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Dolfi on Investment in Fashion & Lifestyle (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Bim Box and Kathleen
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  Speaker 1: Hayes on Bloomberg Radio. I want to invest in consumer
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  Speaker 1: brands and retail. Want to construct a portfolio that includes
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  Speaker 1: trying to find the next hot thing. Well, you probably
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  Speaker 1: want to consult with Martin Dolphy. He is a managing
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  Speaker 1: partner of M three Adventures. He can be followed on
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  Speaker 1: Twitter at Dolphy Vc. And Martin joins me in the studio. Martin,
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  Speaker 1: thanks for coming in, Thanks for having me them. Tell
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  Speaker 1: people a little of your background so that they understand
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  Speaker 1: where you're coming from and what you're trying to accomplish.
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  Speaker 1: Sure UM. I began my career in investment banking UM
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  Speaker 1: I was a consumer analyst and then made the jump
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  Speaker 1: over to private equity UM In two thousand and six
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  Speaker 1: and seven, I was involved with the acquisition of American
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  Speaker 1: Apparel and brought that company public UM and from from
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  Speaker 1: that point forward I had an interest in consumer and
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  Speaker 1: retail investing. I ended up joining Creative Arts Agency in
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  Speaker 1: there and and running their consumer and fashion group. So
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  Speaker 1: began doing business development, a lot of collaborations with Target
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  Speaker 1: and H and M and Top Shop for brands like
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  Speaker 1: Rag and bone marquesa opening ceremony and um. And then
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  Speaker 1: from from that point forward, UM, you know, really wanted
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  Speaker 1: to put some some money to work in the in
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  Speaker 1: the sector. So early early last year began a venture
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  Speaker 1: capital firm that invests in early stage consumer companies and
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  Speaker 1: that this is M three Ventures. M three Ventures tell
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  Speaker 1: us about M three Ventures and the kinds of companies
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  Speaker 1: or the kinds of strategy that you're looking to support.
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  Speaker 1: The first filter is high growth, so we've got to
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  Speaker 1: see companies at least with a percent year over year growth.
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  Speaker 1: Typically we'll will wait until they get out to uh
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  Speaker 1: five to ten million in annual revenues UM. With consumer brands,
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  Speaker 1: I think you want to let them go a little
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  Speaker 1: bit further to make sure there's a real sustainable business there.
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  Speaker 1: And um, you know, we look for founders that have
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  Speaker 1: strong track records of running running great management teams. Typically
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  Speaker 1: the things we get involved with have millennial underpinnings, so
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  Speaker 1: their customers are young and engaging, and they leverage technology
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  Speaker 1: to inter interact with the consumers better. I'm just gonna
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  Speaker 1: give you one name from your portfolio, so maybe use
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  Speaker 1: that as an example, and we'll go through some of
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  Speaker 1: the others, but Carbon thirty eight. Yeah, Carbon thirty great
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  Speaker 1: team Katie Warner Johnson and Caroline Gogla help people what
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  Speaker 1: it is. We don't, Yeah, they so they it's an
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  Speaker 1: online marketplace that sells women's activeware brands. So you go
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  Speaker 1: to Carbon thirty eight dot com. You get a drop
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  Speaker 1: down menu, there's fifty women's activeware brands and um and
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  Speaker 1: they you know, they buy it wholesale and mark it
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  Speaker 1: up at retail and they've had phenomenal growth. Will do
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  Speaker 1: about twenty million and revenue this year, did did seven
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  Speaker 1: last year and um, you know, great team. We also
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  Speaker 1: invested in a Spiritual Gangster, which is a yoga brand
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  Speaker 1: based out of Phoenix. Um. Great team, husband wife team
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  Speaker 1: that used to own a dozen yoga studios. They sell
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  Speaker 1: uh soft goods a pair Errol through Equinoxes, Bloomingdale's and
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  Speaker 1: lots of independent yoga boutiques. Yeah. I was gonna say
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  Speaker 1: that you're not just focused on clothing and and and retail. Mean,
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  Speaker 1: for example, I know that you've got a company called
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  Speaker 1: Soma that is part of the portfolio. Tell us about Soma. Yeah.
