Why He Invested In Liquid Death, Dollar Shave Club, and a Breakdown of the Venture Studio Model with Mike Jones, Co-Founder of Science Inc.

0:00Some of the best CEOs I've ever worked with founders feel like when they're in strategic meetings, they're pulling knowledge into themselves from other people. So they're not arrogant to think I can't learn anything from anybody and I'm just going to figure out my own way. They're smart enough to be like, oh, I'm going to steal every piece of metal I can from anyone that's ever touched any kind of relative component of my business. I'm going to internalize that and then I'm going to be arrogant and I'm going to drive to success. Those individuals we work extremely well with because we are a treasure trove of knowledge and skills.

0:30So if they come in and they're like, oh, I can use all this. Oh, you all work for me now. OK, let's go on this journey together. It works really, really well. If they step in and they're like, no, no, no, I got this. You don't need to be in my business. I've learned it all. I'm going to figure it all out. That is almost always failed in my mind, whether it's inside science or outside science. And I think that there's like kind of a social construct of like the best founders are super arrogant. They definitely have an arrogance. I definitely agree with that. But they also have a curiosity and that curiosity can drive a ton of special success.

0:59And certainly a curious founder can find a way to jump two years forward through intelligence gathering with other individuals. and we're just a big platform for that. So that's what I look for, but that's also what I look for in my personal investing, right? Like I think it's just a good quality for founders. Hello, I'm your host, Mike Elb, 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 all new episodes straight to your inbox and a weekly recap of all the consumer deals that are happening.

1:33All content and episodes are for information and entertainment purposes only and is not investment advice. Our guest today is Mike Jones, who's one of the co-founders of Science, Inc. Science, Inc. is a venture studio and fund that develops and invests in consumer-focused businesses. Some of their portfolio companies include Liquid Death, Dollar Shave Club, and Grove Collaborative. Mike previously founded Use Plain and Savo Media and served as a CEO of MySpace. We discuss how he assesses what founders he wants to work with, what truly makes a good idea, how Liquid Death came together, their growth opportunities, how he met Mike C., and what he learned from Dollar Shave Club about viral content, and much, much, much more.

2:21This is a really interesting conversation about consumer. Without further ado, here's Mike.

2:28Mike, thanks for taking the time. How are you? I'm good. How are you? I'm doing great. Doing great. Thanks. Want to start with a bit of the origin story of science. How did you co-found science and what was the overall vision? Sure. Well, I mean, you know, thinking about the beginning of science is kind of going a little bit further back on like how I ended up building all these companies. So early days in college, I started a business that a company essentially eventually sold to AOL. And AOL is kind of like my first job. Like I started a software company and it got pretty big and then jumped into AOL.

2:59and I became a pretty active angel investor at the time because, you know, my partners and I basically had bootstrapped the business. So I started, you know, seed investing a series of companies in kind of the early days of Los Angeles when there was just a handful of us doing early stage angel deals. You know, over the time, my time at AOL came to a conclusion. I worked in private equity. I went over to MySpace, kind of did that heavy lift over there. And then coming out of it, I wanted to return to early stage activities, but I wanted more than just being a checkwriter. Like I wanted to basically leverage the operational expertise.

3:31And I'd kind of seen it with my angel deals where we had done deals where like the company failed and I'm like, God, I wish they had reached out to us. We probably could have helped. I could have helped, et cetera. Like it was this, like, it kind of felt like there was this massive binary outcome. Either I got this call that was like, congratulations, we exited, you made a bunch of money or sorry, we're shutting it down. And I was like, this is silly. Like I've had thousands of employees, like can get to kind anybody. Why, why can't I help here? So I tapped on the shoulder of Peter Pham, who, you know, was this notorious fundraiser, Tom Dare, who was my legacy CFO, who'd worked for, you know, with me for numerous companies and Greg Gilman, who I've worked with just from a legal perspective, he's an attorney who'd done all my deals with me early stage and done his own startups and said, and a few other individuals said, let's come together, let's put together this platform.

