America's New Consumer: CPG, Sports, Four-Wall | Jason Fiedler, Left Lane Capital

0:00Most of my pods already have been about AI, but you're anti-AI. And you're investing in a completely different segment than most of the companies that every single investor is investing in. So you're going after CPG, sports, and four-wall businesses. Could you explain how you gained conviction here? Definitely. And I don't know if I want to get labeled as anti-AI explicitly because the impact that Gen AI is having is foundational and huge and will eventually also affect categories that I am more focused on. It's been way less crowded on these massive consumer markets that have billions of dollars of spend, slow incumbents, repeat purchasing.

0:42You mentioned some of the CPG stuff, some of the four walls, some of the tech enabled health care. It's been an evolution of thinking over the last handful of years. Never thought we would be investing into direct to consumer pet food businesses, local coffee shops and burger chains, volleyball franchises. But we're seeing high quality revenue and opportunities in those categories. And so it's been a focus.

1:10Welcome to Sorcery. I'm your host, Molly O'Shea. Today, we have Jason Fiedler, managing partner at Left Lane Capital. Focused on consumer and internet companies, Left Lane Capital has grown its AUM to over $2 billion in around five years. Very fast. Notable left lane investments include Takayatree, Blank Street, Holy, Jack Pocket, King's League, and more. And Jason's personal investments include Farmer's Dog and Figs. This is a very fun conversation on wildly interesting, atypical, venture-backed businesses. And Jason gives a very good, refreshing take on it all. I hope you enjoy. When we were talking, you mentioned that you were inspired by Starbucks.

1:54Learning the Starbucks model and understanding the full scale of that What was that scale? What did you learn? It was an evolution of thinking. So in 2015 in New York City was kind of the boom of direct-to-consumer brands, and every category had multiple players. And so invested in a handful of those, and companies like, you know, personally was an investor in the Farmer's Dog, Biggs, Medical Scrubs, and those got off to a quick start. And some of those have continued to do really well, the ones that have repeat. But what we realized in like 2021 is direct-to-consumer marketing costs went through the roof.

2:30Facebook hacks were huge and everyone was struggling to acquire customers digitally. And I think it was two things that I mainly did. One was this article on Starbucks where they were breaking down how they only spend 4 % of sales on marketing, right? They don't need to constantly reacquire customers. They have a front door. Their four walls are marketing and they have defensibility locally. and they can continue to drive repeat revenue without opening doors every day. And the other thing I did was just, I think it was in the depths of COVID, I just sorted the stock market in descending order by market cap.

3:02Everything we're investing in, you're investing in, other funds are investing in, we're all looking at the end of the day towards that number being as big as possible, whether it's on public exchange, M &A or whatnot. And it was just shocking to me how many of those businesses are core consumer categories, right? These are your beverages. These are your banks. These are not necessarily your enterprise software companies. And it reconfirmed to me even more how if we can take the same framework, we're not sacrificing, we're not just kind of hoping that this consumer business is going to win. But in fact, doing even more, you have to apply even more rigor sometimes on the consumer side to make sure that you're not investing in a high flyer.

3:38But I think the combination of the lack of need on marketing spend and then the fact that these markets are so big and numbers one, two and three leaders in them are often multi-billion dollar public companies gave me confidence to double down on it. One question I would often ask people is how big is Monster Energy? And they would often say like 2 billion, 3 billion. I think at the time it was 70 billion. And so I think a lot of investors are magnitudes off in how big these categories can be. So in those categories that you're going after, what are the specific subcategories? So beverage is one of them.

4:13I can talk about beverage for days. Pet has historically been one of my favorite categories. When you think about the enterprise software of consumer spend, pet is it. I mean, yes, you'll have that initial maybe 40 to 60 % drop off in the first year. But after that, you're retaining 80 to 90 % of your dollar spend year after year. And so you can apply very similar frameworks from software to growing a pet business. As I said, a lot of these fast casual restaurants that can scale really quickly with the limited CapEx is another area that we're spending a lot of our time on. We're continuing to look at digital healthcare and there's a bunch of categories that we're looking at that sports is another one.

