How Squared Circles is hoping to build the next generation of food & wellness brands

0:06Hello, everyone, and welcome to the Modern Retail Podcast. I'm your host, Cale Guthrie-Weissman. And this week, I'm really excited. We have Lucas Dirksen. He's the co-founder of the venture studio Squared Circles, which is behind and incubated some really interesting brands. It's invested in some really interesting brands. I know it recently came out with some research just talking about the overall state of sustainability and what people are willing to spend and a lot of other things. He'll probably explain it a lot better than I can. But I want to go into all that. I want to go into the model of what it means to be a venture studio because I feel like, I don't know, there are a lot of different ways that people are getting involved with startups from the ground up, trying to find them, trying to incubate them.

0:50And this sounds like a really unique model. So I want to learn all about that and how that fits into just the business that is being done today. But Lucas, how are you doing? I'm very good. Thank you so much for having me, Kel. This is really exciting. Absolutely. So let's, well, let's start with you. Before we get into Squared Circles, let's begin with you. So who are you and how did you end up at the studio? Such a fantastic question. I sometimes ask myself the same question. As you can probably tell from the funky accent, I am a Dutch native. I have not lived in the beautiful lowlands for almost two decades now, but made my way to North America through a shortstop in Montreal, Canada, actually, where in a previous life I joined an agency from a couple of Canadian friends, which is where I started my career.

1:45And obviously, Montreal is a very unassuming place to start a global agency. But actually, the moment I arrived in Montreal was a very exciting time, actually, because it was obviously home to things like Vice Media, Cirque du Soleil, Ubisoft. So there was this hotbed of creativity in this town, which gave emergence to this creative shop called Sidley at the time, which I joined. And what was interesting, because it was so far from the beaten track of your typical creative agency world, they had a very entrepreneurial mindset towards what an agency could be. and I think very relevant actually to your podcast is that the curiosity and entrepreneurship brought us to a lot more things than just sort of your traditional agency play and building of brands.

2:38We got really obsessed over things like retail, for example. And this is, I'm talking about the early 2000s, but we've built out a full retail shop and capability and pulled up 140 retail environments for brands like Adidas around the globe and what have you. So it was a really cool start, I should say. And this is an incredible adventure. And in my sort of mid-20s, I found myself winning the global Adidas business for this particular agency. Yeah, thanks. I had no idea what I was doing at the time, but for some reason it resonated. No, I'm only half joking. but this really put us on an incredible path of growth.

3:24And quite quickly, I found myself running a 95-people team across multiple cities running this Adidas business day in, day out. And what was exciting about that is that actually the way we won this business was through pitching them, believe it or not, a hotel experience for the Olympics. And because we knew that Adidas had been breaking their heads on how do we actually bring our sub-rents across fashion and sports, et cetera, all together onto one singular roof? And we took that thinking quite literally and demonstrated incredible strategic thinking of how all these sub-rents coexist on a one roof, in this instance, a hotel.

4:04And they got so excited about that idea. And of course, in the end, we parted with the idea because if there was an Adidas hotel, you'd probably heard of it. Yeah, I was about to say, that's a great idea, but I've never heard of the Adidas Olympics hotel. Yeah, exactly. So clearly that never came to fruition. But they were just so enamored with our thinking that they wanted us to take a crack at their entire business, which is very, very intriguing and exciting. And long story short, this agency, Sidley, did incredibly well over a span of about 10, 15 years. We built a shop of well over 800 people across seven cities in the world.

4:42and in the meantime was made partner. And in the end of that stint, run the US operation across New York and LA. I'll come full circle to my Venture Studio adventure in one second, which is in 2015, we kind of started riding in the sky. There was a lot of consolidation happening in the agency world. You were either hyper-specialized or a really big agency network. And we were kind of in that sort of middle mode, which was a little bit dangerous. and although we were really humming at that time, we decided to sell our business to a Japanese company called Hakuhodo, which is a big publicly traded agency network in the Eastern part of the world and they bought us alongside IDEO, interesting enough, the godfathers or godmothers of design thinking.

