ACT #283 Susan Lin, Partner & Investor at Felix Capital on consumer investing

0:04Welcome to At The Cap Table Podcast, the exciting new series dedicated to hearing from the leading investors who are taking the VC industry industry by storm in Europe. Coming to you from London, I am Sarah Finnegan. Our next guest is the brilliant Susan Lynn. Susan is a partner at Felix Capital, a venture capital firm for the creative classes, operating at the intersection of technology and creativity. Felix focuses on things like digital lifestyle across various different verticals, investing in authentic consumer-facing brands and platforms, and also related enabling B2B technologies. Their mission really is to be a partner of choice for entrepreneurs with big ideas and helping them build category defining companies that will move the world forward.

0:52They have an exciting list of portfolio companies, including Farfetch, Deliveroo, Peloton, Oakley, Goop. The list goes on. And now some words from our beloved sponsor. Tactic is the leading forecasting and scenario planning software for venture capital funds. Tactic combines portfolio construction, portfolio management, forecasting, and reporting into a unified platform. Investors are empowered with data-driven insights on fund strategy, reserve allocation, exit planning, and fund performance. Tactic was built using quantitative techniques researched from hundreds of data-driven fund managers and is trusted by over 250 funds globally today.

1:34Tactic is a proud sponsor of the first season of the At The Cap Table podcast series. If you'd like to learn more, please check out tactic.io. T-A-C-T-Y-C.io.

1:51Awesome. Susan, a very warm welcome and thank you so much for joining us on At The Cap Table podcast. Thanks so much for having me. Brilliant. So I've been following Felix over the last few years and your name consistently comes up as a prominent figure in the industry who is deeply engaged in consumer investing. So we're really, really delighted to have you on the podcast today. I think let's just jump straight in. You've had a really, really interesting and varied career so far. which includes consulting, operating roles, growth investing, and then most recently, you've made the move and transitioned into venture.

2:30So we'd love to learn a little bit more about your background and the journey that led you to venture. Wonderful. Well, where should I start? Is it okay if I start at the beginning? It's a little bit. It'll be a slightly longer tale, but just as a bit of context. So I grew up moving around a lot. So originally Australian Chinese, but accent is very confused at this point. And part of that was because my parents were actually founders. They sort of ended up becoming serial entrepreneurs. And they originally moved to Australia for grad school, which a lot of people did in the 80s to leave communist China.

3:04And they actually then moved back to Asia, to Hong Kong and China in the 90s when they saw an opportunity to start a first wave internet company in the original dot-com boom. It's funny how, I mean, I think, you know, you sort of come full circle in your life because I think for a long time I was almost like, I tried to move away from what they were doing and I'll get onto that shortly, but they ended up sort of come full circle. And they started to start up together. I mean, it had, it sort of had all the hallmarks of like highs and lows. They, you know, they raised venture money. They, you know, never had a babysitter.

3:35So they always brought me along to meetings. I'd sit in the back of these meetings, and pitches that they would do. They had all their co-founders work out of a very small living room in Hong Kong because the apartments there are tiny. And then things originally went really well. And then in 2000 and 2001, it sort of all came crashing down. So it's been an interesting journey. And I really admire their resilience through that. It's given me a lot of empathy to all founders and their families. But also it was really eye-opening. We were actually living in Shenzhen for quite a while. And that was sort of in the late 90s was when there was a first wave of Chinese internet companies.

4:11So Tencent actually was in the same small office park that my dad's startup was in. And you just saw sort of like in China Tech in particular, this huge leapfrogging and just huge acceleration, which really impacted people's lives in all sorts of different ways. And I think just made me really interested and excited about tech from there on. Ended up going to the U.S. for college. This is 20 years ago now. And I originally, my dad always joked and asked if I wanted to be a founder. And I was told him I wouldn't want to go through an entrepreneur journey after seeing what they did. And so I chose a very stable route going into management consulting at Bain in San Francisco in 2008.

4:50And yeah, I started my career there. I started in 2008, did a lot of interesting tech work out there, also consumer work, and then actually left in 2011, which I don't tell a lot of people. But I tried to start my own startup because when you're in your early 20s and in SF, everyone thinks they can be Mark Zuckerberg, which you quickly learn you cannot. I learned I couldn't. So it was a very humbling experience. I tried to start a social commerce app, actually. And then joined, ended up, as I wound down, joined another friend at an early stage B2B SaaS company called AppDirect. So I stayed in the Bayer until late 2015 and ended up moving to London because my husband is European and had issues with his U.S.