4:55It's hard for me to just only talk at the surface level. I'm happy to pick one and I can go deep on it. We'll go deep on them later, but I want to go back to something that you mentioned in the first question. So you're from a traditionally very software heavy background. You were at one of the largest funds inside partners, and you learned some great frameworks and models there. What have you applied from those frameworks and models to now doing consumer and what's different? So the DNA of the firm is very similar in the sense that I think you had used the word aggressive. I wouldn't necessarily say aggressive, but it's lean forward, right?

5:32We're very outbound sourcing focus. The majority of our deals and majority of our dollars are in companies that our junior sourcing team brings to us, not friends of ours that we've known for whatever saying, hey, I got this deal. Let's do this together. So it's a very rigorous outbound sourcing motion, high volume and supermarket informed, which I think is kind of rooted in the same kind of insight strategy that we grew up in. We're just pointing that in towards a different area of spent. We're still focused on a lot of the SMB stuff that there might be some overlap, but adding a lot of the consumer dollars.

6:05And so we take that outbound lean. We also take the data rigor. So as I said, just because we're focused on consumer and SMB doesn't mean we lax. In fact, those businesses generate a lot more data earlier on, right? So a series A business that's in the enterprise space that has 20 or 30 customers, you can probably just phone all them. They may be YC friends. It's very difficult at that stage to be as predictive as a freelancer SMB software business that has thousands of customers already at the series A stage. And so you can learn a lot earlier. And we've taken a lot of the data rigor and the process as well.

6:42And I've realized that more than ever, because a lot of it is just the process of building the firm and building processes, breaking processes. But I think we do carry through a lot of the DNA, the core DNA, We just point it in a slightly different direction. So if it was LTV to CAC at Insight, what is it at left lane? LTV to CAC is still the North Star metric. I mean, all of these businesses at the end of the day are engines of we acquire a paying customer and we spend for that, the denominator, and then we get our gross profit of whatever service or product we're providing them over time. And we run that year after year, right?

7:19So they all at the end of the day, whether it's a business in the banking space or the virtual education space or the psychiatry space, when you come to RICs on Monday, they're similar slide templates and you're breaking them down to similar metrics. I would say on the newer kind of four wall stuff, there is this concept of LTV to CapEx that we've been adopting. That's kind of interesting or LTV to CapEx plus sales and marketing, which is essentially your cost to require customer is building that four wall unit and the sales and marketing required to get them inside of it. And the LTV, so the numerator is the gross profit you generate from them over time.

7:52And so that framework and being able to kind of apply and retrofit somewhat of a similar framework that we had in the software days has been really helpful. Because when you look at a burger shop, which traditionally has not been something that, you know, RLPs would know us for, and you see that it can, you know, cost can generate 150K of gross profit per month. You realize that that payback and life after payback is really interesting and rivals some of the more traditional software businesses. And so that sounds similar. And it was a very uphill climb to get there internally. I think there was every kind of similar-esque deal got us a little bit closer, but there was a handful of IC discussions where it was like, do we really do this stuff?

8:34Does this fit the model and the bar? And I think we've been able to adopt our frameworks without sacrificing our core values in a way that supports these businesses being incredibly investable and viable. Can we talk about your SIMS framework and how you're building out your portfolio? Yes. So furthering a lot of that, I mean, I grew up playing, that was the generation where you played the Sims. And it was always interesting to me that you could kind of just sit back. I would always sit back after I clicked the button a ton of times and just watch the people like Ant Farms just kind of run through the business units and generate activity and profit.

9:09And I think we're at this period right now where the retail landscape is entirely changing. You used to have a gap here and other retail apparel store there. What's in these four walls is totally changing. It's a service economy and a food economy and a social entertainment economy now. And so I think we're entering this era of building the new SimCities. And these entrepreneurs are repainting the streets with new brands. And they're digitally native, which provides a huge advantage over the incumbents. The newer generations are walking into places because of their phones, right? That's their navigation system.

