The coffee shops of Mayfair

British consumers will base more purchasing decisions on provenance, craft, artisanship and local goods

I loved this TV spot because it got me thinking for hours afterwards.

 

It’s worth watching before reading the rest of the post because it may spoil the reveal in the ad.

 

By way of background: Lidl is a supermarket chain in Europe. In the UK it is seen as occupying a down market position from the major supermarket brands. There strong expectations that Lidl will soon force the bigger chains into a price war they can ill afford. 
At a really simple level the ad shows Lidl are trying to open up the A, B, C1 demographic with their whimsical photography and middle class imagery. 

However I love this ad because it shows Lidl opening up a second front: against the Farmers Market / Local shop / Artisan producer. Intuitively to me this is a mistake. That’s because I think consumers will rank PRICE far lower when making these  buying decisions. I think they are ranking much higher provenance, integrity, food miles and craft. My contention is that over the coming years this new purchase behaviour will expand beyond just speciality grocery items into will expand into substantial amounts of food shopping. This will be especially so for the middle and higher demographics AND in Urban areas.

This is a contention of mine. A prediction. But this trend is a key part of my PERSONAL investment thesis lying behind me participating in the latest angel round for Hubbub. I look forward to seeing over the coming years if the data supports the thesis…

Daily Mail goes one step close to retail.

Yesterday was an interesting day for the Daily Mail.

Backgrounder: The Daily Mail is a British Tabloid newspaper that has made the segway online to now occupy the charts as the “worlds most visited newspaper site”. I often end up talking to product managers about this site and we marvel at the simplicity of the web-product, and therein lies the genius. However. It has really struggled with monetization.

Now it is experimenting with ecommerce.

Everyday the Daily Mail carries numerous photo stories of “papped celebrities”: most of them set up by their PRs. What was notable about yesterday is that numerous stories had celebrities planted photographed carrying or wearing items of immediately purchasable apparel. The Daily Mail now goes the extra step of carrying a buy-it-now "Femail Fashion Finder" element on the page. If you're interested they are here, here and here. 

From a web product perspective, this is wonderfully joined up bit of product placement, PR, advertising and native advertising. And it will be interesting to see if folks are now turned off given the explicit nature of the spiv.

What’s more interesting for me is that this is another data-point that proves the investment thesis that underlay our investment into FarFetch. That business just keeps on growing.

And it shows how media has finally caught up: Asos realised 5 years ago that magazines and retail had to merge. Only now are the Daily Mail getting to it.

But beware.

As media companies get “closer to the transaction”, the closer they will get to performance based advertising. They will then be choosing between the eCPM of their ecommerce lead gen to the CPM from their rate card. I can guess which will be higher.

It will be interesting to see how long this experiment lasts…

AppearHere: why does ecommerce need physical retail and pop up shops?

Forward Venture Partners recently announced an investment in AppearHere.  AppearHere is a marketplace for pop up shops: matching vacant retail space with brands and ecommerce companies who need a physical customer experience.

Our investment thesis (as always) rests on the entrepreneur: AppearHere is led by the inimitable Ross Bailey our youngest investee to date.

There are also some other pretty significant parts of the investment thesis.

1) Online retailers will see physical retail as an ally not enemy.  All retailers need to give their customers the touch and feel of real life goods and ALSO their "brand experience": where the customer eventually buys will be less important.  Moo.com 's recent experiments are a good example.  As is the successful Rapha store.  As is the new "store" of House of Fraser in Aberdeen. The HOF store is particularly interesting: it stocks one of each of the top selling SKUs in a small shop in rural Aberdeen, but customer can buy all the products from in store tablets and have them delivered the next day.

So what?  So online retailers need physical retail and pop ups.

2) All brands need to get closer (and sell direct) to their customers: longer term the dis-intermediation of the retail world is inevitable.  Does Speedo really want to sell to Sports Authority or would it rather sell more product direct.  errr. What do you think?

So what?  So brands need to sell direct: pop ups are a great way to test it.

3) Many brands see shops as an advertising space for their products.  For example Apple sells 12% of it's products via the Apple shops but MANY customers first more experience them in the store.  Ask Leon Bailey Green nicely and he will tell you that many retailers see a direct correlation between where stores are/are opened and online sales in that region.

Brands see the store as a big advert.

Imagine a world where key retailer space is valued, NOT on it's turnover per Sq Ft but instead for it's available frontage and charged on a CPM basis...

So what?  So brands are starting to value retail space as CPM not as as CPA. 

