zulilly and General Assembly, advocating for a focus on core customers and organic growth over heavy reliance on paid acquisition channels. Stauffer also touches on the challenges of competing with giants like Amazon and the potential consolidation in the consumer startup space. Highlighting the importance of CEO involvement in strategic pivots, Stauffer underscores the critical balance of aggression and fiduciary responsibility in venture capital.

• Harry Stebings introduces the episode of "20 minutes VC" and invites listeners to engage on Instagram.
• Harry announces the guest, Jason Stauffer, managing partner at Mavron.
• Mavron is a consumer-only venture fund with a portfolio including eBay, Zulily, General Assembly, Allbirds, and Deer Co.
• Jason has expertise in consumer education, e-commerce, and marketplace businesses, and has been a board member for several consumer businesses.
• Harry thanks Brad Hargreaves for introducing Jason to the show.
• Harry also promotes The League, a dating app, and Zoom, a video and web conferencing service, as well as Culture Amp, an employee feedback platform.

We are back for another week on the 20 minutes VC with me, Harry Stebings and if you have a guest you'd like to submit for the show or a question you'd like to ask, head over to Instagram and follow at H Stebings 1996 with two B's.

This quote is Harry introducing the episode and inviting audience engagement.

So with that in mind, I'm thrilled to welcome Jason Stauffer, managing partner, Mavron, the consumer only venture fund backing a new breed of brands.

Harry introduces Jason Stauffer as the episode's guest, highlighting his role and the focus of Mavron.

• Jason Stauffer grew up in a suburb of Detroit with a middle-class upbringing.
• His parents' stable life and middle-class values inform his preferences for companies that target middle America rather than the 1%.
• Jason's curiosity about the world led him to his first job at Cranes, a business newspaper.
• He transitioned from journalism to venture capital, joining Spinnaker Ventures in San Francisco during the first Internet boom.
• After the dot-com crash, Jason attended Wharton to further his education.
• He then worked at Career Education Corp., which led him to Mavron.

So I grew up in a suburb of Detroit. My dad was a phys ed teacher and my mom stayed home to give a sense of who they were. They still live a mile from where they met at a sweet 16 party.

Jason shares his humble beginnings and the influence of his parents' stable, middle-class life on his values.

So my first job after I graduated from the University of Michigan was an internship at Cranes, the business newspaper.

Jason's career began in journalism, which laid the groundwork for his venture into venture capital.

• Jason's venture capital career started with Spinnaker Ventures, where his journalism skills were valuable for writing investment memos and annual reports.
• The dot-com crash prompted Jason to pursue an MBA at Wharton.
• Post-Wharton, Jason wanted to experience the operational side of businesses and joined Career Education Corp.
• His role at Career Education Corp. eventually led him to Mavron, where he has been investing for over a decade.

So I go on hot jobs and I apply for a venture capital role and somehow talked my way into a small firm called Spinnaker Ventures.

Jason describes his initial foray into venture capital and how his unique skills contributed to his hiring.

• The dot-com crash influenced Jason's preference for companies that build strong infrastructure and understand unit economics before scaling.
• Jason contrasts two approaches to building a brand: using capital as a blunt force object versus building a strong, defensible brand with good fundamentals.
• He believes that more capital is not usually the solution to business problems.

I think the.com crash in many ways informed my point of view that more capital is usually not the solution to problems.

This quote reflects Jason's philosophy on the role of capital in building sustainable businesses, shaped by his experience during the dot-com crash.

• Jason asserts that in addition to brand, having a defensible moat is crucial for long-term success.
• Moats can be a part of a brand's identity, especially in luxury or companies with a strong focus on values, like Everlane.
• Building something unique and hard to copy is essential for a brand's defensibility.

In today's immensely brand centric world, you've said that moats matter as much, if not more than brand. What makes you say this, Jason?

Harry questions Jason on the importance of moats in a brand-centric world, prompting a discussion on building defensible brands.

But in most cases, you have to think more strategically around what are you building that's hard to copy?

Jason emphasizes the need for strategic thinking in creating a business that is difficult for competitors to replicate.## Unit Economics and Scalability

• Unit economics are critical even at early stages for assessing the scalability over time.
• Scalability of unit economics is a point of debate among investors.
• Some investors, like Jason Stauffer, prefer businesses with a clear path to significant revenue rather than a focus on TaC (Total Acquisition Cost) and LTV (Lifetime Value).

"I actually disagree with Pratt. I think if TaC and LTV is a focus on a series, a deck, I essentially just want to throw the deck out."

This quote reflects Jason Stauffer's disagreement with a focus on TaC and LTV in a startup's financial deck, suggesting that he values other business aspects more for scalability and success.

• Targeting niche markets that have the potential to tap into larger markets can be a successful strategy.
• Dowelskill is an example of a niche brand that targets a specific demographic but has a large potential market.
• Artistic voice and a dedicated community can serve as a strong moat for a company.
• Successful portfolio companies often have high repeat business and do not rely heavily on paid acquisition.

