Episode #3: Consumer Tech Napkin | Building great teams in consumer tech

0:00And when we look at a consumer company, if it's live, even before we speak to the founder, we look at the reviews and we're particularly looking for evidence that that founder goes above and beyond. You want some sort of a superpower in the team and that can take different formats. Like, for example, you can have a team that's really strong in distribution. You can have a team that's really strong on brand. And that superpower sort of forms the base of sort of your early growth and the right to exist in the marketplace. At least in technology product, there's so much change that's happening that you're sort of looking for that steep slope of learning, right?

0:33Like what have you done in the last three months, six months, nine months? What we're now seeing is there's like a generation of AI native entrepreneurs that are just able to get out there like a little bit quicker and are able to use the tools a little bit faster. They're able to iterate like in a way that's like resonating with our audience and allowing them to come out the gate super fast. If they're able to do more experimentation and build stuff and use both data analytics as well as qualitative data when they're speaking to customers, then their feedback loops are just quicker. And that means you want to be able to have a conversation with someone, ask them a bunch of questions, and then every day they're going to be like getting stuff back from their users.

1:08And it's that like speed of iteration.

1:10Andreas Munk Holm:And so welcome back to the European VZ podcast. Consumer investing is supposed to be that. Yet the three investors with me today are still doing it. And with conviction. When I asked what keeps them coming back, none of them said market size. They all said team. So that's today. What does a great consumer team look like? First up, Camilla Dolan, founding partner at Eka Ventures, the UK's largest early stage impact VC, hot off winning impact leader of the year at the EU VC awards and an oversubscribed 80 million fund to close. Backing brand-led consumer and health, well-being and sustainability since 2013.

1:41Andreas Munk Holm:Next, Rishabh Koul, venture partner at Hoxton Ventures, co-founder Belong, backed by Sequoia and Matrix. First, ETM hired AppSmith, where he T-nexed users from Series A to Series B, and an active angel in 25-plus companies, and runs the community for Indian tech founders. And finally, Mark Martin, Director of Investment at True, a£1 billion consumer and retail platform investing early venture through growth. Before True, 15 years at Sky, eight running their CBC arm.

2:13This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured.

2:19Andreas Munk Holm:Let's start broad. Aside from all the usual things, mission driven, big ambition, strong market intuition, what do you look for in consumer teams specifically? What's the thing that's unique to consumers that you wouldn't weight as heavily in a B2B environment? Rishabh, I want to ask you first. I think I look for a spike. Often you want obviously a unique insight and all of those things. like that you mentioned, but you want some sort of a superpower in the team. And that can take different formats, right? Like, for example, you can have a team that's really strong in distribution. You can have a team that's really strong on brand.

2:54And that superpower sort of forms the base of sort of your early sort of growth and the right to exist in the marketplace. And so I think that's what I look for. our superpower is customer obsession we think it is the sole the sort of single most important thing in consumer founders and when we look at a consumer company if it's live even before we speak to the founder we look at the reviews and we're particularly looking for evidence that that founder goes above and beyond and i really learned from one of my early investments in this so very early in my career i worked for an incredible founder called aaron the ceo and founder of bloom and wild and he sort of drilled it into every board member every person in the team that customers come first and he always had to be obsessed about making sure they had a great experience just before this call i just went and checked that was still the case um looking at trust pilot reviews and one of the most recent reviews um actually sort of says full marks to aaron for taking responsibility and being so gracious i used his company because i like the founder story and i hope it goes from strength to strength and so that type of session that business does hundreds of millions now and the founder is still answering trust pilot reviews and customer calls so we think that's really really key and then the second thing we look for as a manifestation of customer obsession is engagement outside of review channels so how are they how are the founders actually like engaging with their end consumers and i think runner is a really great example of this and so an investment that we made at ecare running training app and the founder of that or co-founder of that, Ben, even to this day, having exited to Strava, is all over Instagram and, you know, recently ran the London Marathon, got over 30 ,000 likes and for that on the sort of Runner page and had comments like, Runner changed my life after my second daughter.

4:41Runner helped me so much to find myself and my goals. Thank you. And that's the type of thing that we're really looking for, like brands and founders that like create this emotion in their end consumers.

4:51Andreas Munk Holm:Mike, you often talk about mercenaries versus missionaries. I don't know if that's where you want to go here, but I'd be curious to hear your take as well, of course. Yeah, for sure. I'm actually, I'd say I was pretty aligned with Camilla on this and linked to kind of that customer obsession is, I think, in particularly important in consumer is the ability to delight users and go beyond their expectations. because obviously it's important in B2B as well. But in B2C, you are competing with so many other things for consumer attention. You know, there's a million things that people can do, whether it's family, whether it's work, TV, gaming.

