Why This Investor Is Skeptical of Celebrity Brands But Still Backs Them | Deborah Benton

0:00This investor has backed some of the most successful celebrity and creative founded brands, including Katie Paris Dessois, Gal Gadot's Goodall's, and Molly Sims' Wise Beauty. Introducing Deborah Benton. On today's episode of the Hosted Podcast, Deborah shares why she's skeptical about celebrity and creative founded brands and yet has invested in several of them, how she diligence this type of company, the most common reasons she says no, and her fund Willow Growth Partners. Let's get into the conversation. Deborah, thank you so much for coming on.

0:28Deborah Benton:Thank you so much for having me. I'm looking forward to this. Yeah, I'm also looking forward to talk about consumer brand investing with you, particularly around celebrity and creative founder brands. But before we do that, I'm curious, what did you actually make you decide to launch your own fund? Like what kind of gap in the market did you see that you wanted to fulfill? Yeah, I get asked this a lot. When I started thinking about doing a fund, it was probably around 2017, 2018. I had spent most of my career actually as an operator in consumer brands. And candidly, I was seeing the problems in the front row.

1:01Deborah Benton:I was part of the problem. There were no early stage consumer brand funds that were providing capital at that kind of colloquially known seed stage, what we call now emerging growth. And so the only source of capital really was coming from tech-oriented funds. And, you know, all of the early stage tech-oriented funds kind of dabbled. But they were underwriting and valuing these consumer brand businesses exactly how they would a tech business. And fundamentally, the way TechVC works is they're gunning for a billion dollar plus exit. That's how they're thinking about it. Their portfolio construction, you know, supports the blended return of the fund that they're marketing themselves to through a few huge home runs that return the fund multiple times.

1:46Deborah Benton:And the rest, just being the nature of risk associated with the tech, the rest going to zero or really not being worth mentioning. That just doesn't work for consumer brands. I had raised capital as an operator from Andreessen and Index, really top Lightspeed, top, you know, Sandile Road funds that were super smart people, but really were thinking about these brands as tech companies. And they sat on the board and they were encouraging us to scale in the same way they would encourage a tech company to scale. And it has just led to a lot of destruction of value and a lot of really unfortunate outcomes for phenomenal consumer brands.

2:24Deborah Benton:And by the way, we're still seeing the repercussions of that, and we will for quite some time. So I left operating in 2014 with the goal, I just started investing off my own balance sheet. I was investing as an angel, kind of$50 ,000 to$200 ,000, taking a lot of independent board seats to help these brands think about scaling in a way that was very much reflective of the unique structure of consumer brands, which is just very different than tech companies. So I did that for a number of years, built up a really strong angel portfolio with some phenomenal brands. And on the back of that, I was seeing over and over again, my checks might be helpful, but what we really needed was institutional capital.

3:04Deborah Benton:And so in 2019, really, you know, took the step. I'm like, this needs to exist. We really need to provide these founders not only with, you know, that first source of institutional capital, kind of two to four million, but also investors that understand consumer brands and are really passionate about consumer brands. And that's what really launched Willow. We launched it officially in 2020 and started investing out of our first fund then. Yeah, it's very interesting because indeed around 2020, so many people said like consumer investing is dead. And if you now look in the market, so many consumer funds have now been launched and so many investors are actually getting back into the industry.

3:44So yeah, very interesting that observation. What would you say is kind of like if you have to give a quick overview of Willow, what is your investment thesis? What do you typically look for whenever you invest in a company?

3:54Deborah Benton:Yeah, so we call ourselves emerging growth. So in the consumer brands world, it's that first institutional check. Many of our brands will have raised a little bit of friends and family, you know, maybe a pre-seed fund,$250 all the way to maybe a million. Not all of them. Some of them are completely bootstrapped, but this is really the first institutional fund capital that they're raising. We kind of segment what we do into two parts, the qualitative and the quantitative. On the qualitative side, we have to believe in the opportunity. We're very focused on brands that are supporting everyday wellness, which sounds a little highfalutin, but we really are dedicated to supporting brands and founders that are trying to bring healthier options to today's families.

4:40Deborah Benton:And that can be in food and beverage. It can be in personal care, in beauty, in CPG, health and wellness like VMS. We really like baby. We really like pet. We're just trying to support bringing higher quality choices to improve the overall wellness for today's families. So, you know, we're kind of focused on those categories in general. We are looking for brands that are doing in the kind of one to five in trailing 12. We have gone earlier and we have gone later. So we do have some flexibility. Our preference is to lead those rounds and we'll generally set the terms, lead and take the board seat.

