#204 - Investor Spotlight: Habitat Partners with Daniel Faierman

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0:58in order to build brand awareness that ultimately is going to like drive velocities like a lot of it is going to take place on social media i think there's a huge difference between spending a ton on paid media especially if you're not a d2c focused brand in terms of your sales channel and like building content for the purpose of like driving velocities on shelf and so it is important Like we like to look at like, you know, like classic social media metrics and we'll audit like the accounts TikTok and like the Instagram. I think it's something, though, that like over time can improve if the right talent and agency partners are put in place.

1:35Like in the seed phase, it would be like pretty hard to already have 100 ,000 followers or like all these viral TikTok videos like over like a year's period after launch. And so we want signs that the brand can sometimes generate organic virality, that they have a serious focus on social. Welcome, everyone, to the Startup CPG podcast. Today, we are diving into the world of early stage CPG investing with Daniel Fairman from Habitat Partners, which is one of the relatively few VCs out there that actually writes checks for early stage CPG brands. You've probably heard them mentioned as part of a family of the legendary Red Antler Branding Agency.

2:11And today we're talking all about Habitat, what kinds of investments they make, and what do they look for in a brand? What are some fundraising tips and red flags for Daniel? What are common valuation multiples that he likes to see? And Daniel even drops the names of some other early stage VCs that founders should have on their radar. So get your notepad out and your headphones in. Here we go. All right, welcome to the podcast, everybody. We've got our friend Daniel here today. Daniel, do you mind just kicking us off with an intro about you and Habitat Partners? Yeah, absolutely. Thanks so much for having me.

2:45Big fan of Startup CPG. I got started in the CPG industry and big CPG enterprise. I was at PepsiCo focused on corporate finance at a time when we bought this business called Kavita Kombucha business. Eventually worked at Danone. The dairy giant was managing their water business called Evian that everyone probably knows. Then eventually went to AB InBev where I got more involved on the brand side with kind of brand strategy projects, marketing, and then innovation with a focus on their global brand portfolio, Budweiser, Corona, Stella, Michelob Ultra. So I had a really great cross-functional kind of operating experience within CPG.

3:24At the time, you know, at AVMVEP was getting very excited about kind of these emerging disruptive CPG brands that were, you know, taking on the big CPG enterprises and their brand portfolios. Wanted to really be closer to that ecosystem and had the opportunity to work with a fund called Selva Ventures for about a year before business school. stayed on part-time during business school went and did my MBA over at Stanford and really doubled down on just BC and the whole Silicon Valley scene and learning the ins and outs of the industry after my Selva experience and also got a little more exposure to technology but knew that I kind of wanted to come back out of Stanford and really double down on venture again and yeah I had been co-invested in a brand or two a company or two with the current fund I'm at called Habitat Partners they were looking for someone who could really lead their CPG practice as well as invest in B2B software that kind of touches consumer brands.

4:21And so it was a really kind of natural fit. And then to give a little background on Habitat Partners, we were spun out of a creative agency that's been around since 2007 servicing the startup ecosystem called Red Antler. Red Antler for many years was taking equity for services positions within a handful of their clients. And that eventually graduated to a corporate venture capital strategy where we were writing 50 to 100K checks into our most promising clients. Eventually, we had startups that were non-Red Antler clients coming to us just excited to have us on their cap table. And so my teammates really built out this kind of investing track record through the lens of Red Antler.

4:59You know, we had this unique ability to have a creative point of view, balanced out with just years of experience working with early stage brands in a lot of capacities. And so leveraging that track record, we ended up spinning out Habitat Partners at the end of 2021, which is our fund one with outside capital. And so, yeah, we've been deploying that since the beginning of 2022. I have invested in 44 businesses across consumer brand and technology landscape. I think we have about 20 consumer brand portfolio companies. and yeah we are kind of a seed stage investor we typically invest when companies are anywhere between two to seven million in revenue we also do a few pre-launches like we've done three pre-launch investments in the cpg space over the last year year and a half but i would say yeah our sweet spot is a 500k check on average we can go up a bit or down a bit in the seed stage and yeah we love food and personal care and beauty probably the most we also still look at beverage but food has kind of been within kind of the realm, one of our more active spaces alongside our personal care and beauty strategy.