4:17We'll kind of bear hug these entrepreneurs, give them all the research we've got, like provide them a whole bunch of strategy services fundraising you know everything you can imagine we'll put capital in and let's grow with them and that was really the beginning of science let's put this team together and be a strong operational counterparty to a founder i think what's also what's pretty unique about science is that you are pretty flexible in terms of how you can actually work with entrepreneurs and how you can build companies and that it could be a studio in kind of the studio model or it could be maybe more like traditional venture investments on the studio side.

4:50Um, and I, and I really appreciate how you said, how you are really kind of interested on the early stage side of really building companies, um, from the ground up, um, and not just, and not just kind of like writing a check. And then you kind of received backup the company, like made it or didn't make it, or if you made your money or didn't make your money, but how, how do you think about, since you've, you know, obviously you started companies, you built companies, how do you think about the key? What's kind of the key difference between incubation and actually incubating companies versus ownership and you actually starting your own companies and you being kind of like the CEO?

5:21Well, we've played with all sorts of models. So we've done deals like Dollar Shave Club, obviously, where the founder pitched us the idea. We love them. We put a whole bunch of support around and help them hire and fund into them, et cetera. And then we definitely have our own companies that we built from scratch. I think the difference is, you know, today, the majority of our deals we do with founders, right? We want other people that are on that mission to have a personal connection to the problem that want to spend the next 10 years plus, you know, driving after becoming giant within whatever selected sector they want to go into.

5:55We do a handful of our own deals where we look and like, oh, this would be a good company to build. Let's build it. But even if we do that, our goal is to get a dedicated CEO and have a team in there as fast as possible. Like we can stop gap it at early stage with studio team to kind of keep it running, but we want highly incentivized, you know, equitized CEOs that are really running those businesses. So we do very few kind of self, you know, creation and more and more kind of co-development with teams. Can you talk to me a little bit about when an entrepreneur comes and maybe pitches you an idea?

6:27Like, for example, like what turned into like Dollar Shave Club. Can you talk to me a little bit about like the platform, how you think about the platform of science and how you think about the overall support system? and typically what founders maybe have the hardest time with that you feel that you can provide the most value? Well, let's see. So, I mean, from our lens, we're looking for not only a founder, let's assume that you have all the basic qualifications. You've got an awesome founder that's passionately connected to the issue, that has some background and experience that would make that individual relevant for exiting this mission.

6:59Let's assume they're charismatic, they can attract great talent around them. Let's assume that they've even done some market tests and they have some validation that people want, whatever they're going to offer. So the basics of like, okay, a reasonable person to look at when we look through the lens, kind of my question is, are we really well-suited to kind of level up this individual? Like if we're involved in this, can we really make a difference to the business? So yes, in retail distribution, yes, in social media and marketing, yes, in mobile distribution and social tactics, growth tactics were excellent.

7:30Certainly in fundraising, absolutely. Business development for sure. But like if someone comes to me with a next generation SaaS product, we might be great investors for them, but I'm not sure we can make or break the company. You know what I mean? Like we can't get, we don't have a call center set up that can get to every core SaaS client within a week or two to know whether or not the product's relevant. You know, we don't have, you know, we do have some offshore engineering resources that can lend, but I'm looking for areas where we're like, we know that people to call to make an absolute difference to this business.

8:01And if we're involved and we buy our way in and earn our way in and whatever function that happens, we will spend time doing this and we will get the right people on the phone. We will put the right talent around them. We'll help them recruit the right people. We'll help them raise capital. If it gets up to the scale, we'll build a board, we'll select the bankers, we'll take the public, whatever we need to do, the full journey. And I want to believe that we have the skills to make a difference there versus just some average investor. So what specifically, when you talk about, for example, maybe like a SaaS business where you might not be able to maybe add as much value per se to another type of business.

8:38What category specifically do you find interesting then that you think that you could actually add value in? Well, I think starting with commerce, direct-to-consumer commerce, we're best of breed at, online Amazon sales, and then in retail. right so if you have a product you want to put in people's hands that they're going to consume in some form on shelves through amazon through website in on subscription we're a great partner for you absolutely we've seen it we run sales on it we have data on it we know all the core people to talk with we understand manufacturing we understand how to raise capital for it like we understand how to sell the company right so soup to nuts we're a great partner for that on marketplaces i'd say we're excellent on building supply and demand marketplaces we We understand how to build those.