5:18Deborah Benton:We don't have to. We have a few funds that we really enjoy co-investing with. And so they may come to us and say, we're leading this and it suits our portfolio and our investment thesis. We're happy to participate as well. Generally, if we lead, we're writing a check. We're taking most of the round, but we work very collaboratively with the founder. They may have some strategics. They may have some creators. They may have some friends and family that they want to bring in as well. Maybe some other smaller funds that they think can be strategically helpful. That's a very collaborative process. We really like repeat.

5:50Deborah Benton:So we're not looking for brands that are selling kind of one off. We're looking to build a relationship with the consumer. It doesn't have to be subscription. It can be if that is a natural way that the consumers are buying and it adds value to their life. But we're definitely looking for, you know, consumables or replenishables, brands that are playing a role in consumers' everyday life and bringing them joy somehow. Whether it's, you know, looking on your bathroom counter and seeing a skincare line that really helps you and brings you joy, we're good with that. We're very focused on formulations, very focused on a better for you, so non-toxic.

6:27Deborah Benton:There's ingredients that we definitely stay away from. We love if we can get science backed or clinical. We love that. That doesn't always make sense. So it's not a requirement, but we're definitely looking for defensibility and reason for this brand to exist, which in consumer is hard. It's why a lot of funds stay away. It's just, wow, it's crowded. It's super competitive. And that's absolutely true. So a big part of our, you know, our diligence and what we have to get comfortable with is, is there an unfair advantage that this founder brings and this brand brings to the market that will create a path to win?

6:59Deborah Benton:So that's kind of on category wise. We spend a lot of time underwriting to the founder. Relationships are incredibly important to us. We look for certain qualities. My partner, Amanda, and I are very collaborative. We assume that, you know, we're part of the team. We're there for the good, the bad, the ugly. We really want to be the founder's first call. We know that this is not a straight line. We've been through, well, every time I say we've been through everything, new circumstances pop up. But we've been through a lot. And our goal is to create a safe and comfortable environment for that founder to follow their passion.

7:35Deborah Benton:We believe in their vision. We believe in that founder. And know that not everything is going to be a right decision, and we're fine with that. But we really want to be part and parcel of helping and figuring things out. So collaboration is really big for us. Highest level of integrity is very big for us. So that's kind of on the qualitative side. And then the typical things on the quantitative side, again, repeat purchasing, cost of acquisition ratio. We don't want to see a company that is really just a paid marketing machine. That's just not that that's not a great company. That can be a great company.

8:08Deborah Benton:That's just not what we do. We are really looking for a brand, which in essence is a relationship with the consumer. So, you know, we'll take a look at all the early operating data. Margin profile, incredibly important. Product gross, contribution one, contribution two. A lot of our brands will not yet be EBITDA positive. We're fine with that. They just don't have sufficient operating leverage to be EBITDA positive. But we can model out a path once the brand starts to scale. That starts with very strong product margins. But I'd say on the quantitative side, we really need to see early signs of repeat purchasing.

8:42Deborah Benton:That is kind of our holy grail and what we underwrite to when we get to a yes on a brand. Hey, quick one before we get back to the episode. If you love conversations like this one, you would love The Fame Game, our weekly newsletter in which we break down how celebrities and creators build billion dollar brands. Sign up for free via the link in the description. And now back to the episode. Yeah. And although Willow is not a fund dedicated to celebrity or creative founded brands, you have definitely made several investments in the space in companies like The Soir, Goodles, Wise Beauty, De Haire.

9:13Was that kind of like intentional or did it all happen organically?

9:16Deborah Benton:It really happens organically. I would say we are sufficiently skeptical of celebrity brands. I would say appropriately so. When they work, they can work wonderfully, as we've all seen. But we spend a lot of time specifically diligencing when there is a creator involved, what their role is, why are they doing it, what they hope to achieve, what does success mean for them? How does this fit into the rest of their obligations? Do we have alignment on what their role is within the organization? Are expectations aligned? So we spend a lot of time on that. I think creators can be an extraordinary component of a brand, but at the end of the day, the brand has to stand on its own two feet.

9:58Deborah Benton:So it doesn't, whether or not a creator is associated with a brand won't bring us to a yes where we would otherwise be a no. And sometimes we could have been a yes and the particular creator involved we didn't think was a good enough alignment can move us to a no. So it can actually go the other way as well. I think creators, when it's right, can be extraordinary amplifiers for the brand, whether it's reach. The smaller creators are actually stronger often on conversion, but the larger creators or people, you know, kind of in the Hollywood talent world, they often have amazing platforms just for amplification or for reach or awareness.

10:37Deborah Benton:So I think understanding what the role is, why you support this relationship. Does it make sense? Consumers today are more educated than ever. They can smell inauthenticity anywhere and everywhere. They know of this as a licensing deal. Again, not that those can't work. That's just not what we do. We are looking for genuine participation. Now, we also work with a number of brands where there isn't a talent co-founder, but will leverage relationships, whether it's campaign or for a product launch or for something very specific, maybe it's an activation. That's a terrific use. That's a different kind of use of talent.