6:01All right. And I see a bunch of familiar brands to our community in your portfolio, Zero Acre, Mezcla, Happy Wolf, AO, the condiments brand that just launched kind of recently with a lot of support. So overall, just because you do invest in both CPG as well as some of the B2B stuff. What are you telling early stage founders right now about fundraising if you're just giving them advice on it? And is it any different for the B2B companies? Yeah, that's a good question. So I think like they're very different kind of diligence kind of approaches. And generally, I'll just say this on the B2B software side, right?

6:43Like, you know, in the seed stage, there's just very minimal traction. It's very much an idea with maybe a few customers and a founder who we just have a lot of belief in and like the way we just agree with the way he or she sees the future um i think what's kind of different about like a b2b sass business compared to like this cpg business is just like the variable costs right on the cpg side are like very material in the early days whereas like these b2b sass businesses while they may be burning money to like drive growth and build their product like the gross margins aren't usually something that like you're worried about um and so like my biggest piece of advice and and probably the biggest reason like why we pass on a lot of early stage deals is just because the gross margins aren't intact from day one and as someone who is at times flirted with like launching my own consumer brand um i can say that like you know there's economies of scale to be captured that enhance gross margin over time but if if the fundamental gross margins aren't in place from day one it's just not something that can easily be fixed um over time and you know i think strategics in general like almost value gross margins more than they even do evita generation like of course they want to buy profitable businesses but you think about what strategics do right like they acquire businesses they find efficiencies within the opx lines and then they extract more evita as a result but it's very hard for them to take a product as a bad gross margin and like improve it without like deteriorating the product quality, the product experience and so far and so on.

8:15And so, you know, they want to inherit brands that have the gross margins intact where they can extract synergies below the gross margin line. And so that's why it's just it's so important to have those intact is like a first step in terms of fundraising advice. And, you know, even if you're pre-launch, right, like we have the ability to see the command contracts and where you're going to price the business in terms of selling your distributors or direct if it's to retail. And yeah, I think having those intact first and foremost is the biggest thing. And then I think the second thing is you can raise a small angel family friend round and really come to institutions for the first time with some kind of traction story, either surrounding velocities, online sales, repeat purchase rate with like six months of data.

9:00I think like the more traction you have, the more likely you are to actually get an institution to take you seriously. And I think there's only a really a handful of like institutions within the space that will really look at these early stage opportunities seriously. And so if you want to go to a broader group of institutions, you just the bar to have traction is just it's somewhat high. And so, I mean, like I said, we look at prelaunch businesses and businesses that are doing two million revenue. But like I wouldn't say there's many of us. And so, you know, to your extent that you grow more slowly, but you make every dollar last and you're able to gain more traction metrics.

9:38I think it's it's crucial right now, just given like the dearth of capital in the earliest phase. Yeah, it's interesting to hear how you talk about the strategics. And, you know, I think you know a lot more about this than I do. But I always thought about it as they are going to know if they acquire you, they're going to take over your manufacturing because they do a lot of their own manufacturing at a fraction of the cost. And so they're going to get your cogs down to like a third or something. But it sounds like for you, that's actually really not the case. Maybe just because when you're investing, they're going to have to run on their current cogs for a long time.

10:13Or maybe that's not really as prevalent as I would have assumed it was. What do you think? I think it varies by strategic and by category, right? like i think for the most part like you know if hershey acquires lesser evil and hershey already has skinny pop but they're they put tons of capacity into manufacture and it just requires them to use organic ingredients in himalayan salt um i think they're obviously going to be able to absorb like a brand like that and scale manufacturing in-house once lesser evil's manufacturing facilities reach capacity but then i think there's also like counter examples where like the product is really difficult to make um and the complexity surrounding like vertically integrating the manufacturing process within the house of the strategic is much more difficult um and i also just think like what we've seen too is like you've seen these stories of founders buying back brands because after strategic buys it they do such a bad merchandising and producing it like they try to make all these changes to cut corners on cogs um so i think the writing on the walls like it's very risky to make formulation changes after you acquire business if like ultimately consumers were delighted by the prior formulation and so that's why i wholeheartedly believe there's not that much room in cogs like maybe there is a couple points of margin based off like you know just like the quality of machinery they have whatever it is um but i really think where the synergies occur is is below that gross profit line and so that's why i believe getting gross margin intact early is crucial so you mentioned you've done a couple pre-launch investments what does it take to get daniel and the habitat team on board for your pre-launch journey yeah it's funny too because i i feel like i you know i'm very open to saying that we've done pre-launch deals and i think as a result now we're just getting beyond bombarded with like opportunities in the pre-launch which like is exciting but it's like also a little honestly overwhelming with like being a two-person team um but yeah so for me there has to be some kind of distribution moat where i'm like wow like they really have some kind of unfair advantage for how they're going to distribute this product in terms of like acceleration or like there's so much differentiation like this is something the market has never seen and i think it has like a ton of potential for product market fit it usually falls into like one of those two buckets and hopefully there's a little bit of both so like i think with ao as an example like molly is a very authentic macro influencer that we felt like was an amazing fit for the brand And obviously that accelerates kind of like online distribution when you go to launch as well as brand awareness.