5:31There's so many things that a consumer can do other than open up another app. And there's obviously limited inventory on somebody's phone. It's a really high bar for consumers. And I think that that customer obsession that a founder can exhibit, it i think it directly impacts and is reflected i guess in how they build the product what features they put in there and then their speed of iteration so i think that the kind of customer obsession and the ability to make people open and experience and think wow that is either solving a problem for me or it's it's kind of making today better i think is like really really really important on the missionary versus mercenary point i guess um yeah it's not to say that you know if you're a mercenary and and what i mean by that is maybe you're you don't have like a core central mission to the to the company it's just i think this is an opportunity to make money you know that is fine and it's not necessarily like a massive red flag i guess it's just i think an acknowledgement for us that consumer to the previous point is a hard category.

6:41It's hard to get people's attention. And so if a founder has a real affinity or an attachment to a problem they're trying to solve, whether it's because they've experienced something personally themselves or they've seen other people be affected by something, and that can be across any category really um for consumer then when stuff gets hard which it will because it always does at different points in a in a journey you want people to be really committed to that cause and that mission and know that they're going to keep going and obviously if somebody's if someone's intrinsic driver is just to make money then you know why why are they not just going to move to open ai next week when you know when they get a job offer from them so it's it's less of a you know has has to be missionary but it's more like in the mental model of thinking how you're building conviction around a founder and an idea it is very helpful when when that comes with you know a real core mission to the business and it's also really helpful when that founder is able to help portray and convey that mission to talent as well because there's a real reason why people might want to join their company versus somebody else's.

7:51Andreas Munk Holm:I want to ask you because now we have two people talking about consumer obsession. You're obsessed with distribution, as you said. Why do you think that distribution is so important? Can you talk a bit about, and I remember from our prep call, you spoke about this case where you had four people with$10 million a month entirely on paid social for a women's wellness product, and it just absolutely took it, you know, went absolutely ballistic. I'd be curious to dive deeper in that case study to understand how distribution can be an absolute superpower. Yeah. The distribution is really important because in consumer, that's how you sort of grow, right?

8:32Whether it's word of mouth and there's different ways of doing distribution. But I always look for someone in the team who has that superpower, ideally the founder. And there's enough examples of where one of the founders was really strong in some form of distribution. And then they ended up growing the consumer company because it's such a big part. of whether you're successful or not. Like the product can be great, but like you need to be able to take it to the masses, especially in an environment where there's so much competition. And so this particular example, the reason I like it is because in some ways it's a little contrarian, right?

9:10And the contrarian bit is normally in a lot of cases in consumer, you hear that there needs to be word of mouth and there needs to be a brand. And those things are absolutely true. but there are also cases where things like paid marketing like normally when people think of paid marketing they think of it like a waste of money right like hey don't spend too much money on paid marketing but if you have someone who really is good at paid marketing like the top one percent it can be a massive massive superpower right because you are able to bring down the cost of customer acquisition drastically and it becomes a flywheel right where every user feeds into it As long as your sort of LTV numbers and all those things are fine, it works out.

9:53So like the example here is there's a founder who's a friend and this guy spent a lot of time doing paid social. This guy was in Hong Kong, but grew up sort of learning from companies in the US and was working for a bunch of health care brands. While he was doing this, he decided to start a company in the sexual wellness space. right and this is from Hong Kong uh starts running the business just using like powering through with paid ads and last when I when I caught up with him I was like it's just been around for like less than two years and I was like how is business going he's like yeah we are doing about 10 million a month and we're almost profitable I was like what how did you manage that and so I thought maybe they've raised funding they've sort of you know uh done a bunch of they're like no we just bootstrapped uh we did like a tiny friends and family round uh rest of it has just been literally just you know pushing out through both organic and inorganic stuff and primarily uh through a lot of paid ads i was like how big is your team is like four people because everything else has else has been outsourced the key so there's one person that looks at the product there's one person that looks at sort of ops plus community so like customer support plus ops community all that stuff and then there's the founder who spends a lot of his time on distribution and then everything has been outsourced I was like wow that is that is incredible right because you're building sort of like a d2c brand doing 10 million a month and it's sort of a niche category uh it's not like a mainstream category so I was just like I was like wow if you can find a really good paid marketing person like there is nothing better than that for a for a consumer startup who really thinks of it uh at a granular level and is able to like you know just look at all the tweaks and buttons instead of just throwing money or going to an agency uh it's it's it's an amazing superpower i'm curious for sharp um how much of that do you think is is in their kind of like trading ability and ability to manage those channels, those acquisition channels versus there being an element of the product being great or them being really good at brand as well?