We think those are three significant market drivers that create an interesting opportunity for a disruptive company.

The deal was led by star of Forward, Yannick Roux, in conjunction with the business builders Forward Labs: who bring early stage ideas to product/market fit.  With additional backing from Russell Buckley at BallPark Ventures and the rather special founders of TopTen.

 

Can events really be “valuable” to management teams?

At Forward we think they might be.

So we’re running an elongated experiment. We have a range portfolio companies at different stages of development. When portfolio CEOs or Executives come to us and ask for help we do we can to oblige. We like to think there’s lots we can help with, especially given the DNA and network from the Forward Group. We don’t (obviously) know the answer to everything. But almost always we know someone who can help.

And if we’re not the answer then, to paraphrase Mark Suster, we need to get the fuck out of the way.

Th person with the answer could be from inside our investment team. Or inside other portfolio companies. Or even in other companies that we know, like and have a positive sharing relationship (big or small).

So then the question is, how do we most usefully pass on this expertise: make these connections: get out of the way?

We believe it could be regular events. Focused on one topic. We exceptionally carefully selected folks coming. Where everyone contributes. And everyone gets something out of it.

We have already started running some events, and feedback was very positive. Now we are hiring someone to help with the organisation and curation of them. We’ll let you know the results of the experiment in 6 – 12 months.

If you know what these events might be, and you want to work with us, please do apply here.

FarFetch gets investment from Conde Nast and the investment thesis starts to take shape

Conde Nast announced their investment today in FarFetch and Jose Neves, Europe's Uber entrepreneur again deserves the plaudits.

As the first venture investor into the company this is a great time to revisit the origional investment thesis, and why I sponsored the deal through the Investment Committee at Advent.

And a core plank of that thesis was simply that ecommerce and media are converging (the rest of the thesis is here). That theory is coming home to roost in the shape of this investment from a content powerhouse Conde Nast.

Why do retailers need content?

1) Don't keep acquiring customers. Retain them.  At the time of the investment ASOS had just announced it had the third highest circulating fashion magazine in the UK. Asos and all "non utility" etailer still produce masses of content. Hell, Fab.com is basically a daily magazine.

Why? Simply because photos, interviews, breaking fashion news keeps people coming back.  In the world of ecommerce this is driving walk on traffic.  And walk on traffic is not paid for traffic.

2) "Sit back" shopping experiences are happening more and more.  It's not just  because of tablets, but also just simply that folk are more comfortable with consuming online (big trends still matter for the mass market). These are the more enablers for Natalie Massanet to dream of reading a magazne and clicking on the dresses she wants to buy. 

Why do publishers need ecommerce?

1) CPMs are turning into CPAs. As advertisers get more and more used to performance or targeted advertising, it follows that media companies need to give their advertisers proof.  Getting closer and closer to the transaction is one such way.  Online afilliates have been doing this for years, but curated market places such as FarFetch, Botticca , Curio Road , Fab.com offers a more beautiful and thoughtful environment for monetization.  FarFetch gives a publisher visability of the transaction and allows them to truly value their pages of content.  

2) The web allows you to be smart about ecommerce. And for media companies "smart" means not having to touch inventory, fulfillment, customer services etc. Curated marketplaces like FarFetch are the closest you can get to ecommerce without having to own a warehouse, employ pickers and packers and constantly neogiate suppliers payment terms.   FarFetch gives a publisher as much exposure to ecommerce as most of them ever want.  

 

So, when you have loyal customer bases coming back. When your customers use your  photos and news to drive purchases with their heart ("I love that"), not their heads ("cheap and delivered quickly"). And when you have a platform that is enabling designers and shops to thrive in the face of pile em high sell em cheap etail. Then, you have something that looks like it can compete with the biggest .  

In venture investing we like to think that every investment thesis has an internal logic and stacks up on all the fronts.  Many fail, and sometimes that it is because the thesis is wrong; or right but wrong timing; or right but executed badly.  What is looking frightening about FarFetch is that it's starting to come together...

 

Entrepreneurship can't be all science

I was yesterday helping an entrepreneur think through the various parts of his business plan before going to talk to external investors. We went through the whole linear logic, the various competencies needed in the team and the strategy over the coming years.

Then I wrote an email to him because I was worried that he missed the key points to communicate to an investor. It went like this:

"However the philosophical answer is why you are bothering: what is it that you've seen in this business that suggests to you think you have something unique?
And why is it so urgent that you need to raise the most expensive form of capital that exists so you do it fast?
And why is it so personally exciting, is it so motivating, that you're about to work 14 hours days and not see your family for 2 years in order to go after it?"