12:44I think on top of that, like mayonnaise has seen very little innovation, candidly. Sure, there was Sir Kensington's and there's new Primal, but like there's very few companies that have built like incredible mayonnaise brands over time. And it just felt like it was a very disruptable space. Obviously, Dukes we saw exited over the last year. But like outside of those few brands I just mentioned, it just doesn't seem like a space where like a high quality brand has really been built. And so in terms of like disruption and differentiation potential, we also felt like there was a huge gap on that side of the coin.

13:17And then if you take those two things and you wholeheartedly believe the founder is N of one and incredible, and we believe David is like he has such a diverse background of experience as a Whole Foods buyer, but then also as a leader at City Capital Ops Group. take those three things together like that is kind of the formula that that gets us excited about pre-launch but like if it's just like a typical product going into a category that already has a bunch of competitors that doesn't have like some kind of like really strong angle to distribution it's it's really hard to get us over the line and so that's why I still think we're doing mostly seed deals but occasionally right like we'll do a pre-launch if we feel those three variables are potentially intact okay so that's pretty interesting otherwise you're you're going to want to see a little bit of traction probably means that they've gone out and raised a little bit of money at that point yeah they've often you know raised family and friends angel around maybe a small institution we might be like one of the first institutions to invest in the business in the seed round um i think what's cool is like i still feel like we're one of the few that's even doing seeds pretty commonly because everyone still feels like they've moved to the Series A plus phase.

14:29So I do still feel like we have like a differentiated strategy, even being in seed, even if we're not like really commonly doing the pre-launch stuff. So would you take your own advice if you were launching that product of yours at some point where you would go and really just try to do a kind of angel round, like friends and family to get to the point where you could approach someone like yourself for a broader investment or what, you know, what are you, well, yeah, is that what you would be telling founders now? Yeah, I think you've got to feel confident that you can get angel and FNF money in the earliest days.

15:02Otherwise, it's just almost impossible. And like, I also think like, and I'll just be totally transparent. Like in business school, I was very seriously testing a concept in the dairy space. And, you know, I raised a little bit of money for it just to do like the R &D piece. And we came away through the R &D piece with like a great prototype, but also with like a margin structure that wasn't viable and i immediately shut it down i was just like if these if we're only in like the teens on like gross margins and like there's potential for this to even be worse if you know if we don't have like volume scale up over the next year like this just doesn't make sense so like i also think there's like a need for a little bit of humility surrounding like if you don't have like even close to good gross margins when you're like trying to prototype your product like you probably shouldn't move forward it's probably too risky and then you risk wasting capital from family and friends, which can be a little bit painful.

15:55So yeah, that's again, why I just think gross margin kind of gives you the answer on the wall. So it's pretty interesting to hear the things that you care about most if you're looking at an early stage founder or product. I'm not hearing you talk a lot about their revenue projection, which like for me, when I see it from an early brand, I'm like, okay, like you don't, you don't know. It's very hard to do that at an early stage. It sounds like you're not even probably going to focus too much on what they tell you they're going to make year one, two, three, at that stage, you're more just like, okay, how good is this product?

16:25What's the moat? What's the margins? Like, do you have a shot here? Yeah, I mean, in the prelaunch phase, for sure. I think there's a wide array of KPIs for the seed phase that I haven't talked about beyond gross margins, which I'm happy to talk through. But yes, in the prelaunch phase, that's definitely right. Okay, yeah, let's get into it. So what are some of those KPIs that you're going to look at later on? Yeah, yeah. So in the seed phase, like by then we'd hope that you're in a few legitimate retailers um obviously we don't expect you to be national at like all the big names but like in a few regions maybe you're in whole foods maybe you're in wegmans maybe you're in agb um and so we do look really closely as a velocity really closely at velocities units per store per week per skew um we'll benchmark that against somewhat competitive brands and ideally in the same category just to see how like you're playing against other startups in your category as well as other incumbents that have been there for many years and like the expectation certainly isn't that you'd be beating the incumbents but like the expectation is that like you're one of the superior like new brands in terms of velocity and like you're you know you're on your way to hopefully getting to a velocity level that that will eventually match an incumbent um I think number two would just be like if you do have a DTC component to your business?