5:34visa. And very coincidentally sort of got recruited seven, eight years ago by a colleague to be on the investing side, which was something I was always curious about. But I sort of plan A was that I would be hopefully a successful operator or founder and, you know, go back to being an angel investor in my 50s. So I didn't do the sort of classic investment sort of recruiting, but then got this opportunity, joined a great fund called HG Capital, which focuses on B2B software investing here in the UK, which has since sort of ballooned in terms of size and AUM, done very well for itself. and found that I really, really enjoyed being on the investing side.

6:14As I had the experience of being both a very early stage startup founder and an early employee, I was always sort of curious and excited to get back into the earlier part of the ecosystem where I could partner with founders in that sort of one to 10 journey, shall we say. And so in 2018, I started looking at early stage funds to join. I wanted to join also a place where I felt it was a bit of a startup in itself and was lucky to meet Antoine and Frederick. They started Felix in 2015 and they were just about to launch Fund 2. So I joined them and it's been a great journey since. I guess what a perfect segue into the next topic.

6:54I think like turning to Felix Capital, I guess you are a partner at this fund. And I always think super interesting kind of pieces. You operate at the intersection of technology and creativity, but also kind of positioning yourself as I guess itself to kind of the creative class so you've bought an enormous amount of incredibly exciting companies including Farfetch, Deliveroo, Peloton the list goes on but I'd love to hear a little bit more from you actually on about Felix Capital and then also its origins. Felix was started in 2014-2015 by my two partners Frederick and Antoine. We launched Fund 1 in 2015.

7:34That was a sort of small-ish early-stage focused fund. We've since, you know, we've been lucky to raise Fund 2, Fund 3, and now Fund 4, investing out of Fund 4, which is a$600 million fund in total, which we actually split between $300 million on the early-stage side and$300 million on the growth side, so have the flexibility to be multi-stages. When Fred and Antoine started Felix, it was really sort of with a few things that they wanted to do differently. The first is that I would sort of just say, which I think is still, it's very common in the US. It's probably still fairly rare in Europe or a little bit rare in Europe, which is like all four of us in the partnership.

8:12So Frederick Antoine, myself and Julian have had founder operator experiences. And in Julian's case, a very long time. But actually all the three of us have all been founders at some point. Frederick has actually started a company in 1998, was VC funded. again, sort of similar story. My parents started up at a great run and then crashed in 2001, which I don't think he talks about very often either. But I think we really wanted to bring that more sort of founder operator led experience where we knew how to partner with founders. We have a boutique style. So the team is quite small. I think we're about 12 or so in total, seven on the investment team at the moment.

8:53And really wanted to keep that boutique style where we are, you know, all of us sort of individually but also collaboratively working with founders. We have a very concentrated portfolio. So each fund also only invests in 15, you know, to 18 companies. So rather than having a very broad portfolio where, you know, we are not as close to each one of them, we do try to stay on top of each of our relationships. And the other thing, as you mentioned, is the thematic approach. So I think, you know, particularly given Europe's background is, you know, a lot of the early successes, whether it's the SAPs of the world were very B2B software driven.

9:27I think a lot of the funds started with that sort of mandate. And I think both Frederick and Antoine and myself as well, we share a lot of curiosity and consumer side. If we look at where the largest portion of GDP spend is, right, it is on consumer lives. And I think we're all very excited about the way we will witness and observe the way that tech can impact and improve people's lives. And I think we're all excited about that. So as you said, we operate at that intersection. So about 60 % of our portfolio ends up being consumer platforms, brands, marketplaces, impacting different parts of people's lives from fashion to food to transport, travel, financial services, even health and wellness.

10:09And then we have another sort of 40 % of the portfolio on the B2B SaaS side, which is really focused around either commerce enablement, which is very synergistic with the consumer portfolio, or it's around sort of consumerized workplace tools. So really this next generation of workplace tools that are making sort of the employees' lives better. And you mentioned a very interesting point around, I guess, Felix's approach as a much more boutique style versus, say, other larger funds and asset managers. How does that translate to working within your interactions with founders? What does that actually mean on the ground?