9:21We understand how to market them, how to grow them, et cetera. And then on mobile, we have a particular skill around mobile and scaling mobile applications. So those are areas where when we look at this problem, we're like, okay, if we have a great founder or founding team that wants to take on this challenge, we're a nice complement because we fill in a ton of gaps for them. And then we also typically have the right people for them to hire because we've built networks within these specific problems. So those are great problems for us to spend time on. That makes sense. Just also based off your portfolio.

9:48How do you also think about return profile when it comes to the Venture Studio model versus the VC fund? And is it harder to raise capital if you go through the Studio model? I mean, I think if, I guess, when I think about returns, we're targeting similar venture level returns. So you're shooting for 5 to 10x fund returns in a certain profile. and statistically, I think, you know, I, statistically, I think we're going to show that we can probably be at the top 10 % of returns. So we feel really good about our return, our return targets. I think that it's possible that Stubia models might have a better return profile than standard venture, because I think our ownership positions are larger and we have more influence over the business, which means that we can probably preemptively invest more effectively.

10:38But I think that's TBD. I mean, there's only a few models like ours out there. So there's not a significant amount of data to show whether a venture studio model is more effective than a pure venture fund model. But I think that we're absolutely incredibly strong performing. So we feel really good about our results. On raising money externally, I don't find that to be a challenge. I mean, like I said, since most of our companies, we're not starting from scratch. We don't dominate the cap table. We're not majority owners. The CEO founding team have a ton of equity. by the time that it hits external financing, typically they're at a really strong sense of scale.

11:13A lot of stuff's been de-risked from the business. We often have a decent amount of revenue running through the company. So I find that the fundraisers, when we have companies that work, the fundraisers are pretty easy. That's interesting because what I've heard in just different interviews, sometimes VCs are less likely to invest in a studio, like a company that came out of a venture studio just because sometimes the cap table looks a bit different than what it would be with just, for example, the first time an entrepreneur raises and would be less likely to give up when it came to the equity position that they would need to, in order of which actually makes sense for VCs?

11:54I think if you're pulling details from how Rocket Internet structured their deals out of Europe, yeah, there was a very Rocket-heavy dominated cap table and didn't look like a normal startup. but I think when you look at a lot of the companies and firms like us that are that are you know running now we look a lot like the cap table structure looks a lot more like standard venture just to be candid you know I think maybe you're looking at um the studio as maybe we did in one round what what they would have done independently in two rounds so maybe there's some maybe there's some changes in the way that dilution happens in the early days but by the time it actually goes to market like we haven't had anybody come back to us you know I can't remember the last time where they said, oh, we think we have a cap table problem.

12:37And the reality is if we have a great investor and there's a cap table problem, we're going to figure our way through the problem, right? Like we're not going to turn down a great investor to the cap table problems. And more often than not, what we get is a founder comes to us and they've developed a great idea, but they've totally screwed their cap table because they didn't have a clear path on how to fundraise. They took all these convertible notes from all these individuals and they signed all these ancillary documents around anti-dilution privileges and all these weird control things. and these like super punitive terms.

13:10And a lot of like we're in a deal right now where we've spent, we've probably spent three months restructuring their cap table just because it's so screwed up, it's unfundable. And so our statement to them is like, we love the founder. We love the concept. We as a team see a complete path to scale with them. Their cap table is so screwed up, it's uninvestable in its current form. we will have spent six figures on our side helping them clean up their cap table to get it venture ready then they'll basically work with our our venture in our studio fun team to kind of actually get some scale and we'll put capital behind it so you know it's like these things none of these things are clean walking through the door you know and so that that's been a bigger problem for us is the early stage friends and family grounds that have had some really really bad structures and remember you said how you know the the entrepreneur has to have you know, for example, let's say that they're just awesome founder, passionate, charismatic, of course, they also have to work with you.