17:39How are the retention rates over a 12 month period? We're hoping to see at least 30 % of buyers repurchasing. Within those repurchase cohorts, we like to also break it down by like who's repurchasing more than once more than twice more than three times, because we tend to find there's this pattern where a online buyer will repeat purchase something once because they have it on subscription, and often churn after that second purchase because they don't really love it it's just kind of like they signed up for the subscription they had it once out of twice okay like now it's time to get rid of this and so seeing like what we call power buyers as a share of um repurchasers is like a big kpi for us like we like to see a solid portion of what we call power buyers within the repurchase cohorts um i think number three is just like we'll do an analysis on competitive landscape very simply and just like look at like kind of differentiation points and like why this brand is going to like be a superior offering to consumer compared to the competitive landscape um we talked about gross margins and then i think related to gross margins is just like overall capital efficiency so like how much capital has been burned compared to how much revenue has been generated and and b2b sass that's kind of called a burn multiple um you know and cpg is more just like feeling out if you know the company is burning reasonable amounts of money to generate the revenue that they're generating.

19:02And then I think the last metric that I'm personally obsessed with is called MER. It's basically revenue divided by marketing spend. And it's basically showing like for every dollar of marketing that you invest, how much revenue are you able to generate? And so brands that are incredibly talented in terms of generating great content and organic virality tend to have really good MERs. And brands that like aren't as good as generating organic virality tend to have bad MERs. And so I think in the earliest days and we're trying to be as capital efficient as possible, like being able to generate organic virality is really important.

19:34And that metric typically gives a sense as to like the talent surrounding that effort. Speaking of virality and online presence, how much do you actually care about a growing brand's presence on social, all of that stuff, if they aren't primarily a DTC brand? I love that question. It's honestly a phenomenal question and it's really timely. um so like we care because in order to build brand awareness that ultimately is going to like drive velocities like a lot of it is going to take place on social media i think there's a huge difference between spending a ton on paid media especially if you're not a d2c focused brand in terms of your sales channel and like building content for the purpose of like driving velocities on shelf and so it is important like we like to look at like you know like classic social media metrics and we'll audit like the accounts TikTok and like the Instagram.

20:29I think it's something though that like over time can improve if the right talent and agency partners are put in place. Like in the seed phase, it would be like pretty hard to already have 100 ,000 followers or like all these viral TikTok videos like over like a year's period after launch. And so like we want signs that like the brand can sometimes generate organic virality, that they have a serious focus on social, that they're thinking about like how they want to like build brand awareness in the future and they have a strategy to do so but like i wouldn't say that like i need to feel like they're just like the best social media marketers in the world in the seed phase i just need to feel confident that they know how important it is and like they're gonna put kind of a plan in place to eventually grow brand awareness in an effective way i think like what's interesting right now is just talking more about like channel strategy is we've seen i don't know we've seen such an interesting story surrounding DTC like you had this like ATT update from Apple that made it extremely hard to like attribute and target accurately it felt kind of like DTC was gonna fall apart a little bit and it was much more difficult I think what's happened is the pressure on like creative content quality is like all of a sudden very high because obviously like media targeting is much more difficult and as a result tax are more challenged and so I think what's cool is like there's brands that are still bucking the trend and growing rapidly on D2C.

21:52Like we've seen two brands raise money at over$500 million valuations that are predominantly D2C and have kind of experienced hyper growth. And so I think honestly what that means, and it's probably not the best thing for entrepreneurs, is just that like, if we're going to bet on a brand that's not omni-channel, which honestly isn't our preference, like we like omni-channel brands that have retail distribution because we know in the end, strategics are going to want to see retail distribution most of the time. it just means that like, if you're going to do DTC, like your growth, like your capital efficiency would be pretty amazing.

22:26Because we've seen now a couple examples of like these founders that are like hyper growth DTC, not burning insane amounts of cash and are like, you know, having pretty solid retention in LTVs. And so yeah, I mean, it's almost like, in a way, the hardest DTC environment ever for founders, not only because of this ATT update, but also because there are examples of people bucking that trend and doing really well. And so it's like as an investor, I'm kind of like, huh, like if that brand was able to get to$100 million run rate in two years, like why should my bar be low for like D2C brands that are coming to me?