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  Speaker 1: Some uh some is a great company based out of
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  Speaker 1: San Francisco. Run by a game Mike del Ponte um,
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  Speaker 1: they produced beautiful kind of decanter quality UH water UH
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  Speaker 1: filtration products. The easiest way to think about it is
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  Speaker 1: it's almost like Apple design meets the Britta beautifully designed
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  Speaker 1: UH biodegradable products. The filters you get bi monthly in
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  Speaker 1: the mail, so six of the revenues through UH filter
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  Speaker 1: subscription and you're filtering through burnt coconut shells. So something
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  Speaker 1: that you know better than some of the plastics products
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  Speaker 1: in the market. How do you how do you figure
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  Speaker 1: out what the valuation is of a company that is
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  Speaker 1: growing so quickly. I mean, it's easy to figure out
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  Speaker 1: in the in the public mark cut right, but these
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  Speaker 1: are all private. In the private market, typically uh, you know,
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  Speaker 1: you're paying for a growth store. You're paying up for
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  Speaker 1: a growth story a little bit um. The you know,
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  Speaker 1: the multiples that we observe in the market are typically
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  Speaker 1: three to four times trailing twelve months revenues and you know, uh,
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  Speaker 1: you know, three three to two and a half to
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  Speaker 1: three times current year annual revenues UM. Most of the
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  Speaker 1: time at this stage in the companies, they're just focused
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  Speaker 1: on top line growth UM. That's that is changing you know,
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  Speaker 1: in the in the kind of broader macro climate, companies
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  Speaker 1: are trying to tighten up margins and make sure they're
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  Speaker 1: they're building a sustainable business. But UM, you know, it's
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  Speaker 1: key to have a really, really great growth story if
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  Speaker 1: we're going to get involved. Now, there's one company called
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  Speaker 1: Janue and this I gotta say is something I've never
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  Speaker 1: seen before. This is clothing, but it is for professionals,
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  Speaker 1: and I mean professionals in the healthcare industry. Yep, yeah,
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  Speaker 1: so yeah, John who's based out of Los Angeles. UM,
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  Speaker 1: great guy runs it. Former private equity yakaipa UH investor
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  Speaker 1: and UH an Indian family that actually has ties to uh,
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  Speaker 1: you know, apparel and manufacturing over there. So so they
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  Speaker 1: produce better design scrubs basically, and you know, it's a
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  Speaker 1: very sleepy market, lots of kind of incumbents, large companies
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  Speaker 1: and uh they basically have better form fit and um
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  Speaker 1: you know, they have an anti microbial feature in their
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  Speaker 1: garments to um and they're just doing fantastic. How do
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  Speaker 1: you find most of these companies, Uh, it comes from
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  Speaker 1: existing founders, existing LPs and M three ventures, industry lawyers, UM,
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  Speaker 1: third party providers and then when I was at uh
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  Speaker 1: ci A, you know, it was fairly visible in the marketplace.
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  Speaker 1: We get a lot of inbound stuff and and and lastly,
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  Speaker 1: you know, my partner Tracy dub was recently at Sandbridge
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  Speaker 1: Capital along with Tommy Hill Figure and a lot of
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  Speaker 1: the guys over they're doing a lot of great investments.
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  Speaker 1: She has, she has great deal flows. Well, is there
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  Speaker 1: a certain dollar amount or percentage that you're willing to
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  Speaker 1: invest in companies at this level? Yeah, we typically are
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  Speaker 1: entry level check will be between half a million and
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  Speaker 1: a million in a company, with the intention to follow
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  Speaker 1: on invest in subsequent rounds and try to maintain ownership position.
