Decoding the Future of Media and Commerce with Kevin Parakkattu at Plug and Play

0:00No, I mean, I think it's a real risk with the industry if the writers are genuinely worried about it and kind of thinking about it. we're already seeing kind of applications, right, of Gen.ai being used for, let's say, marketing copy, whether it's Jasper or other companies. So it's not too much of a stretch to think of, you know, original series and different kind of documentation being developed from past series. I think the kind of worry in the field is what is original then? If a lot of this technology is based off, you know, historical screenplays and so forth. And you're trying to create a net new series.

0:39What is the more or less kind of, you know, what's unique, what can be trademarked, etc. And what won't lead you into legal trouble? Like we saw that already with like Ed Sheeran and kind of the lawsuit that he's facing and several others around kind of the originality of what's in music or media in general. Hello, I'm your host, Mike Gelb. And this is the Consumer VC podcast, where we discuss the intersection of venture capital and consumer innovation. If you're enjoying the show, also subscribe to my newsletter at theconsumervc.com, where you'll receive new episodes straight to your inbox and a weekly recap of all the consumer deals that are happening.

1:16All content episodes are for informational and entertainment purposes only and is not investment-based. Thank you, Vincent Diallo, for the introduction to our guest today, Kevin Pericata, partner at Plug & Play Ventures. Plug & Play is the ultimate innovation platform that invests and connects entrepreneurs, corporations, and investors worldwide. Some of Kevin's investments include Madison Reed, Manscaped, and Nada. We discussed the founding story of Plug & Play, why they invest in consumer brands and inventory-based businesses in the first place, how he's thinking about today's market, and much, much, much more.

1:53Without further ado, here's Kevin.

2:00Kevin, thank you so much for joining me here today. How are you? Hey, Mike. Doing well. How are yourself? I'm doing great. Doing really great. I want to start from, I guess, the very, very beginning of your journey at Plug & Play. How did you get your start at Plug & Play? Yeah, sure. So my path to VC, so I was in college in New York City. And I, at that time, wanted to be an investment banker. Like in New York City, every kind of student there wants to become a banker or a consultant, it seems like. And now I'm sure it's probably like product manager or something. But so like most folks, you know, interviewed at the banks and tried to get it.

2:43and ultimately had six or so super days lined up, which was the final round of investment banking interviews, and then unanimously got rejected six times over from every single bank. So a lot of people say their path into entrepreneurship was they had this calling or they saw this massive problem in the market and stuff like that. For me, it was seeing zero options out of college and saying, you know what? what's there to lose at this point. Might as well kind of get that entrepreneurial bug. So what happened was I had two friends. We just complained constantly about how expensive it was to get college clothing, either a college bookstore or kind of design your own.

3:30So we ended up creating our own essentially online design tool that allowed students to design their own custom clothing, work with different community organizations, et cetera. The business was completely inventory-less. We basically worked with screen printers all around the country, offered two-day shipping based on wherever you printed out of, and more or less allowed and included our own online design tools so that students could design their own. So that business did well. There's only three of us, and we actually never needed to raise venture funding. But that got me the kind of tech bug.

4:04So then after that, one of the VCs that we were talking to when we were even thinking about financing just had an analyst position open up. And they were a firm in Connecticut. So I ended up joining them, stayed for about a year where we did a kind of variety of deals. So we did like a luxury pet retail business. We did a painkiller business and several others. It wasn't kind of traditional venture capital. It was more kind of investing in early stage businesses of all shapes and forms. One of the partners there ended up leaving and joining Simon Property Groups. at that time, new venture fund called Simon Ventures.

4:44And he texted me one day and said, hey, there's this new firm I'm working with called Plug & Play. Simon and Plug & Play just partnered up. You should come and join them. So I joined. I was one of the kind of the first five on the ventures team, our investment team. And then we've now scaled that team alone to about 150 people. The company went from 50 people when I joined to now almost 700. in the past six years. So it's kind of an insane time to join. And yeah. And then, you know, first did fintech and retail as kind of the practices that I was focused on. You know, with kind of a background in commerce and consumer ended up more focusing on that and then rise into the ranks and more recently moving to Austin.