14:08That's part of that's part of what is so interesting about science. And also part of the reason why you started it is because you just want to you didn't want to be just that angel that maybe you invest and then not hear from it. What are some qualities from founders when it comes to or how do you kind of assess that period since you're working so tightly with the founder and the founding team to make sure that, okay, this is actually like a great partnership this is the right fit well i tell you if um if i think the the skill set that we would identify as being a good founder you know match for us is actually i'd argue just what i'd identify as a good founder skill set so like some of the best founders i've ever worked with in my life in and outside of science are just really curious individuals and although they might have the arrogance to want to build a business and go disrupt the legacy industry, they also have the intelligence to know that there's a lot of people that learn a lot of things.

15:00And they're very curious to learn those things. And so I've sat through meetings with super high profile CEOs where at the end of the meeting, I feel like they just stole tons of knowledge from me. And I have a deep respect for it. And I think some of the best CEOs I've ever worked with and founders feel like when they're in strategic meetings, they are pulling knowledge into themselves from other people. So they're not arrogant to think I can't learn anything from anybody and I'm just going to figure out my own way. They're smart enough to be like, oh, I'm going to steal every piece of knowledge I can from anyone that's ever touched any kind of relative, you know, relative component of my business.

15:35I'm going to internalize that. And then I'm going to be arrogant. I go drive to success. Those individuals we work extremely well with because we are a treasure trove of knowledge and skills. So if they come in and they're like, oh, I can use all this. Oh, you all work for me now. Okay. Let's go on this journey together. It works really, really well. If they step in and they're like, no, no, no, I got this. You don't need to be in my business. I've learned it all. I'm going to figure it all out. That is almost always failed in my mind, whether it's inside science or outside science. And I think that there's like kind of a social construct of like the best founders are super arrogant.

16:05They definitely have an arrogance. I definitely agree with that, but they also have a curiosity and that curiosity can drive a ton of special success. And certainly a curious founder can find a way to jump two years forward through intelligence gathering with other individuals. And we're just a big platform for that. So that's what I look for. But that's also what I look for in my personal investing, right? I think it's just a good quality for founders. No, that's fair. I mean, it's kind of simplifying the entire process. It's who do you actually want to work with? Who do you kind of get energy from?

16:35And as well as you obviously believe in terms of what they're actually building. And of course, them showing that they're passionate and charismatic and enthusiastic. And as you say, just super, super curious to want to succeed. What are some of the best in class practices do you think for operating a venture studio on your side? Gosh, a venture studio. There's so few venture studios in my mind, but maybe there's a lot. So best in class practices. I mean, I tell you, you need an epic team. And that team, in my mind, has to have experience building and scaling and hopefully selling companies and succeeding and failing at both.

17:11So I think you need a lot of experience in there because you're basically saying, you know, you, you want to be the predominant voice of mentorship with these founders. And if you don't have good advice, you can really screw up companies. So I've seen venture studios formed by people that seem to me, like they really don't have the experience to be offering that experience to founders or that advice to founders. And I'd argue that's a recipe for disaster. So first off is you really experience great individuals. The second is, I think you have to know what you're absolutely great at because, because yeah, I mean, we could all get on this, on a call and convince ourselves that we'd be absolutely great at SaaS because we can call CEOs of leading companies and convince them to buy our software as a service product.

17:50But the reality is that's just using the network. That's not really great skills. So I think you also have to be very self-reflective of like, what are we absolutely great at? And it's funny, I was on a call this morning with an investor who looked at my background and was like, well, you must do all software deals. And I'm like, well, I do do a lot of software deals, but to be totally honest, Like after Dollar Shave Club, we attracted like kind of everything in consumer product and brand disruption. And now our biggest business is a canned water company. And I don't know what to tell you about that.

18:20Like, yes, I'm super skilled in software and I'm super skilled in building the next generation social platforms. But right now we have an insane engine as it relates to CPG. And I don't want to ignore that. So we have to be self-reflective on what are we great at and what is the market receiving. right and if right now we can step in and just carve out you know double digit percents of market share up with these different categories in cpg we should might as well lean into it because we're really good at it right so strong team incredible experience self-reflective on what we're absolutely best at and then we have to serve our founders it's a 24-hour job like you know we want to be you know in that war with them we want to be on slack with them we want to be talking with them and available to them and i want to make sure that when they reach out with me we're you know we're immediate on our response to them.