5:33And so the last three years of my earn out and sort of end of my stint at Sidley, really started to invest myself deep into the whole design thinking school. And that became, I think, foundational to my choices later in life, which obviously became a venture studio. Got it. And so what was your vision when you first started it? And when did, you know, you guys have made, I was going through the website, you've made a lot of investments, been involved with a lot of companies at different parts. So you've been around for a little bit, right? We have and we haven't. So the company is relatively young in the sense that we started about three and a half years ago now.

6:11So relatively new. But we have, as any startup, gone through our share of changes and pivots and what have you. And I think there was always a long-term vision, which we'll get to in a second. But the way we got there took a couple of turns, I would say. But I would say first and foremost, my two co-founders, Alexander Jokes and Osman Khan, came from a very different entrepreneurial experience than I did. They had an auction platform in the fine art cutting out the middleman of galleries called Pedal 8. And they had a fantastic stint at it. And then sold it to the wrong people. I had to buy it back and sold it again.

6:52And so I learned a lot on their respective jobs. Hey, when that happens. Yeah, yeah, yeah. But thank God they got another chance at selling it. So they have come from very different backgrounds, very different perspectives, but all very consumer obsessed. And we came together kind of in a similar period where I just accidentally, they just finished this adventure. And we started angel investing alongside each other in businesses that we just felt really strong about. But we always felt that we had more to offer than just a check. and quite quickly realized that between the three of us, our skill sets would help founders accelerate their businesses.

7:32So the early days of Squared Circles was very much, I would say, more acceleration than incubation, if you will. And we were always very interested in businesses that helped us or helped the world in some shape or form through, let's say, a very broad lens of sustainability, which then over time a much tighter framework and lens to work through. But the early days was very much, if the founder had a great purpose-led business that we felt we could contribute to, we were in. And again, writing checks as well as contributing in the form of cold consultancy, what have you, but always in the exchange of some kind of equity position.

8:17Got it. No, I have just like, there are a few that stood out to me. Correct me if I'm wrong, but I imagine that Nutrafol is probably part of one of these early companies, right? Correct. And I would say that my business partner, Osman Khan, is also a very accomplished CEO coach. So he actually was coaching already, for example, in this instance, the founder of Nutrafol and brought myself and Alexander on to help accelerate certain parts of the business. So we were indeed investors, but also accelerators of that particular business. So in Instance Nutrafol, for example, I helped uncover and unlock the men's business.

8:56So it really took a deep dive on, okay, we've really hit it with women on their hair loss journey and hair wellness journey. And how do we do the same for men? But through these exercises with some of these companies that we were invested in, we kind of honed our skills in, I would say, mostly wellness and the health and wellness space, as well as food and bed space, which are the two spaces that, in the end, we decided to double down on. And also, we started working on a hypothesis along the way that all of these businesses and brands were catering to a consumer that we coined, ultimately, the conscious maximalist, which we'll get back to in a bit.

9:41and this ultimately became the foundation for squared circles. But really, companies that solve a tension between people wanting to be a lot more maximalist in the way they pursue their lives, but increasingly very conscious about what they put into their bodies and into the world and planetary health and so forth. And in that tension, we believe there's an incredible amount of opportunity to innovate. And, you know, initially we were working mostly with founders who were innovating in some shape or form inside those tensions. Was the name Squared Circles always there or was it after you had made a few angel investments and you realized that you were coalescing on a general thesis that you were like, maybe we'll put a stamp on this as well as call this a studio of sorts?

10:33Like, was that, did this happen sort of post facto, for lack of a better word? No, we actually right out of the gates, you know, branded this square. But we've but we've actually been, I would say, very much under the radar by design of the last couple of years, because, you know, we're always true believers that our actions and the things we put into the world should speak for themselves rather than some some others who might be very pompous and trying to sell people on a vision before there's actually really something under the hood. But actually, that's why it's such an exciting moment to speak to you is we're really at this moment in time where we now have three businesses in market.