5:30That's, wow, that's crazy. That's awesome being part of Plug & Play like in its, when it was much smaller because when I think of plug and play, I think of, I mean, I remember telling you this, but like I've seen people just repping like plug and play in like airports when I travel and stuff like that. Like it's quite like a pretty well-known brand when it comes to on the investment side. Can you give us a little bit of background in terms of though what kind of plug and play is, all the different, I guess, different ways it operates and a little bit about the founding story of it? So plug and play is a pretty unique story and kind of depends on who you talk to in Silicon Valley because they may remember Plug & Play from kind of almost like a different era.

6:15So Plug & Play really starts mid-90s. Our CEO and founder ends up making his money in other kind of classic businesses. So he had like a water bottling business, a kind of plastic polymer business, et cetera. And like most folks, he ends up buying real estate. He just ends up buying real estate in a really great area, University Avenue in Palo Alto, which, as you know, is right next to Stanford. So at some point, he owns about 10 % of the street. And he has kind of several different stores and commercial kind of opportunities there. And one of them he decides to create as a co-working space. So he ends up renting that office space out to a bunch of different startups and then opportunistically investing in them.

7:02So those startups end up becoming behemoths of today. Google, Logitech, PayPal, and several others through that endeavor. So he gets the entrepreneurial bug or the VC investing bug early. He's a classic real estate guy, though. So he decides to get a much larger space in Sunnyvale, 150 ,000 square feet facility, former Phillips offices that we reconvert into a co-working facility. and then you know 10 years or so go by and then we start noticing kind of different corporations coming into our doors just asking about hey so who are some of the startups in here who can we work with and that was when our light bulb moment went off where we had originally just invested in startups opportunistically in the building and not really had provided any kind of corporate add-on it was you know hey we have a data center we have different services we can offer you and when the corporates came in we realized that we can actually create a model whereby you know we can create a panel of corporations around certain verticals and introduce them to startups basically what we call kind of a many-to-many so many corporations talking to many startups in kind of an organized fashion and then we as investors can more or less monitor that and hopefully invest in the best companies so that was a that was a genesis of the model and we first started actually with commerce and retail, where we partnered with Kohl's and several other kind of companies.

8:31And that was actually in that initial cohort, we had Honey and Rappi and all these other crazy companies that we started becoming investors in. And then we scaled out into 17 other verticals. So the model is today is corporations pay us to have access to amazing startups that can hopefully solve some of their key challenges. The startups do not give us any equity and we don't charge them any fee for what we offer. And if it works well, it's a win-win-win, meaning the corporations get access to amazing startups that can hopefully solve some of their challenges. We as investors get access to startups that we can engage in our corporate audience and see which ones are gaining traction.

9:11And the startups get free business development. And in the last three years, we even accelerated that model even more by now raising funds, where our corporations are now also oftentimes LPs in our separate funds, which allows us to invest even more than we typically did. So the corporations were originally, is this roughly right, they were kind of paying you a fee just to honestly manage and bring opportunities to them. But you weren't, well, I guess you were also writing checks in those funds, but was that money coming from other places before the corporations actually became your LPs? Yeah.

9:52So initially, I mean, it was essentially the family office of the Amides, the founders of Plug & Play, where we were just opportunistically investing in the businesses, right? Over time, the business model of Plug & Play has now fed into the original investment vehicle, whereby the revenue coming in more or less, after covering operating expenses, the profit is then reinvested into the startups that we're introducing to these corporations. We don't always invest in every company, right? It's kind of building a relationship with startup and opportunistically doing it. And now we've been able to supercharge that where the corporates are LPs and now we're able to invest in even greater amounts.

10:32Yeah, no, that's really interesting. Also quite, as you say, it's pretty unique in terms of you're creating this community or really essentially like a market in order for the actual startups themselves for business opportunity, for business development opportunities can talk to corporations. When it comes to thinking about what opportunities and pain points that some of these corporations are experiencing, do you, and then looking at, okay, what then startups are kind of solving those problems? How does it also work? Is it, are these corporations kind of telling you some of their pain points and problems that they're solving?