9:46They're on TikTok. They're on whatever the hell else they are on. And that's the reason that they go left into that, you know, 7th Street Burger or Blank Street rather than right into the Starbucks or McDonald's. And you combine that with, and I can talk, you know, a massive mistrust of incumbent brands these days, right? Like the modern consumer has shifted values away from convenience at all costs to, I mean, we still love convenience, but there's obviously the health craze is going more mainstream. And that's led to a mistrust of a lot of these brands where more and more times when you see the income brand on the right, you're going to go left.

10:23And I think there will be, we want to be invested in a lot of those businesses that are really scalable. If it works in New York City and Topeka, Kansas, there's a lot of other cities in the United States where that can work. And I think you mentioned something about the NPS Delta. So what is the NPS Delta and how did you come to that? Thank you. You're bringing up all my keywords. And the NPS Delta concept also reinforced my interest in these categories because I think a lot of people focus on objective NPS. Like you, we have an NPS of 90 and that's not that great if the NPS in the incumbent industry is 87, right?

11:03And what's really important is what is that delta between your NPS and the next best or next most popular incumbent option. And when I go back to, you know, the personal investment in figs or, you know, or even in the farmer's dog and some of our businesses like talkiatry, which is modernizing virtual psychiatry. It's not the brands themselves in isolation that I was like, this is the best thing ever. But relative to the next best incumbent, it was just such a stark contrast that it made it more unfairly easy for them to succeed and steal market share. And so I think that NPS delta is what's really important.

11:39And I often look for what are the large categories of spend where your incumbents that are doing really well just don't have NPS. Those are the categories where customers are way more likely to switch. Okay. So I did mention beforehand that I perceive left lane as aggressive. I mean, I think you guys are like incredibly ambitious and you've grown tremendously large in a short amount of time. In around five years, I mean, I think that's a short amount of time to raise$2 billion. So that's a tremendous feat. You guys are also young. Okay. Young for the industry standard of, you know, a 50-year-old male.

12:15but you guys are probably early mid thirties. Yeah. You've raised a great amount of money. So how did you grow so fast and what are the current stats and outputs that you guys are hitting? Well, first off, thank you. It's, it's been humbling, but also at the same time, it feels like the bar is higher. We have to jump over. So I don't know. I take it still. I think I'm still in, I feel a lot of responsibility phase rather than clapping. But first thing I'll say is, I mean, we took a lot of time to name the firm. I remember we hired like three naming agencies. They were horrible. And then Harley and I went off into, I think we spent a weekend and I just, we were driving upstate and left lane just hit us because we're not right lane, right?

12:56We like to go faster. We like to beat on a relative basis, the competition. We like to win. I just, so aggressive, yes, in that sense. I just think aggressive can have a reckless connotation, which we are the opposite of. We've got our seatbelts on, we have the airbags, make sure maintenance, everything like that. But it's been fast, but it's been consistent with the strategy. When we were at Insight, we were managing, Harley, Vinny, and Dan, when they were there managing a similar amount of money. And I can't say we fully expected it in this amount of time. The market It went fast and we were fortunate to have a handful of winners early in our fund one that we were able to raise fund two off the backs of.

13:41But it's really consistent with the strategy. I mean, we execute a position building strategy where we look specifically for series A's early traction, getting minority ownership into those businesses. and then with support and getting them to that next phase where we can hopefully generally one out of three companies, one out of four companies, invest again and build our ownership into those winners. So that's the strategy. And you need a fund of a certain size in order to do that. Also, as I explained with our outbound sourcing and our rigorous kind of data processing, you need a team. So we've got 37 individuals here and the majority of that is on the investment team.

14:18That's finding deals, processing deals. And we've also got a value add team, an individual on growth, an individual on talent, an individual on platform. So in order to do it right, we feel like you need to be a franchise firm. And I think we really feel blessed and fortunate to have gotten out and feel over the wall. But I think an incredible amount of responsibility to deliver to our LPs, to deliver to our founders. And I think that's why we worked so hard and I slept four hours last night. Hey, we'll get right back to the conversation after a word from our sponsor. Sorcery is brought to you by Archer.