11:11And we're about to make another big announcement next week about a funding round. And so we're getting to a point where this is all taking shape and there's actually something to speak about. But let me go back to real quick how we sort of made that pivot from accelerating businesses to incubating them. So obviously, all respective entrepreneurs in background, and it started itching. And while it's incredible to work and coach other founders, they are obviously doing what they're doing and to a certain degree are stubborn in their own ways and pursuits, as they should be because they're founders.

11:51And so it was becoming harder for us to add the value that we thought we could add. And more importantly, we saw just a real big opportunity to create a new venture studio that was truly incubating businesses on this thesis of this conscious maximalism. And so about a year and a half ago, maybe two years now, we decided to raise some outside capital around this thesis of this conscious maximalism. And with the idea and track record that we've built over time with these brands that we've supported and decided to create this venture studio called Square Circles. And so we raised some outside capital from some really interesting strategic partners.

12:32For example, Regeneration VC. Leonardo DiCaprio, right? There you go. So Leonardo DiCaprio's sustainability fund, especially in consumer. We raised some money from David Bonderman, from co-founder TPG and his family fund called Wildcat. Yeah. And Al Catterton, obviously, the well-known consumer fund. And then a handful of other strategics, which really gave us the runway to create effectively the free businesses we've put in market today. Got it. And so after you raised that round, was the idea like, we're going to then incubate three brands? What were the major benchmarks you set out for yourself?

13:21Because as you said, I think you have two that are already out in the world. You have an investment that'll be out soon. But like what, what were the tangible things that you were hoping to accomplish that would be different than before you had this round of funding? Yeah, it's a fantastic question. We were obviously, the number of businesses was kind of up in the air. We didn't necessarily, you know, it was not going to be 10. It was not going to be one either. But, you know, obviously the funds that we raised at that point in time were indicative of what we could actually raise, because we had limited runway to basically create a proof of concept across a couple of businesses.

13:57And that's also why we've gone outside for another race, which again we'll announce in the coming weeks, to allow us to overcome a part of a process that's somewhat imperfect at the moment, which is we would actually create the Minimal Viable Brand and Product within a 12-month period. And then we would go outside for a strategic raise to fund these businesses and bring them to market to then launch them and grow them until Series A. And as you can imagine, especially in a current climate where it's hard to raise money for consumer businesses pre-money, that's what's really slowing us down. So the pitch to the partner that we're building with in the future is, okay, how do we actually build these things all the way to launch and even Series A without actually giving up necessarily any more of the cap table, if you will.

14:51Got it. So let's, I want to get more into exactly how, I guess, the model seems to be shifting, especially with what's on the horizon, but how it's been working now. And I think it's good to do this by example. Algae Cooking Club is one of your ones that I think was announced a couple of months ago. Got some real press. So that is one that you incubated, correct? Correct. Yeah. But how did that work? Just walk me through that. Yeah, so I think one of the key things is, obviously, we start very much from a consumer inside place, right? And that's all, including my two co-founders, is something that we strive for every single time is there's a lot of startups that fail, in our humble opinion, because they start with product first and then try to find the consumer.

15:39And we put that on its head. we always start with a consumer insight first and then build the IP and product around it. And so we at Square Circle spend our time mining insights constantly. And we do that now increasingly through this lens of conscious maximalism. And one of those consumer insights we came up on was basically the rise of awareness around inflammation through CEDOLs. So TikTok, obviously, you know, second biggest traffic on TikTok is food curiosity. And, you know, if you're there, which I'm sure you are, as a curious mind, you know, it's the conversation around inflammation is hard to miss when it comes to seed oil.

16:24So we took that on board and started really digging deep into, you know, what possible solutions could be there. And we quite quickly realized and came across this incredible piece of IP with a partner called checkerspot. And they had figured out a way to basically take a microalgae, which ultimately is the mother of all plants and therefore highly efficient in creating oils. And they had a microalgae that they would use to precision ferment into a tank, feed it sugar cane, and would blow up 80 % of its mass in oil. And when pressed, it would basically produce this extremely high oleic oil that is really rich in omega-9s, which is the kind of omega-1.