12:08Like, do you have a sense of that? I think the product is, obviously the product needs to be good because while you can do the acquisition, you know, people do talk and so you want the product to be good. But I would say that initial push is a lot of it is paid marketing. And then that's the first phase. And then over a period, what happens is that the paid proportion just starts going down because you start investing in other things like influencer marketing or stuff like that. On day zero, you can't really do influencer marketing, right? There is no product to sort of, I mean, you don't really have any brand or anything.

12:51You don't have users and stuff like that. And in their case, the best influencers would be their users. But I think like a big chunk was a big chunk was paid.

13:00Andreas Munk Holm:I want to ask you all and we're going to get to AI later. So for that reason, anyone who's sitting there waiting and saying, why can't we talk about it? Yeah, we're getting there. But hold on for another five minutes, maybe seven, because now I want to just touch on not the pre-seed stage or the super early stage, but rather what happens to consumer teams later on. What becomes when does when does it change from being you're looking at only the founding team to actually looking at the entire executive team or the entire senior team or even the entire company? Rishabh, I know you're investing in a bit of a later stage once in a while.

13:35Andreas Munk Holm:Maybe you can start off and say, okay, at Series A, what do you think is the most important? I always feel that it's always good to, so your early team, right? Your first sort of hires are going to be people who are just going to take a bet on you, unless you're a proven founder, which often in the case of consumer, where you're not, you're sort of probably going to discuss later how they come from random backgrounds because they were founders. And so your initial first hires will be people who just have hustle, right? Like they put in their heart, they resonate with the product and they're going all out running a bunch of different experiments, right?

14:10I think as you start reaching series A, I've always felt that you want to hire people that are, that have maybe seen one stage above, maybe not too many stages, but like one stage above. So if you're at series A, you might want to hire somebody who's seen series A plus or series B. And then you have a conversation saying, you know what, let's see if this person grows beyond that, right? Like at every stage you're sort of evaluating. Because I feel like one of the things with consumer is that it can grow so fast. Like when it works, it can grow so fast that you quickly start sort of growing through these stages.

14:44Unlike in B2B where you have a little bit more time, right? Because sales cycles are long. So you always want someone who understands the next stage just a little bit more, right? Whether it's on the opt side, for example, if you suddenly now need 4x, the larger, you know, warehouse, or even on tech, right, you suddenly are seeing 10x the amount of load, like these things can happen a lot in consumer. And we're seeing that in the AI led startups, many of which have, even though they might be B2B, they are starting off with the consumer angle. Like if you look at ChatGPT or Granola and all these companies, right?

15:18Like the consumer companies. And so you start seeing that sort of, you know, growth very quickly. So you need like people who've seen some semblance of it to be able to figure out, but not necessarily too many stages later, because then that brings its own challenges, right? In terms of being able to relate to this stage.

15:38Andreas Munk Holm:Mike and Camilla, how do you think about the later stages and the importance of the core team and the more expanded team? Yeah, 100 % address. It's a great question and something we think about a lot. I think the really key thing is to maintain that high level of customer obsession and service as you scale. Teams need to build out sort of tier one operational and finance layer. And so what we often see in consumer, as Rishav says, things grow extremely fast. but if you've got inventory in the physical product space logistics warehouses if you don't build out the layer underneath it really quickly that can keep control like operational control of that whole machine it's very easy to like skid off the road and personally i have experienced that so we had a business which i won't name very early in my career where it was scaling exceptionally fast it was so 30 million revenue run really very well funded really good customer reviews and they tried to do a warehouse transition over peak trading and they didn't have the sort of financial control in place to be able to manage that and that business sort of spun out and went into administration and so learned very early that you can scale to 10 million extremely easily without a huge amount of financial control but when you make the jump from 10 to 30 and then 30 to 100 you need to be operationally tight.

16:54People talk about retail is detail and I think that is a real thing and we really encourage people to invest extremely early into those sort of functions even though sometimes they appear in the overhead and I think you've seen it some of like the most talented consumer founders in the UK people like sort of Ben the CEO now and founder of Gymshark he was coming out of Aston University when he built that company and he brought in a really experienced CEO called Steve Heward who helped train him up and then he took over the CEO role again um you know fuel just had a billion dollar exit and very similar julian the founder is still in the business and brought in someone called jay mcmaster that had like operational scaling experience before and they sort of co-scaled that business together and sometimes the founder spikes on that area and then um you know is able to compliment themselves so aaron at blue and wild had an amazing individual called and phil uh he was the sort of ceo in that business and you know really knew like every single detail of where everything was at any point in time.