19:03So we're not passive, like we're super active to them. So I'm glad you brought up CPG and definitely want to dive a lot more into CPG and especially, you know, liquid death. But first start off with CPG, you know, CPG, it's not trendy right now to invest in CPG. It's not like an area that is, you know, I know that right now, like AI, for example, is very, very trendy. Why do you continue to invest in CPG? What is the opportunity that you that you see? Because I've had a number of investors that have come on the show that used to invest in CBG and now they don't because I'm sure you probably know many of the reasons.

19:40CAC is crazy online. The DTC channel, can you actually scale to a certain degree on DTC? Why right now, why do you still invest in CBG? And what do you think about the state of CPG currently from investment lens? Let's see, probably about like seven or eight years ago, we developed this theory that the American public was growing in distrust with legacy brands. The way we used to always say it was like, if it's a product that you grew up and you remember was in your cabinets or under your sink, today, you probably feel like it was toxic and you probably don't want to consume it as an adult, right?

20:20And I think that these legacy giant consumer product good companies or packaged goods companies have typically optimized against margin and used a lot of really low-quality ingredients that have probably done the US population no favors at all. I think it's tied to mass levels of obesity and health concern. And I think newer, younger consumers want new brands that they trust and they connect to with functional ingredients and things that provide them with better consumption experiences. So there's an overall trend where I think there's massive distrust on legacy brands and a big interest in new products, right?

21:00Beverage, food, for sure, right? So I think that's a huge trend. Then there was this wave of the direct-to-consumer story, which worked really effectively until Facebook and Apple and all the IDFA targeting changes happened. What happened, though, at that moment was investors were like, oh, DTC economics are upside down. I'm going to walk, right? Right. That was really that didn't mean that that DTC was dead. And that didn't mean that consumers don't want new products. It just meant that the Facebook arbitrage of the CAC to LTV structure would probably not work the way it was working. Right. So we just watched it carefully.

21:37And one of our investments was with a company that manages a big TikTok agency. And we kind of just said, well, someone's going to figure it on TikTok. Right. And lo and behold, six months later, suddenly there's, you know, companies doing a million, million plus months off a TikTok market. marketing with positive CAC to LTV ratios, right? Suddenly there's companies launching exclusively on Amazon, pumping EBITDA, like through Amazon marketing. Suddenly there's companies picking out traditional retail distribution, right? Now all these investors are like, DDC doesn't work, I'm not interested. It's like, yeah, but there's actually bigger markets over here.

22:10Like retail distribution is really, really big, like really, really big. And so suddenly we were finding all these other platforms to find mass scale and growth. All these investors were shying away because the DDC software economics weren't working. But that doesn't mean the opportunity wasn't there. So we just leaned heavier in, right? We went to our companies and we're like, fine, DDC doesn't work as effectively. Great. Let's push on the Amazon hard. Let's go to retail distribution. Let's find other ways to do it. Let's focus on TikTok. And that did work, right? And we did find growth and we continually do.

22:39And then I think the other beauty of it is we're in a sector where the legacy players are really, really rich with capital. and they'd much prefer to buy than build, which means that we have a disruptive sector through standard tactics with legacy players that want to buy innovation. And you can get to really big numbers. And by the way, the public markets like the multiples. So I look at this being like, why wouldn't we lean heavy into this? This feels like a great market to me. But I think investors shying away were really just because they were paying attention to Facebook economics and they didn't want to potentially explore retail distribution or other tactics.

23:14I think it was a mistake. I think also just for a period, just because CACs were so low that I feel like investors, especially the ones that kind of came from tech and not from CPG and kind of maybe quite weren't, I guess, trained in the economics of CPG, that they thought of DTC brands more so as like tech investments where the multiples look a lot more like technology multiples when really it's just a channel, right? It's not an actual business overall. And of course, now the big saying that I hear a lot of times in my podcast, and I'm sure you hear it a lot of times, is you got to go on the channel.