11:07And then you all think, okay, then we need to focus maybe on this certain area. who are the best entrepreneurs building in maybe this specific vertical or solving this pain point? Or is it a bit more like looking just not really having that input from corporations, but looking more so just about talking to entrepreneurs and a bit more maybe bottoms up per se? Yeah, no, it's on to the limit of both, right? So we, in some sense, are the therapists of corporations. They come to us with their problems. in theory, we're patient, we're listening, we understand. And then we're able to more or less kind of help them find a solution with different entrepreneurs.

11:52Maybe that's not exactly what that company is doing, but maybe potentially solve what they're doing, right? So corporations come to us with real-time problems oftentimes, like, hey, we're facing, I'm just in the case of retail, we're facing stock outs in Asia, or we're looking to better understand our consumer or whatever it may be. And then we're more or less finding startups that can hopefully solve some of those challenges. And then we either organize them into kind of two different formats. So one is in our different cohorts. So we run cohorts of startups that we accelerate twice a year. They're all the way from seed stage to pre-IPO.

12:26And that's a consensus-based model, meaning all of our corporations are letting us know, hey, here's kind of our six-month priorities. Do you have startups in and around the space? So therefore, the startups is a reflection of a group of different companies. So Nike may face certain challenges that McDonald's may not face, and McDonald's may face certain challenges, etc. But by creating that cohort model, you really kind of get that discovery element of, oh, wait, I didn't even think about that. Maybe that could be applicable for my industry. So that's one part. So they're telling us about their current problems.

12:58But I think what we are trying to do is saying, what are the solutions of today? And what new problems have they created? that will in theory need a new solution. So an example would be, you know, let's say robotic automation in the factory setting where, you know, all these different, you know, robots are handling kind of every single process from picking to actually shipping the product. What kind of new problems does that create? Well, you know, the routine maintenance of those robots, the programming of them, the kind of new learning or data models that they now have to go under. Those are all new things that maybe these corporations will face later.

13:35And that's where we kick in and try to think of those new problems that come about based on the consensus of where we think the industries are going. And then that's generally what we'd like to invest in. And then maybe then it might be more applicable to our corporate base in a year or two later when they're facing those problems. I like that in that it's a bit of both where corporations come to you with what their problem solving or their problems or what they potentially might be interested that really could help their organizations on their side, potential bottlenecks that they're running into.

14:11And then you all are able to kind of source companies that can help those corporations that are trying to solve that particular problem. But at the same time, might also be open to maybe other problems that might not have been thought about yet on the corporate side. And then it's two cohorts. Is that right? Annually? Yeah. So it's two cohorts per vertical per location. um so we have about 50 or so locations um so about 2 000 or so companies are going through one of our cohorts every year um all over the globe so know that you're based in austin i mean um how do you think about like austin's like are are you since you're based and focus on the cohorts in austin does does a company have to be based or have like a tie into austin order for them to be part of that cohort?

15:03Yeah. So just quick clarification. So I live in Austin, but I mainly manage our kind of Silicon Valley office. Yeah, we don't have a formal presence in Texas as of now. I lived in California for the last five years and then moved to Austin about two years ago. But in terms of kind of our processes or how we look at Texas, I mean, Texas is going to be our next market. We're super excited about it. There's kind of 54 Fortune 500 companies. There's a variety of different entrepreneurs that kind of live in the state. We've looked at kind of, you know, LinkedIn statistics, etc. And it seems like a lot of UT Austin graduates and other kind of leading tech institutions, there's kind of a brain drain going on where they're often going to the coast to work at different startups and so forth.

15:51So we see this state as a next market. So that was part of the reason why I moved. And then hopefully kind of in the next 12 to 18 months, launching something here. Perhaps in consumer, we're kind of seeing where the industry goes. Got it. Well, how are you thinking about like the industry right now, especially when it comes to, you know, media and commerce and the overall landscape today? Since it is, it is like, I mean, it seems like it's a pretty odd, weird market right now. Yes. And on the backdrops of HBO rebranding to Max again, the third rebrand, right? I'm trying to think of how many different times HBO has gone different ways.

