Consumer Investing in 2022 (with Brian O'Malley of Forerunner Ventures)
Oct 31, 2022
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In a riveting discussion, Brian O'Malley, a partner at Forerunner Ventures, dives into the current landscape of consumer investing. He highlights how to navigate the macro environment and identifies the next generation of breakthrough consumer technologies. Brian emphasizes the importance of focusing on niche markets, illustrating how they can expand unexpectedly. He also shares insights on dealing with the evolving direct-to-consumer market and underscores the significance of understanding consumer behavior in a post-pandemic world.
Investors in consumer companies should focus on unique value propositions and sustainable growth potential.
Direct-to-consumer companies need to shift from relying solely on social media marketing to building strong communities and leveraging organic channels.
Crypto companies that deliver tangible value and integrate seamlessly into existing environments have a better chance of adoption.
Deep dives
Consumer investing in a changing landscape
Consumer investing in 2022 is at a pivotal stage. While some venture capitalists have moved away from consumer-focused investments, there is still interest in the space. However, investors are now more discerning, looking for companies that offer unique value propositions and have sustainable growth potential.
The challenges of direct-to-consumer
The direct-to-consumer (DTC) movement has reached a saturation point in many categories. Companies that solely rely on social media marketing and lack long-term customer acquisition strategies are facing challenges. DTC companies need to understand the limitations of social media marketing and focus on building strong communities, leveraging partnerships, and exploring organic channels.
The importance of understanding cash flow
For consumer companies, understanding the cash flow cycle and margin structure is crucial. Companies that give away too much for what they charge or have negative cash flow can struggle to sustain growth. It is vital to have expertise in pricing, margin profiles, and cash flow to build a sustainable and profitable business.
The rise of creators and platforms
Creators in platforms like YouTube and podcasting offer valuable opportunities for consumer brands. YouTube creators have significant influence and reach, making it an effective marketing channel. While investments in individual YouTube creators may be challenging, leveraging tools and programmatic advertising on platforms can be fruitful. Similarly, podcasts offer opportunities to tap into niche audiences, with effective monetization strategies benefiting both creators and advertisers.
Direct-to-Consumer Mattress Industry Evolution
The direct-to-consumer mattress industry has experienced an evolution, with companies like Casper, Purple, and Eight Sleep leading the way. While many initially doubted the viability of the category, new players like Eight Sleep have emerged with unique selling propositions, such as advanced sensor technology and personalized subscription-based services. Unlike traditional mattress stores, these companies offer better pricing, liberal return policies, and improved sales experiences. However, the lack of inherent moats and the commoditization of the industry has posed challenges for venture-funded companies, leading to the downfall of some. Eight Sleep stands out with its highly differentiated product and strong customer loyalty, but its long-term success is yet to be proven.
The Challenges and Potential of Crypto and the Metaverse
The crypto space faces challenges and opportunities as it evolves. Initially, concerns arose about the concentration of power and wealth within the crypto ecosystem. However, with the hype subsiding, the focus is shifting towards those committed to the true principles of democratization and decentralization. While building from the ground up presents difficulties compared to web two solutions, there are still potential benefits. Crypto companies that can deliver tangible value and integrate seamlessly into existing environments without overwhelming users with complex crypto mechanisms have a better chance of adoption. As for the metaverse, the concept is already present in everyday services like iMessage, which offers connected experiences and multimedia sharing. The key is to enhance social experiences and provide collective value, considering the limitations of immersive VR experiences and the need for synchronicity with existing technologies.
We sit down with Brian O’Malley of Forerunner Ventures to talk about where in the cycle we are right now for consumer investing. We touch on the macro environment (obviously!), but also how to navigate between and around the current generation of platform incumbents, and where the next breakthrough consumer technology companies might come from. And in true Acquired Playbook fashion we talk about the benefits of focusing on niches — and how on the internet they can expand ever bigger than you might initially imagine!
Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.
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