14:56I'm genuinely amazed at what Archer has been able to accomplish. Archer's goal is to transform urban travel, replacing 60 to 90 minute car commutes with estimated 10 to 20 minute electric air taxi flights. They are safe, sustainable, low noise and cost competitive with ground transportation. Archer's Midnight is a piloted four-passenger aircraft designed to perform rapid back-to-back flights with minimal charge time between flights. Learn more about how Archer is set to open up a new world of opportunity for passengers by providing safe and efficient access to people, places, and events across the communities they live.

15:30Visit Archer.com. Can you mention how many investments the team has done to date and how many boards each partner is typically on? Yeah, we've done almost 80 deals to date and 80 investments, 80 companies. And it ranges, partners are on anywhere right now from 12 to 14 boards, I would say generally. And then we have a really supportive team beyond that. So we have principals, VPs, leading deals. These are the partners to be, to be clear. We don't go externally and hire with recruiting firms to poach other partners. That's a similar, that's a strategy that we did take from the insight days where we promote from within.

16:07And so we give a ton of autonomy and responsibility to the future partners. So there's dozens of board seats as well that are occupied by that next layer. You mentioned that most of the deals are sourced by the juniors too. So how does that work and how many are you sourcing weekly? I think I was checking before this, I think we've spoken with 780 companies this month so far. So we got another week to go and manage everything in Salesforce. And so, but that's really, it comprises of, you know, the investment team of 2020-ish. And they can use, I mean, we don't tell them explicitly, hey, you need to focus on this and run us down and find an investment here.

16:48They have an email address. They've got their phone. They're in our partner meetings. We're coaching them to some extent, but they're really using a combination of three different ways of going about sourcing to do what they do every day. And that's networking, that's data, and that's themes or thematic, which is my bread and butter and focus. I'll hit on those really quickly, but it's a combination of those that makes you a sourcing analyst. Networking, there's so many other upstream and downstream firms that are doing interesting stuff. And I think I've been blessed to have a cohort of awesome investors that I've stayed very close with over the past decade, but it's up to those folks to find your tribe and to find those folks that you love sharing deals with, talking about deals with.

17:29And at this point, I know you said we're kind of relatively young in terms of the, you know, the consumer Internet and the opportunity. You know, we started our careers with the birth of the app store. You know, we've kind of been there for since the beginning of it. And so the network extends really far. The relevant network extends really far. And so it's up to them to build that network of their own as well and tap it. Data is really important. I mean, a lot of firms talk about AI sourcing. We believe that having data, access to data, proprietary data, but also the table stakes data is very important.

18:03And we weave that into the very human-based sourcing. So every week, people get automated based on trends of website traffic, job postings, app store downloads, and other metrics. We automate, highlighting companies, sends about six per week per investment analyst, and they're responsible for going through those. There's also tons of other data sources that they can leverage on their own. And then third is thematic, which to me is the most interesting and important because it involves a lot of more outside-the-box thinking, which is living everyday life and observing culture and observing changes, but also observing what the core areas of spend are.

18:43What are interesting categories? What are interesting? I explained my pearls and strings framework, but what are the strings where they're really good categories and have an opportunity for some reason? I mentioned pet. I mentioned beverage. I mentioned four wall. These are strings that I find interesting pearls to attach to each. And I think the job of a sourcing analyst is to prioritize those strings and exhaust all of the possible pearls that could be on it to find the best. There's nothing worse than being on the second best horse in the race. So a lot of the job is not just picking the right string, but picking the right pearl or horse on that string.

19:18Yeah, I wanted to actually ask and dig deeper into the pearls and strings. So let's say you find a good string, you're acquiring different pearls, right? How do you know that you found the breakout one? What are the main characteristics of the breakout company within the pack? It's a good question. Depending on the stage, it can be more obvious or less obvious. And the later you go, the more data-driven you are. The earlier you go, the more founder and brand-driven you are. But the key is having close to perfect information. There's over 75 direct-to-consumer pet food businesses globally that I've spoken to.