17:14And not only that, it also had a smoke point that is about 125 degrees higher than, for example, olive oil. So we were like, this is incredibly interesting. But as we always say, we're not scientists, we're not necessarily experts, although we have a big passion for food and the culinary world. So we're like, okay, who would be the ultimate decision maker and seal of approval, a stamp of approval for this particular piece of innovation? So it happened to be that we're close to Daniel Hum, who is, for those who don't know, a three Michelin star chef of the famous restaurant in New York called 11 Madison Park.

17:57and Daniel made an incredible step over the pandemic and decided to make his entire restaurant plant-based, which was obviously met with a variety of reactions. I read a lot of articles about it when it happened. Exactly. And obviously an incredibly bold move, but again, coming from a very purpose-led place. And astonishingly for him, but not surprisingly because he's an absolute pro he held on to his three Michelin stars going completely plant based and so not that we're necessarily with Algae Cooking Club solely advocating for plant based foods but of course an algae based the mother of all plant based oil fits well into his overall point of view in the world and so we showed it to Daniel he started cooking with it in his kitchen and basically came back to us and just completely flipped out over it.

18:58It's like, this is incredible. And interestingly enough, of course, he's got a big sustainability message carved out for himself. But the thing that he flipped out most over is that the oil is so neutral that it really lets the ingredients you cook with shine through. And that's, in the end, the holy grail for chefs, is to have something that obviously has an incredibly high cooking point can really be pushed very, very hard as an ingredient, but it does not have any sort of overbearing flavors to other parts of what you're cooking with. So he loved it and came back to us like, look, I not only put my thumbs up on this, but I want to get involved in this business and how can I get involved?

19:46So that's to me a really interesting demonstration of, okay, it starts with a consumer insight that we then found the IP. And by the way, the way we navigate the world is we don't want to go through the brain damage of creating such IP ourselves over a time span of five, 10 years. And again, we're not scientists at the core. So what we do is we find these type of incredible innovations and we carve out a business to consumer relationship with these type of suppliers, whereas they focus purely on a business to business angle. And we've seen that this is a really interesting insight because there is incredible IP being innovated around the world, especially when it comes to new ingredients and materials.

20:35And often these businesses need a proof of concept and they're looking to create what we internally call beacon brands, brands that really demonstrate and support this new piece of IP and create comfort with an end consumer that this is something that they will adopt in their everyday lives. And the reality is that the big conglomerates, let's say Nestle, to switch around and take on and replace all their seed oils with algal, that's going to take some time. And so that's a really interesting space for us to navigate. So that's really where the early stages is a discovery process where we discover this insight, these consumer insights, where we discover the IP, and then we start building the IP around it, the brand around it, the product around it.

21:24We're going to take a quick break and we'll be right back.

21:30And do you have a target time horizon, I guess you could say? Like when you're incubating a brand, are you hoping that you can reach an exit in five to seven years with it? Or like, are you thinking about it in those terms? We're in the venture business, so we have to, right? And I think there's nothing wrong with it. I think, you know, at the moment we would exit a business typically doesn't mean that that's the end of the business. On the contrary, obviously, that means that the business is at a stage where it now commands an even bigger infrastructure and people that can grow it from that point on to something even larger and bigger.

22:08And so, yeah, we're all developing this business on, I would say, a five to 10 year time horizon. Depends a little bit what kind of product it is. But typically, that's the exit horizon that we're looking at. Absolutely. Is right now the focus on these incubations and you're not doing any more angel investments or how did those all fit together? Correct. Yeah, that's really the, I would say, a legacy business to us that made us incredibly smart on the verticals that we're operating today. Also gave us incredible insights on how to build IP around scientific insight, how important it is to have science-backed brands, all the things like clinical trials and getting the right advisors and influencers on board and what have you.

22:54But ultimately, that portfolio of previous investments is a passive investment moving forward. All of our efforts, energy, resources, and vision is all geared towards incubating around. Got it. And you've mentioned this a few times, but I'd love to get more into this, is that you say you're very research-focused and you go sort of based off of consumer insights. Where are you getting these consumer insights? And what are you reading? What are you finding and how are you using that to inform whatever next either, you know, business you make or decision you make? How does that all work? Yeah, and maybe I'll take one step back and I'll show you how we kind of go about research in various stages of how we develop things, right?