16:34Two different worlds, right? So commerce. Commerce is near and dear to our heart. Let's take kind of the fashion retail space as an example. What we're seeing specifically in that space is kind of over inventory. Essentially what happened there, and you play in the supply chain space that you know well, is where a lot of these returns and brands face stock shortages, etc. and had to order, then faced a variety of different issues alongside the supply chain. And then now we're sitting on kind of copious amounts of inventory. and now it's we're seeing kind of mass liquidations players looking for any kind of wholesale outlet or any potential where they can you know get rid of that dead inventory so that seems to be a kind of a consistent challenge that we're seeing kind of amongst our retailers and brands couple that with kind of cost cutting lower consumer confidence kind of a general reluctancy with inflationary kind of pressures.

17:33Overall, I think that's affecting retail in kind of a pause moment where we're seeing that from an innovation perspective, the interests are changing for closer to automation. How can we potentially be more efficient as an organization? All of that. On the media side, I think the writer's strike is so interesting in kind of what's going on in that lens. So one thing that I noticed in the recent negotiation is on the side of the writers, it's, hey, you can't use any kind of generative AI or any kind of AI and replace our jobs in the future. And there should be some kind of assurance against using that technology.

18:14We're seeing that as well, where the entire media landscape, as we go more into OTT and streaming, has really changed in the effect on labor, whereby media companies, you know, historically, if you had a kind of a on -television show, you were running for several seasons, and then you were getting paid royalties and so forth. I mean, I think it's like well known at this point, the cast of friends is still, you know, generating millions off of the revenue of their shows. But then when you do kind of from a streaming perspective, oftentimes these shows are single series, limited episodes, filming is for kind of a short period.

18:56And royalties aren't exactly the thing. Or they have kind of a different lens as to how they're structured. So therefore, the writers are, in one sense, treated differently and more commoditized, even though we kind of live in a limelight of all things media. So that's, you know, we're seeing kind of a focus on an interest in using artificial intelligence and using kind of different solutions to optimize the cost structure, primarily from both groups. I think it's just given kind of natural conditions. So on the AI side, do you see that AI might replace when it comes to maybe some of the writers?

19:40Not obviously all writers when it comes to a TV show, but maybe some of the writers' jobs? That actually, maybe a head writer per se might communicate and write a script with AI as opposed to hiring other writers for a particular series? Yeah. No, I mean, I think it's a real risk with the industry if the writers are genuinely worried about it and kind of thinking about it. We're already seeing kind of applications, right, of Gen.ai being used for, let's say, marketing copy, whether it's Jasper or other companies. So it's not too much of a stretch to think of, you know, original series and different kind of documentation being developed from past series.

20:24I think the kind of worry in the field is what is original then? If a lot of this technology is based off, you know, historical screenplays and so forth, and you're trying to create a net new series, what is the more or less kind of, you know, what's unique, what can be trademarked, etc. and what won't lead you into legal trouble. Like we saw that already with like Ed Sheeran and kind of the lawsuit that he's facing and several others around kind of the originality of let's say music or media in general. No, that's a good point. And it seems as well when it comes to TV shows and film content in the sense, as opposed to music content, well, also music content has gone hammered too.

21:10But as you say, it seems like writers might get double, it's kind of like a double whammy for them where you might get, instead you might be utilizing generative AI so it might lead to less jobs available. But even also if you get a job, as you say, we've now shifted to streaming, not totally, but with streaming and the royalties far lower or I don't know what the royalty kind of looks like on streaming versus linear television. but um and then also with limited series um that your your royalties and what you're actually getting paid if you do have a hit show that's going to be far less than what it used to be yeah no i mean we're seeing like it's the economics just you know don't make sense necessarily when you think about um what the studio could pay for the individual let's say writer or staff compared to let's say the studio could have paid for friends right so on friends you would have that advertising revenue you'd have that kind of hosting by comcast and nbc that would consistently be able to pay everyone's salaries.

22:15But then when you look at kind of a Netflix user, it's let's say the average subscription is 10 bucks a month and the studio is paying hundreds of million dollars for their production. The revenue in terms of the cost structure, it just doesn't work out, right? So there has to be cost optimization at some point. And it's very clear that today's kind of, you know, strike is more or less evident of that cost structure affecting the average person. As an investor and obviously someone that's very, very deep into investing media, where then are you thinking about what actual opportunities in this landscape actually could be interesting to you?