11:14Deborah Benton:So there's different, there's no like one paradigm fits everything. There are multiple use cases where creators can be very effective. Yeah, it's very interesting because I've been talking to other funds as well, like Springdale Ventures, Habitat Partners, and they've definitely also made several investments in the space. And every time I talk to them about celebrity brands, the first thing they would say is also like, we're actually quite skeptical about it. So it's funny that you actually repeat that. Like, yeah, what is one of the most common reasons why you actually say no to the celebrity or creative founder brands?

11:43Deborah Benton:A misalignment. It doesn't make sense. It either doesn't make sense from the talent's personal brand aligning with the brand that they're supporting or founding, or there's a misalignment in expectations of what their role is, or there's a misalignment in how they view success and what they think the path is going to be. Or there's, you know, when we're looking at these, it's we have to get very comfortable with the operating team because it's the operating team that will actually be running the business. So we scrutinize the relationship between the operating team and the talent. There's a lot of ways to gauge whether it feels right, if it feels right.

12:20Deborah Benton:And that's, by the way, it's also to the benefit of the talent. Like, it's not just one way. Our goal, if we get involved, our goal is to make these businesses resounding successes. And if we don't believe that we can see a path that way, we want to share that with the talent as well. I don't want anybody wasting their time, including the talent. And I actually love that you started with that misalignment about also the authenticity factor. And I never understood like if you have someone like a Jennifer Lopez who openly talked about not drinking alcohol, then launching an alcohol company or like Dwayne The Rock Johnson, who is like bald already for 20 years, launching like a shampoo business.

12:59So why do you think that's actually the case? Why do you think so many celebrities and creators are trying to take shortcuts, in a lack of a better word, where they are white labeling very average products, slapping their names on it and trying to sell it for three times the price?

13:12Deborah Benton:I don't think they get up in the morning and they're like, oh, I'm going to do this, right? I don't think there's any malice or I think they're probably not getting the right advice or the right counsel or have the right people around them. I'm brutally honest when I talk to celebrities or talent about why I think this could or could not work. I mean, I've probably told many celebrities, look, I get why you're doing this. Don't go raise money. Just keep this as a small business and see if this is something that really starts to scale. It could be a beautiful lifestyle business because it's something that they're particularly interested in.

13:48Deborah Benton:And it's just when you raise outside capital, especially from funds, you're just changing the course, the path of that brand. Fundamentally, you are. And I think that there's a lot of education that's needed because some of these celebrities, depending on who they're surrounded with, who they're getting advice from, you know, maybe sometimes they don't really understand equity or what it takes to be successful. And so we're also pretty keen. We need a direct relationship for sure. And we need to spend time directly with any kind of founder, co-founder or talent that we're underwriting to. Sometimes a lot of these people are surrounded with teams and that's fine.

14:26Deborah Benton:And I totally understand it. That's just not for us. That's really just not for us. Yeah. And you've invested in brands founded by both celebrities and creators. Like if you look at The Swat, it's founded by Katy Perry, which is really like an A-list Hollywood talent. And they also have invested in De Hair, which is from Amber Villarob, who's more a creator. And not necessarily focusing on those two examples, but do you see that creators and celebrities also add different values to the companies they co-found? Yeah, definitely. I would say when you have like a Katie, she's got this massive platform, massive.

14:59Deborah Benton:She's a global star. People internationally know her. She's been around for a really long time. I would say that platform is really great for awareness. So getting the word out, building the brand reach, it can really support the reach of the brand. It's less so necessarily for conversion, whereas a smaller creator like Amber has about a million followers. she has you know kind of ride or die followers like they have been following her sometimes for 15 years or something like it's crazy a really really long time i find that those kinds of creators can be really really effective early for reach but their their platform taps out because it's just a much smaller platform but actually better on conversion at times so both work both can be very effective.

15:52Deborah Benton:Again, it's having the discussion. Are we aligned on, you know, okay, this particular creator's platform is going to be really great for the first couple of years. Where do we go from there? What are you comfortable with? How do you think about your influencer strategy or creator strategy post that? We just have those conversations all up front so that there's no surprises that, you know, we're kind of all in the boat together. Yeah. And also how these celebrities and creators show up in their brands is also sometimes different. Like if you look at a company like Feastables by Mr. Beast, you really see that Mr.

16:24Beast is like front and center in every marketing and storytelling. Versus if you have a brand like Goodall's, a lot of people have no idea that Gal Gadot is involved. So how are you kind of thinking about those dynamics in brand building?