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  Speaker 1: I'm you know, we're not so focused on a particular
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  Speaker 1: ownership percentage. More and more important is that we get
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  Speaker 1: started with the right companies and really build a great
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  Speaker 1: base of portfolio companies. What do you believe is the
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  Speaker 1: biggest uh sort of illusion or misconception about investing in
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  Speaker 1: startup companies in this space that it's fad driven is
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  Speaker 1: one thing that a lot of people talk about. Also,
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  Speaker 1: can these companies get large? Which what everyone wants to
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  Speaker 1: be Horby Parker or Bnobo's far fetched. A billion dollar
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  Speaker 1: you know, unicorn. Um. Yeah, I mean, UM, there's you
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  Speaker 1: you do have to kind of know how to pick
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  Speaker 1: the right ones. And you know, I think we've been
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  Speaker 1: around the space long enough to kind of have a
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  Speaker 1: good sense of that. UM. But UM, they can certainly,
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  Speaker 1: you know, they can certainly scale if you if you
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  Speaker 1: provide the right business development resources around them and and
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  Speaker 1: UM yeah, I mean you're back to the right founders
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  Speaker 1: talking about spending the money once they've raised it is
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  Speaker 1: there is change in the split. So for example, you
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  Speaker 1: might spend upwards a thirty to forty percent on marketing,
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  Speaker 1: another thirty percent on the technology, and maybe another thirty
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  Speaker 1: percent on the h sort of back office industrial production
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  Speaker 1: of the actual goods that's just selling. Yeah, A good
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  Speaker 1: good portion of the working capital capital typically goes to
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  Speaker 1: funding inventory UM and you also want to carve out
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  Speaker 1: a good piece of that for a proper marketing budget.
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  Speaker 1: Typically these companies want to hire a couple of C
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  Speaker 1: level executives, like a good CMO to come in UM
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  Speaker 1: and UH and CFO. So usually you know, tht pent
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  Speaker 1: of the work, you know, the use of proceeds schedule
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  Speaker 1: will be for for new hires UM and UM. You know,
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  Speaker 1: content creation and yeah, I mean pretty simpt all is
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  Speaker 1: that typically go to things like social media. Yeah, there's
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  Speaker 1: a lot of different strategies, you know, marketing through social
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  Speaker 1: channels like Instagram and Facebook and Snapchat. Now it's a
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  Speaker 1: bit but you know, big UM channel that people are utilizing. Yeah,
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  Speaker 1: and there's typically they have internal people the marketing groups
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  Speaker 1: that will UM spend in different areas and evaluate UM
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  Speaker 1: conversion rates and a o V S and and different
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  Speaker 1: what are ao vs. Average order value UM and KPI
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  Speaker 1: s key performance indicators. Those are things you want to
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  Speaker 1: look at in these e commerce based businesses to make
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  Speaker 1: sure that your marketing spend is converting properly in you're
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  Speaker 1: you're getting the most out of your spend. What's the uh,
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  Speaker 1: not the biggest mistake you've made, but was there something
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  Speaker 1: that's happened in the last six months that you wish
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  Speaker 1: that you had known previously and said, g you know,
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  Speaker 1: if I don't known that sooner, I wouldn't have done that. Yeah, well,
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  Speaker 1: look what we're learning this is you know, a first
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  Speaker 1: time fund for us and UM. You know, I think
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  Speaker 1: looking back over the year where we picked a great
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  Speaker 1: group of eight companies, the portfolio will do about sixty
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  Speaker 1: five million dollars on a consolidated basis this year did
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  Speaker 1: last year. But the one thing I'd say, looking back
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  Speaker 1: with maybe change. We followed um some known investors into
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  Speaker 1: one particular deal kind of based on their previous track record,
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  Speaker 1: and that's the one that's probably went a little sideways
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  Speaker 1: out of the eight Um, it's back on track now.
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  Speaker 1: It's actually there's a pending acquisition involved with that one.
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  Speaker 1: But you gotta have your own personal conviction around these.
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  Speaker 1: Got to stay passionate about what you believe in. Yeah,
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  Speaker 1: definitely well done. Thanks very much for coming in and
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  Speaker 1: spending time with me. Thanks for having Martin Dolphy is
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  Speaker 1: a managing partner for M three Adventures. He can be
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  Speaker 1: followed on Twitter at dolphy Vc. We're gonna take you
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  Speaker 1: through to the clothes on Wall Street. This is taking Stock,
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  Speaker 1: I'm Pim Fox, and this is Bloomberg.