22:52Yeah. So I think the space that's been around, it's kind of dormant, but doesn't necessarily get a lot of love is rights management, which is, you know, just a space that is historically done by kind of third party firms, looking at kind of what the media rights are. Sometimes you hear of different rights that have sold their different kind of media rights with that. I think that's going to be ever the more prevalent, right? We already saw that with the Drake song that came out that was completely generated by Generative AI and several others where we're seeing potential applications where the whole question of trademark and infringing that comes on.

23:34So how do you detect copyright or any kind of issues with that? How do studios more or less think about evolving that technology with it? and then how could you potentially leverage this technology in your you know let's say music creation or so forth rather than prohibiting it outright because i don't think that's how technology advances you don't just prohibit something you have to create new laws and regulations or rules around it to do that so i think that's pretty interesting um i think kind of on the intersection of media and commerce is the ever-ending fight um to lower consumer acquisition costs.

24:12CAC is a new rent, right? It is a thing that's kind of often said. You saw companies like Leap Retail and several others kind of base themselves on that premise that if you have a brick and mortar presence, you will naturally have higher quality traffic than a web browser, et cetera. So that's always been interesting to us in how to better monetize your ad traffic and or create a better kind of optimization funnel through that. And there have been kind of a number of technologies that have gone through that space. Right. So I think that will stay relevant. And then more on the commerce end, specifically for drug to consumer brands, is working capital.

24:54Right. We're seeing that consistently brands struggling with that. Some of our earlier investments, those companies had to more or less give out a huge cash outlay in Q1 to pay for different inventory. And then we'll get paid back in Q4. The cash cycle was very inefficient. And oftentimes, in the heyday of DTC venture capital investing, these companies would often raise venture capital money to pay for that working capital needs. And then that worked for a short period of time. And then we saw the downfall of that with a variety of DTC S1s. So a huge gamut of different interests right now. Why does plug and play invest in brands, period?

25:34because if part of the proposition or value add, right, is that kind of on the BD side to corporations and for corporations to figure out, okay, how can, what types of companies could actually help us with optimizing maybe some of the problems we're running in. You know, obviously brands are telling to consumers, they aren't telling to corporates. Why invest in brands in the first place? Yeah, no, I mean, if I leave with an impact at plug and play, it's kind of with this, is convincing other folks to invest in direct-to-consumer brands when there was largely kind of a hesitancy to do it. I think it was primarily because when you're talking to corporations all day long and you know different spaces and so forth, you naturally can see the white spaces that exist that no one's really tackling, right?

26:29So let's take Manscaped as an example. So Manscaped, you know, obviously super edgy category below the waist grooming, really kind of a taboo subject, even when they launched in 2016. And then, you know, at the time we're working with some of the companies that create kind of leading razors and so forth. The interest there is primarily in different things. So we can see from that the change in marketing, the focus on kind of an edgier language, the huge focus on kind of high quality, more higher, higher priced products selling entirely B2C. And that's where, you know, when you see kind of the white space and the opportunity and just it's just kind of taking on those investments.

27:11Our primary investment is always going to be kind of B2B technology. technology. But opportunistically, we see these opportunities come up and then it's a no-brainer for us. On the DC consumer brands front, do you also think about this as well from an exit potential standpoint too in terms of, okay, there's white space here. I believe that a corporation will eventually... Because most of the successful exits happen for strategic. I presume there's probably going to be more appetite for it in terms of what the successes are, just because of the state of how brands have exited from an IPO in the past.

27:54Typically, it hasn't really panned out. So there probably will be more appetite to want to, when it comes to an exit, that that exit actually comes from a strategic than from going into public markets. But how do you think about it when you make an investment on the brand side from an exit opportunity perspective? It's a totally different mindset, right? Like, I think what we saw in a couple years ago where direct-to-consumer brands were being valued like SaaS companies, where let's say a company was doing 10 million in revenue, they were being valued at 100 million. because of, let's say, a celebrity sponsorship or a lot of hype around the product and so forth.