10:42I mean, it's interesting because we do because we're such a small team and we don't really have a platform operations team. It's something we've been discussing for a long time. But it means that, you know, all of us are very, you know, are sort of full stack in a way, right? We do everything from the initial sourcing to building relationship to, you know, investing to working with founders after we've invested. And, you know, in I would say at least half of the portfolio, if not more, we tend to take lead positions. We're not dogmatic, but we do end up leading quite often. And in those cases, you know, we want to be supportive and very present board members, helping founders with everything from, you know, your classic sort of recruiting and structuring to things like introductions and partnerships, particularly within our consumer portfolio.

11:25We've helped a lot with thinking through international expansion. What are the right retail partners? You know, what does best in class marketing look like? All of those sorts of topics. And I think, you know, it's been interesting the last couple of years with the large, you know, ups and downs that the industry has seen. Because I think, you know, you really see some varied VC. You see how the different VCs are approaching very differently. And I think, and founders as well. And I think, you know, we certainly see with some of our, you know, even our portfolio companies, what might have a challenging chapter that some VCs are sort of take a very sort of numbers driven approach.

12:01And, you know, if a company, if they think a portfolio company isn't doing well, they're sort of just like, we're going to wash our hands, you know, we might stop picking up the calls, we might stop engaging. Which, you know, if you have a very large portfolio and, you know, you don't have enough time, sort of really understand the rationale of that. But obviously, for each company, it really, I mean, for us, because we have a country portfolio, each company matters. And for the founders, they only have one portfolio company. So it really, really matters. And so we just think, you know, we want to bring that human touch and that empathy.

12:32Not to say that, you know, we will always be, you know, we won't try to challenge respectfully if we think things are going the wrong way. But I think, you know, it's important to have that human, that emotional awareness. I guess switching topics slightly more into, I guess, the consumer investing space. and so Felix like you mentioned kind of investing in multiple verticals like authentic consumer facing brands and platforms and also related b2b kind of technologies but I guess if you think about it in the the context of consumer spending in the UK it is a significant one I think accounting for over 60 % of UK GDP yet I feel like the last kind of 12-18 months have been really challenging right I think if you look at kind of portfolio companies they're struggling to kind of raise raise money compared to, say, B2B SaaS companies.

13:23So would you have to hear your thoughts on, you know, what are some of the key opportunities you are seeing in consumer investing? And then again, kind of related question, anything, any specific examples that you can kind of draw on? Yeah, no, it's really interesting. Because I think here, I mean, there was actually a great piece by, I don't know if you know Eileen Lee from Cowboy Ventures. She had put this sort of, this large piece, research piece on TechCrunch, which was sort of reflecting back sort of 10 years of unicorn creation and VC investing. And if you look at, I forget if it was 10 or 15 years ago, you know, the 80 % of VC money was actually going into consumer.

14:03And that sort of, you know, led to the first wave or second wave of, you know, these huge consumer success stories of Amazon, of Facebook, et cetera. But now it's, you know, gone exactly the other way. So I think it's, you know, 80 or 85 % is in B2B SaaS and very few is in consumer. We're still happy to be contrarian in this space. I think, as you said, a large part of GDP and spend are in consumer. I think if you look at the most valuable companies in the world today, whether it's Apple, Tesla, Nike, Disney, Amazon, LVMH, the list goes on. I mean, they are all consumer-facing companies where even if Apple and Tesla obviously have tech at the heart of part of what they do, but that Apple product can charge that differentiated margin, that differentiated pricing because it's Apple, right?

14:47So there is a huge portion of value that brand creates. And we think also if you look at consumer behavior, which is something that we're really obsessed by, people are living life very differently. And actually, they're using sort of products and experiences and brands as a way to now find affiliation, to connect with others, to find community. So I think we're very excited by a lot of the areas around that. We still we think large parts of consumer spending are still very resilient. Obviously, each market, you know, the UK has had it's been particularly hit hard with the cost of living. But, you know, if you look across most of Western Europe and the US, it's still pretty resilient in a lot of Cree categories, especially now right now around experiences.