23:00But yeah, I'm kind of rambling. But just like thoughts that I've had lately with the recent developments of some of these crazy rounds for a few D2C native brands. Yeah, it's interesting to hear just because I think a lot about also where we're all going to be shopping in 5, 10, 15, 20 years. You know, not that necessarily brands need to 100 % think about that and where they're investing their resources now and which channels they want to grow in. But I also do think about it because in my journey as like a beverage founder, I feel like we wasted a lot of money, honestly, trying to put together a nice in-serum that never actually probably drove people into a store to buy our product because it wasn't even available a lot of places.

23:37And, you know, D2C is not really that helpful for a heavy product like that. yeah i think it's about knowing right like where you're gonna sell most effectively where your consumer is and like where your economics work and like i mean just to give an example in our portfolio the mezcla the protein bar like they're very heavy in retail they've literally barely ever spent a dollar on paid media like literally ever i think they've done a decent job building some brand awareness even though they've never spent a dollar on paid media and they've just invested a huge portion of their opex and ensuring that like velocities are being driven and in retail and that's been the right strategy for them so i think over time they need to continue to build like brand awareness as they go into more conventional retailers at scale like absolutely they know that um but for them as an example it's made sense for them to like have a very low investment in like traditional paid media online because it's just not a a huge focus it's It's not where their consumer is.

24:33And they built a nice Amazon business, but D2C never made sense for them. We'll be right back. Are you going to crush it on Amazon this year? It's such an important channel, but it's so hard to do alone. And most agencies are a total ripoff. We can't afford$5 ,000 a month and a commission on our sales. They just don't get it. That's why I love our partners at Daybreak. They are full service, meaning they do the creative work, the listings, the logistics, and of course, all the ads, all with the most reasonable retainer out there. I work with them personally. I'm so grateful we have such a good partner to recommend out to you, our community.

25:06They do evaluate your product first to see if it might be a fit. So if you want them to have a look, email them startupcpg at daybreak.agency and they'll do a free audit for you. Good luck, everyone.

25:23So we talked a lot about some of the stuff you really like to see. What are some huge mistakes that someone could make right now sending you a message on LinkedIn or into your email inbox of just like, oh, it's immediately immediate disqualification? It's really funny. I actually sent out a post this morning. I have a newsletter called Term Sheet Pitfalls. It's termsheetpitfalls.beehive.com or you can grab it on my LinkedIn profile. And I literally wrote a post this morning that I sent out called Four Fundraising Don'ts. and it was four principles that like i just would say irk me like it doesn't mean it's a guarantee that i'm gonna pass but like four things that like i don't really like to see um and so i guess i can just list them off here for those who aren't subscribed to the newsletter but um the first thing was like over fomoing me um like i have founders who sometimes hop on calls and they're kind of like yeah like we just signed this angel yesterday and like we have like a term sheet and like that's how they start the call and like I actually believe like it's it's totally appropriate to update me on your round dynamic at like the end of a call and like if you have like leads fighting for the round that's that's cool like I respect that that's awesome but to like start a relationship with that as like your opening to me feels like you don't really like care that much about telling me about your business you don't really respect my process um and so I really encourage founders to like spend the first 20 minutes that we call no matter what like getting to know the investor sharing your story like really going into like why this product and concept needs to exist like what the future looks like and then at the end of the call it's totally fair game to be like hey like we've only got 500k left or you know we're moving relatively quickly we'd love to have you involved but like respect your process and like that's all it has to be that's pretty interesting to hear you talk about because you know there are some things in this life you just have no idea when you're walking into it as a founder or just you know in a conversation you don't know what their hot buttons are like i could definitely see myself doing that because i had been having a really tough time getting funding and then all of a sudden i got an angel on board and then i'm just so excited about it i'm like great let's talk oh my god this is so good we've got like a great you know not realizing how you're going to interpret that so that's a really good it's way more common on the tech side than it is on the cpg side like the AI tech founders are like, you know, FOMOing the crap out of me all the time.