The thing that I love about lean methodology is that empowers entrepreneurs to make "investment decisions" in their business. Working out how and why they should invest their time on a potential project removes the reliance on (sometimes arbitrary) investor analysis of potential growth.

What "lean methodology does not always do is force entrepreneurs to do is test themselves on the more "gut intrinsic" parts of being an entrepreneur: sure the logic may be there. The market size is great. The USP is compelling. The MVP tests all positive. But do you really have the fire in your belly to live and breathe this project?

The Unfashionable Web

We were recently shooting the breeze about what’s “not hot” on the web.  This was actually a refreshing topic as so often in VC and Techcrunchland the focus is on Hot! New! Cool!

A quick strawpoll around the office and we answers of “portals” i.e. Yahoo, Blogs (evidence this blog post frequency vs my tweet frequency), social networks (aka myspace not facebook) and “old-fashioned search engines”.

However, being a classically trained investor, I wanted to see what the market was telling us and it was very interesting.  The list is below, and it surprised me.

Internet and digital Media Public company stats from 28th January 2011

Enterprise Value / EBITDA based on 2011E. 

The Oscar for the most unfashionable online sector goes to...Multichannel retail 4.6x, 

Mobile and casual games 5.6x, 

On&offline media 7.3x, 

Personals 8.5x, 

Infocommerce 8.5x, 

Ecommerce 9.5x 

Networks 9.6x,

Portals 10.5x, 

Online services 10.9x , 

Digital marketing 12.5x, 

Marketplaces 13x

And finally the least unfashionable (AKA the most highly rated) is .....Online Travel  17.7x 

Update: just posted on Quora here: I wonder if there's a better way to analyse it....

 

 

FarFetch: The investment case

I am delighted that Advent Ventures has announced the FarFetch investment.  As many of my venture capital colleagues know, this is a model that I am very excited about and having brought it to Advent some 6 months ago and worked with Jose what feels like everyday since, I am very sorry to not be around for the next 3 years.

Many entrepreneurs and management teams ask us for our rationale for investing in one company over another.

So why FarFetch?

1) The entrepreneur makes it happen

As always, "most" of an investment decision is based on the entrepreneur and Jose Neves is both impressive and uniquely qualified to run farfetch.  Jose, an entrepreneur all his life, has built a software business, a fashion label, a retailer and now an online marketplace.  In addition, VCs always look for evidence of execution and I see very few online retailers who have driven revenues so high in such a short space of time and from a standing start. 

2) This ecommerce model works

As I have written before, I am particularly enthused by ecommerce models with low cost of customer acquisition and low working capital  This is exactly why I sponsored the FarFetch deal at Advent:

i) FarFetch proposition is a no-brainer for retailers.  It is providing a mechanism for off-line retailers to simply get customers they would never normally get: There are plenty of people in Brazil who’d love to buy from Tessabit, but they rarely get to Milan. In this way the model is reminiscent of Foodzie and Etsy.

ii) The Farfetch proposition also works for customers.  One place to buy a broad range of SKUs, from high end to edgy, constantly updating. 

If you believe that range is an important factor in driving repeat visits (and therefore LTV) then farfetch is already half-way there.  And if the other axis is new product frequency then you're not in a bad place with fashion.  

This is why the marketplace model is one of the most sought after in all of online retail.  Why hold inventory if you don't need to?  

If you are a marketplace, the challenge is, of course, constructing the brand: you want return / repeat traffic rather than having to pay for a new customer acquisition each time.  Of course this is no walk in the park:

- ebay (despite it's ads) find it hard to escape the notion of an online boot /garage sale.

- Etsy struggle to push beyond quirky home made goods.  Hell, even Amazon are struggling today when my basket contains 3 skus and I get 3 packages from different carriers with very different customer service.

In spite of all this, I'd rather be at this part of the chain than at the pure affiliate level or at the retailer level.  I'm confident they don't need it, but I am wishing Jose and Advent the best of luck over the next few years.

Synchronous games: the investment case.

Much has been written about the genius of Playfish, Zynga and Playdom.  

Playdom CEO John Pleasants recently said he expected to see “synchronous gameplay as an extension of some asynchronous games”.   That struck me as interesting: not so much as an opportunity for FarmVille to go peer to peer, but for synchronous gameplay to evolve out of traditional asynchronous gaming and betting.