15:28everything from travel, hospitality, et cetera, things in personal care and beauty, is still very resilient, things in pet care, and things around wellness and proactive and preventative health. I think people are taking much more care of that. And in food and beverages, people are also happy to spend for quality. So I think there are lots of pockets where we think the consumer spending is resilient and where really new brands and new products and great products can sort of outgrow the market as well. And I think that's the other thing is, you know, you do see this generational change in brand loyalty.

16:05So, you know, as we've gone from, you know, from the baby boomer generation to Gen X to millennials to Gen Z, you know, each generation has different behaviors and wants to find, you know, their sort of generation of brands that they really aspire to. And that also creates a lot of exciting opportunity. Absolutely. Are there any specific areas of consumer that you're particularly excited about? Yeah. So I think, you know, the ones that I mentioned before, I mean, I think it's interesting because I think, you know, there was a lot of VC funding sort of five plus years ago. And, you know, well, Felix was included in there, which sort of just was pouring money into these sort of D2C startups, which some have scaled pretty well and others have, you know, frankly, struggled quite a lot.

16:49And I think people saw that and thought, well, actually, that's not great. Let's move away from investing in D2C brands. And I think what we learned is a lot of it comes down to both the brand you're creating, the product you're creating, and also how well you're executing. And, of course, the team that underpins that. But you can create fantastic new companies and brands, but it can't be just relied on a new channel, right? So D2C is not really an innovative business model anymore. You have to be omnichannel. You have to be, you have to, you know, the bar is higher on the acquisition side. You know, acquisition costs have gotten so expensive over the last couple of years, especially on Meta.

17:28And so you really, you know, need to have differentiated distribution, whether that's through, you know, a founder that might have, you know, created a really strong, built up a very strong organic community over time and become sort of known as the voice in fashion and skincare, whatever it is. or it's leveraging different types of distribution to reach end consumer and then really getting that loyalty and that customer love. But I think if you are able to crack that, then it's definitely a business that we'd love to meet and founders that we'd love to build a relationship with. When you look back on your career, I think you've managed to invest and support a number of really, really impressive founders from, I guess, many of the companies that we've just heard of.

18:15And I guess those that are really kind of ready to make their mark on human progress and really making life better and more fun for everyone. Would you love to get your thoughts on how you actually think about impact and backing companies that really bring positive change to the world? Yeah, that's a great question. I think, you know, when we look back to the manifesto, I feel like, so a couple of years ago, we went through our own B Corp certification process And I think we're one of the few sort of VC funds at this scale that are B Corp certified. And we really, you know, we looked back to the mission and we felt that, you know, it was everything still held true.

18:49The only thing that we became even more deliberate about is wanting to find founders that are creating, you know, big ideas and big brands that are moving the world, we say, moving the world forward. We're not an impact fund. So, you know, we are a classic VC fund. And obviously, you know, we have a huge financial fiduciary duty to our LPs. But I think we do, when we are investing in companies, we definitely think a lot about their mission and the impact they're driving in their communities, with their customers and with their teams. And so I think the two ways we look at it is sort of, you know, one is, you know, we do use the UN SDG framework.

19:25So, you know, we look at all the sort of 17 goals across that and we see, you know, I believe when we last did an audit, about 48 % of our portfolio companies were aligned with one of those missions, you know, whether it's around, you know, sustainability. So, you know, we have, for example, in our portfolio companies like DOT, which is urban micro sustainability or Oatly, which obviously, you know, is plant-based milk. But we also have things around improving broader access to health and wellness. So, you know, Peppy, for example, which is really helping, you know, women with menopause, fertility and other areas.

20:01Unmine, which is a corporate mental wellness. And also, you know, even sort of physical health and also financial health and inclusion. So companies like, you know, Lassie, which is pet insurance, which is actually helping, you know, a lot of pet parents who, you know, sometimes get hit by unexpected vet costs with that. So it's not like I think there are funds that are very focused on one segment of that, which is oftentimes actually more sustainably and carbon driven, which was really important. And we actually have in our portfolio as well a company called Effie, which is helping with home energy efficiency projects, so solar panels, heat pumps, insulation, all that.