16:35Deborah Benton:Yeah, I mean, Mr. Beast, he is the brand. You know what I mean? Like that's a different situation where the creator is in fact the brand. So of course, That's going to be core to the marketing. When Gal joined Goodles, she had known the founder, Jen, for quite some time. They had been in conversations. That was a very authentic relationship that had been nurtured for quite some time. Gal loved the product. It happened to be the exact. She had young children. It happened to be a really great category that she believed in. But she came on as a founding member and was never supposed to be the face of the brand.

17:12Deborah Benton:Goodles was the face of the brand. Gal was amazing in the, especially the early days, just to get awareness out. Again, food is a really crowded category. We were going up against Kraft and Annie's, you know, kind of 800 pound gorilla. So it was really important for us to make a move early on just to get awareness. And Gal was incredibly effective for that. Yeah, I actually just wrote an article about kind of that a lot of startups use the celebrity founder in the wrong way because so many people actually involve the celebrity already on day one. And actually a celebrity co-founder can really help you accelerate the one to 10 phase, but they can't accelerate the zero to one phase.

17:50I think another great example here is Once Upon a Farm. I last week had John on the podcast and we talked about the whole equity deal that they did there, but there was already like a great product in place, a great team in place. And then they leveraged Jen to really accelerate it. Do you think we are going to see that model more often where a celebrity actually comes on after there's a certain product market fit, as we like to call it? Or do we think that's still going to be like in fall from day one?

18:14Deborah Benton:I think all models can work. Really, all models can work. I've seen where it gets a little bit harder is if the brand has been around for a while and then all of a sudden a talent comes or a creator comes on and they're a founding member. that's a harder one to kind of get the world to swallow. But I think outside of that, any of these models can work. Again, this is about engagement of the creator, belief systems, values, aligned expectations around what role they play, aligned expectations around how they view the brand is going to scale, and are we thinking about it the same in terms of an exit?

18:53Deborah Benton:I think when we see failures and we see there's a lot of celebrity kind of led brand failures, I think it's generally because you don't have those hard conversations up front. There's misaligned expectations. There's misaligned brand unity, I would say, between the creator's brand and the brand itself. And you don't have a strong operating team. You have to have a strong operator. You have to have the right people in there. And conversely, when you see extraordinary positive exits, which definitely exist, you've ticked all of those boxes. Jen and John have been working together for years and years and years.

19:30Deborah Benton:And when they first got together, all those discussions were had. They got the brand early enough that it was really just a really authentic acceleration. Yeah, and I think also the examples of Once Upon a Farm and The Honest Company are setting kind of like a right example because everyone has been looking at Hayley Bieber's Road and been thinking about like, hey, in three years time, I can actually go from zero to a billion dollar exit. And that also creates the misalignment in expectations where these celebrities are like, hey, I signed a three year endorsement deal and I also will sell my company for a billion dollars.

20:05Deborah Benton:Yeah, it's again, it's having the right advisors around you and having those right conversations and managing expectations. What Haley did with Rode was extraordinary and it hit an artery. It was the right brand with the right products at the right time with the right creator. And by the way, she worked really hard on that brand, like really, really hard. I mean, she showed up. You know, I have absolutely the most respect for how hard she worked and the team that she built around that brand. And I know the formulator behind that brand, you know, top notch. So, again, all these things were in place, not the least of which is her dedication and hard work.

20:45Yeah. And what I see is that the fundraising process for a lot of these celebrity brands is also different. They raise a lot more capital up front because they have certain opportunities or whatsoever. And because of that, you also see that valuation sometimes change. I've seen like pre-market, pre-referue companies raise at 50 to 100 million dollars valuation, which I just think is a little bit insane. So I'm curious, like what have you kind of seen in the market on like celebrity founded like fund races? And how do you kind of stay disciplined?

21:13Deborah Benton:We just don't do them. We've seen them all. We just simply don't do them. And by the way, that's not to say that they won't be successful or can't be successful. They probably will be. That's just not our thesis and that's not in our portfolio construction. So, you know, while we could get comfortable potentially with a slight premium, it would be really pretty slight. And it's because we're underwriting to a lower cost of acquisition or lower brand marketing spend because we're going to be able to leverage the creator's platform, at least in the early years. But outside of that, we just simply and I've seen all of those deals.

21:49Deborah Benton:They're interesting. And friends of mine have done those deals. And I hope they're wildly successful. It's just not part of our portfolio construction. And we really do stay very, very disciplined. I want to do everything I can to set these brands up for success. And, you know, pre-launch when you're raising at a 50 million, I don't know where you go from there, you know, because at some point the numbers are going to drive the next valuation. It's no longer just, you know, like selling the dream. And again, sometimes the numbers can justify it. They can. I've seen that happen. But often they don't.