 

Let me explain.

The experiments of the social games companies suggests that getting a whole bunch of people to play games AT THE SAME TIME is so tough, you may as well focus your efforts else where. 

Well I believe there’s a future for games where you need an “appointment to play”.  This is the nub of the investment thesis for my investment in and ongoing support for PickLive.

So firstly to establish what I’m not talking about:

I’m not talking about a lobby system game like king.com or GameDuell.  Where users pitch up and are told to “hang on a sec, another user is joining your room any second now.”  These are true peer to peer games and synchronous but not event based. 

I’m also not talking about virtual worlds like WoW or console games with web connectivity like Halo.  Again these are synchronous but based on personal connection not events.

Clearly what I AM talking about is events.  But what sort of events?

Well, for example, during the recent British election we had televised presidential debates, and watching these on TV was OK but watching real-time comments over twitter made an enormous difference to my understanding of the event.  My experience of the event was better with a laptop open. 

And so to sports.  

Sports are the obvious events that already have passionate audiences of millions. Who come back every week. Big markets.   The idea of a web-game we can play in real time alongside these events is for me pretty compelling.  Especially when we consider two things:

1) The competitive landscape is weak.  Worldwide “in game betting" is growing fast but its not social, it is based on very weak variables and isn't really a game, more a grubby bet.

2) The iphone has changed everything.  People can play along in the pub while watching the football.  At the ground watching the baseball.  And the ipad will change everything again.  The ultimate sofa companion for your Monday night Football.

The issue.  The BIG issue. Is that events, by definition, have a immovable start time.  If you want to play along, you need to be ready at your iphone when the game is on.  You need an "appointment to play".  This is therefore not a casual game, but a scheduled game.  And this means that Picklive either need to register strongly in the mind of the gamer for them to "tune in" and / or develop a customer acquisition strategy embedded with the event or it's coverage.  difficult but not impossible.

And so I invested in Picklive. 

Investment thesis + great team. QED.

Multi-niche ecommerce: is it a business model worth the excitement?

Rumours abound of Hayneedle looking at an IPO.  CSN stores just reported a record quarter. 4 European multi-niche ecommerce businesses are getting funded (disclaimer: I have invested in one).

Why the excitement? Well, in short, the business model is working.  

The model is much better explained here, but in short, it is operating a ton of very specific retail sites rather than one big throbbing etailer.  For example would you rather buy tubchairs (yes, people do) from 

1. a specialist tubchair retailer which has with a huge selection in depth, specific customer service, and price range or
2. go to Argos.com and choose from a range of two? 

Even better, what if you found this tub chair specialist via the left hand side of google which you trust more than the right side? 

Well, irrespective of your answers to the above questions, consumers do like to buy from these specialists and the evidence is in their growth.

However, there’s another story here: most interesting for entrepreneurs and VCs: the business model. 

1) CoCA

Its clear to me that the scene of the fight for the next 10 years, for all businesses and in particular ecommerce is Cost Of Customer Acquisition.

If you’re an entrepreneur and you share my view on CoCA, then I bet that you’re focussing on a couple things: 

a)    smart web-marketing (SEO, adwords & viral) and 

b)    driving return / repeat visitors from systematic email marketing, offers, blogs etc.

Multi-niche ecommerce businesses have the benefit of customers who find the stores via natural search easily (Google recognises their depth and authority). They also benefit from high customer service expertise, which is (arguably) the single biggest driver of return repeat.  

These factors both reduces CoCA. 

All businesses have challenges and multi-niche retailers have to leverage their database of tubchair buyers to make inferences on sending them other offers.  Its difficult but can be done.

2) Stock costs.

All traditional retailers struggle from tying working capital up in stock.  From an investor or entrepreneur’s perspective, this is not capital efficient which is a BAD THING (I have another post on this coming).

Holding stock also means you are subject to inventory risk: buying the wrong blouses for this season, or not getting your channel working quickly enough to sell-through at top-price.

Multi-niche models are attractive because it also opens the door to drop-shipping directly from suppliers.  This is not simple: supplier management is not easy (who is going to recruit and manage all those dart-board manufacturers?). Operations and logistics can create some thorny issues around availability and delivery, but again, not insurmountable.

Taking a step back, most interesting for me as an investor today is that there are so many smart models around retail: all piggy-backing on ecommerce market growth BUT adopting smart strategies around CoCA and stock. 

Now I’m back in the blog saddle, I will write again soon on these.