20:36But we also sort of wanted to make sure that we're adding the other important pillars as well, which is, you know, around financial, physical inclusion and sort of gender inclusion. I wanted to also, I guess, get your thoughts on those that are raising in the current environment. I think if you look back at the last kind of 12, 18 months, high interest rates, sticky inflation, political uncertainty, et cetera, et cetera, the fundraising environment for a lot of the portfolio companies has been challenging. but I guess in seeing that you know we certainly seeing a lot of really exciting kind of see the Series A rounds being closed in London I guess that's kind of down to a number of fundamental factors but would look to get your perspective on outlook on investing in consumer companies in the current market and I guess a second related question is there might be a number of founders dialing into this we hope so your views on, you know, what are the, what, what is the advice?

21:41What are you looking for exactly? And I guess it would be great to kind of get, get you to impart any critical advice for founders that are actually on that journey. So I think overall we are, you know, we're broadly cautiously optimistic about 2024. I mean, I think, you know, when we, when we look back and, and you know, I've talked a lot with my colleagues who have a, I mean, Frederick has been investing over the last 20 years. So he has even sort of a broader view of the market across cycles, across multiple cycles. But I think, you know, we do now, you know, I mean, 2021 and 2022, first half of 2020, 2021, or the first half of 22 was such an abnormal period that I think, you know, there is, there were a lot of things, when you look back, that didn't make sense then, where I do think, you know, we've returned to normalcy, which is long term, much more healthy for the overall ecosystem, for founders or for VCs.

22:28I think those crazy times created a lot of strange incentives and strange behaviors, which I think weren't about really building great long-term sustainable businesses. And I think, though it's been a really painful adjustment for many, I think we're in a healthier place now for the overall ecosystem. I think we're cautiously optimistic for 24. I think all the – I mean, it's anyone's guessing there's obviously – there could be a lot of black swan events with especially geopolitics and the U.S. elections and everything. But I think we are, you know, everything we've seen around consumer sentiment, I mean, inflation has been broadly much more controlled now.

23:08I think rates will hopefully in H2 this year start coming down. It sounds like the public market is going to open up. And obviously that once there is some liquidity events, that will also be very helpful for both LPs. And then that trickles down to GPs. So we think things should stabilize and normalize. And hopefully we've already hit sort of the bottom in a soft-ish landing way. Having said that, on the consumer side, so overall quite positive. We certainly see the volume and pipeline seems to be picking up quite a lot, particularly at early stages. I think to your point, seed series A feels pretty active.

23:49I think growth is still pretty slow. We haven't seen that many large growth rounds coming up. And I think a lot of the companies that did raise large rounds in 21, they've extended their runway quite a lot. So either they don't need any more cash ever again or they get to profitability or maybe they'll come back to market later this year. But I think, yeah, on consumer companies that are raising, you know, I think we are actually I'm going to sort of tease this a bit because we're about to release what we call the Felix Brand scorecard. You know, there are so many SAS scorecards out there, whether it's, you know, there's the 0.9 one, you have the Bessemer one.

24:27I'm sure there's a bunch of others that should show, you know, here are best in class SAS metrics across everything from, you know, NRR to like CAC payback or whatever. We want to do the same thing and help demystify consumer a bit because I think part of the – there hasn't really been anyone who sort of shared this. And I think a lot of consumer founders – we do get a lot of questions of what does a good consumer company look like from a metrics perspective. We have sort of the more quantifiable things, which are a lot around sort of growth efficiency, unit economics, ROAS, LTV to CAC. If it's physical products, we also look at sort of margin profile, your mix between channels.

25:05We also have sort of more intangible things, which we sort of call more the brand magic side, which is, you know, we spend a lot of time looking at Instagram, TikTok and other social channels to see how do people really feel about the brand? You know, is it something where they're really becoming, you know, ideally you want to turn your brand into almost something where people want to people, your customers become your ambassadors, right? because people are so excited about the product or so excited about the service or the brand that they're telling their friends, they're tagging their friends in the comments and saying, hey, you should check this out.

25:35And that leads to this beautiful organic flywheel of growth. We have sort of over the years collected a lot of these metrics across different stages of companies and are really excited to soon share that with the world. Amazing. Stay tuned for the Felix Brand scorecard. Can't wait. And I guess just on your point around kind of brand magic, I would highly recommend listeners to look into kind of Rex Woodbury's commentary on brand. I think he does an incredible overview of Rex's approach. Yeah, kind of person-aware and everything. Cool. So I guess I would love to take a step back from Phoenix in consumer investing and also look at, I guess, the current state of diversity in Europe.