17:52But that's the thing we think is totally, totally critical. Build out operations and finance early and have really the best people in those roles.

18:02Andreas Munk Holm:Mike, you're investing from the true platform, which, as I mentioned in the beginning, invest all the way from the early stage to growth and even does a lot with the more established companies as well. What would you say that you're seeing is super imperative in the later stages of a consumer company? um i don't disagree with anything that um camilla said on that front i mean from the perspective of because we're often backing teams that precede and then also at seed and potentially looking to to follow on into companies that we think are going to be successful in the future and and often you know like people have said you're at the start you're just backing one or three people but I think what we how we think about it is like what signals are we seeing from the founders and I think it probably falls into three things for me one is like do the founders have the self-awareness and enough of a low ego to hire people who are better than them and I've seen that in the past where that's not been the case and people are almost worried about bringing in more talent as the people because they're worried about them not being the center of of the shit anymore so you want people to recognize where their weaknesses are where gaps might be and sort of just be fully all in to say i want to bring in people who are better than me who can take this company to the next level the second thing is looking at who they've been able to hire so what talent they've been able to bring into the company what opportunity has that hire given up to be part of this team because I think that gives you a really great insight into the founder's ability to sell their vision to talent and future talent as the company scales which I think is really important and you obviously don't have those data points at the pre-seed and I think one that's really really important given particularly how many companies probably don't work because of founder fallout is their kind of ability for people to have really really difficult conversations whether that's with other founders or with employees they brought on and being having the awareness to to notice when something isn't working and actually do something about it and so that's something which we have seen which we really like people to lean into right it's like super difficult conversation when you're really close to someone and and fundamentally one or two founders don't think that the other one is actually working out and i think it says a lot when they're able to to deal with that quickly and in the right way and we've definitely seen that with a couple of companies in our portfolio whereby that's really helped because actually in some in some senses the person where it's not working out actually they're also relieved to leave as well and so I think being able to deal with those talent situations at the early stage is really, really critical because having those frameworks early on are only going to be exacerbated as the company gets bigger and bigger.

21:06Andreas Munk Holm:We spoke a bit about pedigree before. I think we should just touch on that point again now that we move into the AI segment here, because pedigree in consumer is historically not as important as in many other traditional VC sectors, especially B2B and enterprise. But it's probably getting even more pronounced now, I could imagine, given And given that AI is sweeping away all installed base in terms of knowledge, can you talk a bit about that, how you're seeing AI transform what you're looking for in consumer teams? I'll maybe just mention that we did a bit of analysis on sort of European successful companies that have been venture backed across Europe and like what the founders backgrounds were and whether they had any previous either entrepreneurial experience or sector experience.

21:56And actually, from like 120 founders, I think in both cases, only 50 % had experience building a company before. And also 50 % had some relevant sector experience. But it just kind of shows that, you know, maybe it's particularly in consumer, like successful founders can kind of come from anywhere. So we try not to, obviously, if someone has a specific insight into something, then that's what we latch on to. rather than specifically have they got any prior experience. I think where it's difficult for particularly a first-time founder when it's consumer, when it's pre-launch, I think that's quite a challenge for us.

22:39You know, when we don't see how they've built the products and the kind of product workflows, that's quite challenging for us. And I think particularly in today's world with AI, I'm not sure there's really an excuse for not having like a product. to be honest it's so easy to to pull something together with with almost nothing and be able to explore that thing in the real world and get feedback from customers so i think that's something which has probably helped a lot of people i mean if they don't have a background in something to be able to say okay well this is my vision of the product and actually i've built something even though it's not polished and perfect and actually i've spoken to 50 or 100 people and validated that this has a place in the world.

23:21So I feel like technology is only helping people be able to prove that there's opportunities for them as founders, which I think is great. Every time there's a sort of technology platform shift or a new technology arrive, that provides like a plethora of opportunity for people that are sort of native in that skill set to get an edge in the early days. So you saw it with the Instagram brands that grew up, the Facebook of brands that grew up and I think what we're now seeing is there's like a generation of AI native entrepreneurs that are just able to get out there like a little bit quicker and they're able to use the tools a little bit faster they're able to iterate like in a way that's like resonating with our audience and allowing them to still come out the gate super fast I think within our own portfolio though we have an example of that a business called Medley AI which is an education tutor business and we backed Paul and Kavi the founders of that whilst they were still at university so they were finishing up their degrees and they had managed like had together, this sort of app together, get it into market, had tens of thousands of users.