23:37So typically, and for those who are, you know, very dialed into design thinking processes, you know, this all sounds very familiar and is not rocket science, but typically the way we operate is we have a conceptual phase. So we'll look at any given time on our walls. We'll have a plethora of stuff and ideas and rough sketches of things that we're thinking about. And they can be informed by research. And when I say research, it's mostly desktop research or unconscious maximalist research. This can be advisors, other founders that we're talking to, and obviously a lot of scientists, innovators that are constantly thinking about new ideas.

24:20Then we dive into a very concise process, which is a discovery process where we're now believing in a piece of white space and a clear opportunity that we're now going to invest time and energy in and sometimes even money, but third-party research, where we go through a discovery process. At the end of that discovery process, there's a discovery readout that we present internally to our own team and to our external advisors where people give a thumbs up or down and say, okay, this really warrants further exploration. Then we bring it from discovery into ideate. And in ideate, we're truly starting to build the scaffolding around an idea of what a possible product could look like, what a brand could look like, where we might be formulating.

25:05Here's where we're truly investing true capital into the business. And then from ideation, at the end of that, we're going to see consumers. So we're putting this in front of consumers where we're then going into validation. Validation is really, you know, how do consumers respond to this idea? What is their willingness to pay for these ideas and support? And then we get the right signals there or the wrong signals. We go back into ideation, but it's the right signals. We take it from validate into build. And from build, you know, we're starting to build a team around the idea. And in its current form, we would then raise capital into the idea.

25:45But in its moving forward form, we will then just build it all the way through to launch. Got it. And can you talk, so you mentioned this when you started this answer, but you have your conscious maximalist research, which I know you just came out with a report. So talk a little bit about that. What was the idea behind that? And that focused pretty much, correct me if I'm wrong, but just on consumption and sustainability, right? Sort of how people view what they buy and how, like the investment they make based on the sustainability practices. Correct. Yeah, this really became or started with a thesis that was very much a reflection of how we live our lives.

26:21And maybe you can recognize yourself to a certain degree on this as well. But we, you know, increasingly we want to do, I'm a four-year-old gentleman who's responsible for four sons, believe it or not. And so, you know, as a dad, you're obviously increasingly starting to think about, you know, what you leave behind the world, the impact that you're having. but also increasingly start to think about longevity and being around for your kids as long as you can be. And so there's definitely this growing notion, regardless of age, I would say even, that we want to be more conscious about what we put into our bodies, our overall health.

26:58And of course, post-pandemic, this has been even a more increased awareness. And then secondly, you do want to live this very maximalist lifestyle. And what's interesting is there's this constant tension and people feel that they have to trade up or down across those tensions. And we believe that people are fed up with this tension and want to both. We want to be incredibly maximalist and we also want to be able to be conscious in our decisions. And what are the businesses and products that help us do that? And we felt very strongly about that ourselves as individuals and the way we navigate as consumers.

27:39And then quite quickly, we're like, OK, let's test this hypothesis and see how many of us are out there. Because if there's enough people out there, then that's a really powerful starting point for the overall thesis of our business. So that's really how the conscious maximalism was born. But obviously, we're not a research firm. So we looked at potential partners to partner with. And we also wanted this to be very culturally underpinned to people that really understand cultural dynamics. And so we landed on a partner, which is the Hofstad Institute in Finland, who have the Culture Factor Group.

28:18And they monitor at any given time big cultural movements and shifts around the world in different markets. And they do that for big conglomerates and smaller businesses. and we approached them and basically told them about our overall thesis and vision. And they loved it and they wanted to team up and throw all their might at it. So that's how we last year kicked off a pretty thorough piece of research, which I should specify was just conducted in the US. But I think there are certain trends we can probably extrapolate into other markets. But for all intents and purposes, we're really talking about the US here.