"For me is an entrepreneur who targets an area that seems niche, but once you dig in, it actually has a path to significant revenue."

Jason Stauffer emphasizes the importance of targeting niche areas that reveal significant revenue opportunities upon deeper analysis.

• Defensibility can be created through strategic thinking about supplier power and brand utilization.
• Zulily created a moat by becoming the go-to brand for closeout products from boutique kids' brands.
• General Assembly leveraged its brand and global footprint to secure long-term contracts with corporations for tech skill training.
• CEOs need to assess their brand's assets strategically to create sustainable competitive advantages.

"My formative experience in venture was Zulily. When I first joined Mavron, I had the chance to sit in the room as the founders of Zulily were creating the framework for building the brand."

Jason Stauffer shares his experience with Zulily as an example of strategic moat creation through understanding supplier dynamics.

• Over-reliance on paid acquisition channels can be detrimental to organic growth and brand strength.
• Companies that scale too quickly with paid acquisition can struggle to maintain growth and create lasting equity value.
• The best entrepreneurs focus on winning their core customers' hearts and encouraging word-of-mouth marketing.
• Paid marketing should be part of a toolkit, not the sole strategy.

"I think if there's a unique characteristic across the most successful portfolio companies we have, it's high repeat and a lack of dependence upon paid acquisition for a significant piece of your revenue."

Jason Stauffer suggests that successful companies in their portfolio share a common trait of not depending heavily on paid acquisition for revenue, indicating the importance of organic growth.

• The current market makes it difficult for new online brands to scale and go public.
• Many new vertical brands lack differentiation and face challenges in scaling.
• Investing focus has shifted to areas like real estate and healthcare where solutions involve direct consumer interaction.
• Brands like Common are creating new value propositions in real estate by offering community spaces for millennials.

"I think the era of being able to toss up to start a new brand online and scale it and take it public, I think it's very hard to do."

Jason Stauffer remarks on the challenges new consumer brands face in scaling and going public in the current market, indicating a shift in the investment landscape.## Economic Value Creation in Hard Industries

• Modern businesses that create significant economic value are often operationally challenging.
• These businesses involve hiring numerous employees and engaging with people offline.
• They target large, traditional industries such as real estate, transportation, and healthcare, which are difficult to transform.
• Transformation requires more than digital innovation; it necessitates a change in consumer mindset and behavior.
• Millennials lack emotionally positive brand associations in these industries, indicating a need for more people-centric business models.
• Companies like Booster Fuels are disrupting the norm by delivering gas to corporate parking lots, eliminating the need for gas station visits.

"I think a lot of the businesses where we think a lot of the economic value is created today are hard. They require hiring a lot of employees. They require touching people offline."

This quote emphasizes the complexity and hands-on nature of businesses that are creating economic value in today's market. They are challenging because they involve significant human resources and interact with consumers directly in the physical world.

• The effectiveness of a VC can take years to evaluate, as evidenced by the experience with Zulilly.
• VCs must be mindful of their influence on entrepreneurs, ensuring that their advice and feedback are intentional and not influenced by their own stress or emotions.
• The anecdote of the office space comment highlights the importance of being considerate of the impact of a VC's words on an entrepreneur and their team.
• Conveying urgency deliberately to a CEO is sometimes necessary but should be done with care to avoid unnecessary stress.

"It takes a long time to know if you're any good. And I think the hardest part as you're going through that journey is everything you say to an entrepreneur you work with has to have intent."

The quote reflects on the delayed gratification inherent in venture capital and the responsibility of VCs to communicate with purpose and consideration, understanding the weight their words carry.

• Balancing authenticity and the need to maintain a composed demeanor is a challenge for VCs.
• Entrepreneurs who are effective at scaling companies aggressively can cause anxiety for VCs, but trust in their decision-making is crucial.
• VCs must constructively discuss concerns without adding to the entrepreneur's stress.
• The relationship between a VC and an entrepreneur involves a delicate balance of transparency and support.

"My partner Dan Levitan usually says the best and worst entrepreneurs make you very nervous."

This quote captures the paradox of venture capital, where the most promising entrepreneurs can also be the most unnerving, highlighting the need for VCs to manage their own anxieties while supporting bold entrepreneurial actions.

• VCs must continually assess their learning curve and ability to improve their investment strategies.
• The venture capital industry is characterized by a high number of mediocre performers, making self-evaluation critical for success.
• Personal growth and the ability to generate venture-scale returns are key indicators of a VC's progress.
• Reflection on past outcomes, like the investment in General Assembly, helps in gauging future potential.

"Are you learning and are you getting better? I think you really learn the business over your first couple of years writing checks."

The quote underscores the importance of self-improvement and learning from experience in venture capital, as well as the need for honest self-assessment to achieve success in the industry.