24:19And now that's sort of scaling really successfully and recently closed around for Felix. And so you're seeing these people that are just able to do so much with so little because they really understand their audience and how to use these tools in a way that's sort of resonating. So super excited about that. It feels like there's a new generation of consumer founders coming out the gates. Yeah, I heard this. I was talking to another investor yesterday and she said something very interesting, which was, she's like, you know, look for domain depth and not domain expertise. So domain expertise would be somebody who's worked in a space for, you know, say 20 plus years, right?

24:58Domain depth would be somebody who has not worked for that long, but for the last few, whatever timeframe is, have just fully gone into it. And if you bring up anything, they have an opinion, they're at least aware, they've thought through. A lot of those kinds of people are really likely to, you know, do really well. I mean, I wasn't part of Hoxton then, but like we were the first check-in in Deliveroo. And I mean, Will was a banker. He's working in like, you know, finance and like schlepping food to people. So like, I mean, it's, they can come in all sort of forms, right? Well, a great example, a customer obsession.

25:37I always remember the story of like cycling to see his first customers and still going there.

25:42Andreas Munk Holm:We can all kind of imagine these super vibe coded consumer apps that just take off to the sky and you are three people and a dog to build that business. You almost had a similar case with four people, Rishabh, building 10 million ARR business. Tell me, is this a fable that it can be done? Is this definitely not VC backable, this type of company? How do you think about it? It seems like it's something that's truly taking off, but I think it's also something that a lot in the VC world are saying, well, the fact of the matter is that once you then have traction, you're just going to scale all the more quicker and you're going to be spending just as much money, but maybe your team might be small.

26:29Andreas Munk Holm:I'd love your take on this. Yeah, I think it's about how people are thinking about it, right? Like on one hand, one can argue just because the team is smaller doesn't mean your OPEX is any lesser. Like you're spending the same amount. It's just that a lot of that might be going to tools and API calls. And your full-time team might be smaller, but like you're spending a lot of, maybe not a lot, but like you're spending a considerable amount on this ecosystem of consultants and partners and things like that. So if you look at the OPEX side of things, there's two ways I look at it, right? and especially in the context of AI, there's a bunch of things that companies are doing with their teams, which is around reducing costs, right?

27:11This is where you have customer support tools and all of these things, right? And for consumer, these make a meaningful difference because it's such a big part of their overheads. I think there's a lot spoken about that, right? We've all sort of known the things that people are doing. The part I find more interesting is how teams are using it to increase revenue. If you can use AI and your teams are equipped to use AI in a way to increase revenue, then it becomes really interesting. And it doesn't matter who the investor is, like they will take notice and they'll be like, you know, if you're making money and something is working, let me put in more money.

27:47And at that point, you might decide I don't want that money. Right. And we see enough of that with this whole seed strapping trend and all. But like on the on the revenue making part, I think the part I found interesting to two things that I found interesting that I see consumer companies do. One is obviously around marketing, right? Like there's enough of how AI is empowering the marketing teams in startups, right? Whether it's in terms of creating copy, like ad copies, images, all of that stuff, right? Like that whole brand, blah, blah, blah. That's been again spoken about. The part I found interesting, which is more recent, is especially around experimentation.

28:23This applies a lot to consumer apps, but can apply to D2C and things like that as well. But like typically, you know, the really large companies, if you think about companies like Airbnb and Spotify, they have world class data science teams, which are working often with product and marketing teams to run like thousands of experiments, right? Like every little thing is being tracked. and typically early stage startups earlier did not have that capability because it requires a really strong data engineering function there's a lot of plumbing data and like it's so so instead they do things like a b tests right like hey i'll show two options somebody what i've started seeing is a lot of early stage companies have started having the same rigor to experimentation that a spotify does and obviously there's an ecosystem of companies that are allowing them to do that.

29:18I'm an advisor and investor in a company called Pavo AI, which is ex-Spotify sort of, you know, machine learning leadership who's trying to sort of bring in this kind of rigor to a lot of consumer companies. So when I was asking them like, hey, what are you seeing in your customers? They're like, you know what, here you have a small team, but they have quickly grown to a lot of revenue. And imagine being able to do things like if you were to figure on what notification to send to your user, right? Earlier, you would either do it in a very dumb way, right? Like you would use some mobile analytics thing, create a workflow and say, if not, then this, right?