19:52And even when you go into France, there's seven there. And you have to understand each one and their different retentions and their different CACs and all of that. And so the key is really as close to perfect information as you can get, because that's what enables you to have perspective. And then if it's too early, then you have to inform a bit more brand and, you know, when and some of the, you know, what you think about the founder and whatnot. But usually, if it's not obvious, you haven't done enough work yet, but it usually is obvious. And then the beauty of some of these categories is they're not necessarily winner take all.

20:26You know, there's some platform or network or brand effects, but winner can often take most, as we saw in indirect to consumer pet. But if you ended up in two, three, four or five, you're still making the underwriting your base. You're still going to return your base case for each of those deals. I love that you mentioned that your team was born out of the app store marketplace. Like, I think that's great. Some funds were born out of literally typewriters. I remember playing like paper toss and I was like, this is work. Like there's an ad network here and we actually ended up investing in companies related to a lot of that stuff.

21:03But yeah, it's when I knew that this job, this lifestyle was for me. If you view it as a job and you think of it as cold calling, no chance. But if you have that fire of intellectual curiosity, it's just going to keep leading you forward towards interesting things. Again, I had no idea I'd be talking to you about sports, four-wall, continued CPG three years ago. It seemed like we were going to transition completely away from that stuff, but here we are. It's fascinating. And you guys have grown pretty fast. To double back on that, do you think there are any risks of growing the firm so fast? In what ways have you been able to stabilize the pace or at least the foundation?

21:44There's definitely risks. We say it's like a dog year versus just like a normal year. and maybe at more kind of mature or later institutional funds, processes just break faster. And you got to, I think my kind of stint that I did in operations and at startups gives me a lot of respect and empathy and understanding for just how a startup works. We are a startup with the rate at which we're growing and you have to communicate and be responsive. I think that's the biggest risk and the biggest issue is not doing that because at a larger, more established place, you have the way of doing things. And if you don't communicate generally, maybe deals won't get done, but there's an inertia towards just process and normalcy.

22:30Here, things change. We used to have pipeline on Mondays, then we split it with pipeline and IC Mondays too. And you have to be super responsive. In four years, we went from a WeWork where I used to have my feet up on the desk in Matt Miller's face to two floors here in Brooklyn with many more employees. And so the processes just have to change. And the half-lifes of those are just way faster. And yeah, I think those are the main things. Communication, integrity, adaptability, those are all pretty good frameworks for building a fund. Okay. So to get back into some of the fun stuff, okay? So I want to dive back into your portfolio.

23:11You guys have obviously had some big hits. For starters, I've heard through the grapevine that Left Lane invested in Olipop at a$1 billion valuation. Can you share more on this? We are investors in Olipop now. And what I can say is that we're really excited about the business. It started as a note that I had in my phone maybe four years ago when I was like, there has to be a Diet Coke alternative. And kind of a thematic focus, as I told you, on beverage. And just it's incredible. Coca-Cola and Pepsi,$345 billion companies, they're really having their cigarette moment. And they were cool when I was a kid.

23:49And now they're not healthy. And I was at a board meeting recently where an investor came in with a brown paper bag over his Coca-Cola because he didn't want anybody else to see as if he was drinking in the board meeting. And the Olipop team is incredibly impressive. The founder is extraordinarily mission-driven and they have a marketing and partnership savviness and that is reflective of a truly digital and digitally native team. And then, you know, I, and so we've, we've gotten to know the business for a handful of years and it just got to that point where, you know, obviously the business has done incredibly well.

24:20We said, this can, this, this can be a several billion dollar business. We absolutely believe it can be a several billion dollar business playing against these slow incumbents. I mean, Coca-Cola has 20 brands that do over a billion dollars. every single one of them is decreasing in sales year over year. And they haven't innovated at all. They created Diet Coke in 1982 and then Coke Zero in 2005, which are just derivative products. But all of their expansion comes from new acquisitions. And there's hundreds of billions of dollars of enterprise value that they're going to need to maintain and try to grow off of.