• Building a sustainable brand that endures for decades is essential for long-term success.
• Companies like Trupanion demonstrate the potential for predictable revenue and market leadership.
• The challenge for online businesses is the unpredictable nature of customer acquisition costs (CAC).
• Selling to an established offline leader can be the best outcome for online category leaders.
• Entrepreneurs must consider whether they are creating a deep need for Fortune 500 companies or building a brand that can become a Fortune 500 company.

"Can you build a sustainable brand over decades?"

This quote questions the longevity and sustainability of brands in a rapidly changing market and highlights the importance of building a brand with enduring value.

• The venture capital business thrives on anomalies that can yield substantial returns.
• Not all exits provide venture-scale returns, and the timing of exits can affect the magnitude of these returns.
• The discussion contrasts the outcomes of companies like Chewy's and Bonobos, illustrating the variability in exit strategies and returns.
• VCs must consider the attractiveness of potential investments to large incumbents as part of their strategy.

"But this is a business of anomalies. I mean, the anomalies is where fortunes are."

The quote encapsulates the venture capital industry's reliance on exceptional cases that can lead to outsized returns, underscoring the search for unique investment opportunities that can disrupt the market.## Investment Strategies in Consumer Brands

• Evaluating potential acquirers for invested assets, including traditional CPG and next-gen tech brands.
• Assessing economic value created by startups and their possible exit options, such as acquisition or becoming a public company.
• Considering EBITDA multiples for mature businesses and market conditions like froth or downturns.

"So ultimately we look at kind of what would an EBITDA multiple be at a mature EBITDA for a business, and kind of what could happen if there's some froth in the market or alternatively if there's a macro downturn."

This quote explains the approach to determining the investment value of a business by estimating future EBITDA multiples and factoring in market volatility.

• The importance of the CEO's role in pivoting a business focus.
• The challenge of pivoting from consumer to enterprise market, which required the CEO's dedicated effort.
• The lesson that strategic initiatives need the CEO's full attention and cannot solely rely on professional managers.

"My biggest lesson was when you have an incredibly important strategic initiative, the CEO needs to clear everything off their plate and make it happen."

Jason Stauffer emphasizes the critical role of a CEO in driving significant strategic changes within a company, based on his experience with General Assembly.

• The omnipresent concern of Amazon's influence on portfolio companies and market dynamics.
• Strategies to compete with Amazon include creating emotional brand connections and focusing on neglected retail categories.
• Amazon's aggressive pricing strategies, such as with Ring, create challenges for investments in similar markets.

"I think the best way to beat Amazon is with heart."

Jason Stauffer suggests that creating a strong emotional bond with customers is a key strategy for brands to compete against Amazon's dominance.

• The strategic decision-making behind direct-to-consumer brands opening physical stores.
• Evaluating if physical stores can serve as an effective acquisition channel and increase brand awareness.
• The importance of meeting customers where they are and leveraging different growth levers like retail, wholesale, and international expansion.

"So the customer is going to tell you, do they want a physical store? Do they actually want delivery within an hour? Without a physical store, how do they best want the brand to meet them?"

Jason Stauffer discusses the critical analysis that goes into deciding whether a direct-to-consumer brand should expand into physical retail based on customer preferences and the potential to create equity value.

• The synergy between left-brain (analytical) and right-brain (creative) thinking in founding teams.

"I think the best founding partnerships have this incredible alchemy between left brain and right brain."

Jason Stauffer highlights the importance of a balanced founding team that combines analytical and creative skills to drive a startup's success.

• Imperfect Foods' business model of selling irregularly shaped produce at a discount.
• The appeal of online grocery as a growth category.
• The company's alignment with consumer values on sustainability and cost savings.

"I love when a company can hit on a customer's heartstrings, both in terms of they feel good by using the brand and they're able to save money versus their alternatives."

Jason Stauffer explains his enthusiasm for Imperfect Foods, as the company addresses both emotional appeal and practical benefits for consumers, which he considers an ideal investment scenario.

• Expressing gratitude to individuals who have supported the host outside the show.
• Promotion of social media accounts for further engagement with the podcast and its guests.
• Endorsements for third-party applications and services, such as The League, Zoom, and Culture Amp.

"And if you'd like to see more from Jason, you can on Twitter at Jace Doffer. Likewise, we'd love to see you behind the scenes here at the 20 minutes vc."

Harry Stebings provides ways for listeners to connect with Jason Stauffer and to engage with the podcast's behind-the-scenes content, emphasizing the importance of community engagement.

• The podcast wraps up with a reflection on the discussion, focusing on consumer brands and the impact of digital strategies.
• The host thanks the guest for the insights shared and looks forward to a special upcoming episode.

"It, as you can tell, I had so much fun with Jason. They're absolutely geeking out on all things consumer brands and paid channels."

Harry Stebings concludes the episode by sharing his enjoyment of the conversation with Jason Stauffer, indicating the value of the discussion on consumer brands and marketing strategies.