27:44But I'll never FOMO invest. And I don't think most sophisticated investors will. So while it's nice to hear that like you have fundraising traction, I want to like get excited about your business first and foremost. I'll go through this a little more quickly. But the second one was like talking about who instead of what. And a friend of mine, Brian Sugar, dropped a post on this the other week. but it's like what we found are like founders who spend a lot of time talking about like who they know that's like impressive versus like their business and like what they're doing as like a primary like subject is it tends to be like founders who are kind of like in it for the wrong reasons and so all right it's one thing to be careful of is just like over name dropping people as a means of like trying to prove your credibility it kind of comes off as like a little bit fake so that was like number two number three what was number three oh number three this is like a weird one um so i get asked all the time by founders that i pass on to make other investor intros for them and like i do do it because like i want to support every founder as much as possible even if we pass because i just love the ecosystem but um the truth is like anyone i pass on if i like intro them to another investor that investor's gonna want to know why i passed and i'm gonna be honest as to why i passed because like those relationships with these other investors are important they go back and so you're immediately putting yourself at a disadvantage as a founder because all of a sudden you're meeting this new investor that I introduced you to already knows something that I saw in your business that I didn't like and so I'm really like I always push founders I'm like if you can get interest from people who have already invested in you or have no like bias into your business that's positive or negative uh just because like you know word travels and if I'm if I pass on you and I'm telling 10 investors like hey you want to meet this person I passed because reason X, it's just like not a good way to like set up like a new intro called an investor, in my opinion.

29:35And you've usually shared that back with the brand as well with the reason that you didn't invest, right? Yeah, I usually try to give feedback. It's not always super detailed feedback. But like, I do try to give at least like one to two like objective reasons, like for why I felt like I didn't invest. And then, you know, someone's probably like, Oh, well, then will you and intro me to three or four of your Kona? I'm like, I can, but I don't think it's in your best interest to get them that way. Let's just, because we're on this topic, can you just name drop a couple funds that you think are also good to be on people's radars, let's say for the kind of earliest stages.

30:10And then maybe that'll save you from doing, having to do the intras if people just know. So we've co-invested recently with Willow Growth Partners. They're extremely dedicated seed investors. They're investors in Goodles. They like to invest in food and beverage. They're investors in Dessois. They're very active. they have a lot of dry powder they're great um another fund we really like in new york is called collaborative fund they're investors in one trick pony they're investors in hot girl pickles um they will go very early they're the earliest investors in ollie pop actually the earliest of anyone um institutionally so they're amazing we love that team those are like the two they're simple food ventures who we also have here in new york we did ao with them they like to go incredibly early they're awesome to work with um midnight venture partner is another fund that goes quite early um and then yeah i'd say like those are some of the main kind of like institutional subject suspects then of course we have the angel group who we also have co-invested in with twice they go very early as well um i'd say those are like a few of the main main ones that that'll that are willing to go like quite early so it's a small world of those early stage investors i mean i was making a slide kind of mapping the investor landscape the other day of like who really does seed and pre-seed and CPG.

31:22And it's, it's, it's a small group for sure. I want to see that slide. Yeah. Yeah. Yeah. I can. Yeah. I did. Sounds like a small inner circle. So that puts a lot of context into the thing that you just said about like, Hey, you know, do you want really for those six people, the intro to come from me who just saw something about your business that I didn't like. And I'm one of the people who knows the most about investing at this stage, or maybe do you want to go out and get another founder who knows them, who really likes your product to come in hot on the intro, you know, super warm intro. Yeah, of course.

31:54I mean, you definitely want to use your existing investors as much as possible. And then if you can find like neutral third party research, like maybe you have a fractional CFO who knows some investors, right? But like, yeah, neutral third parties or your own investors are typically, I think the best intro sources for sure. I wonder, I wonder if you remember Daniel, like one incredible data point or one slide that you've seen about a brand that really just solidified it in your mind of like, yes, this is one that I absolutely need to invest in. Gave yourself your own FOMO by thinking like, yeah, if they can actually hit this piece of info, then they really have a shot.

32:33We need to get our dollars in there. Yeah. Oh, I wanted to share one more thing on the last question very quickly, then i'll answer this one the fourth fundraising don't is don't exaggerate objectively audible data that was number four like if you're gonna tell me that you like have this huge launch coming up but it's like a regional launch in 12 stores that's gonna feel misleading to me just be like extremely honest about objective data points um because if if i find that like they're being stretched then i'll like doubt your integrity and integrity to me is like one of the most important qualities in a founder investor relationship that was totally agree on that point actually because i'm a very deep data guy you know i spent years being the one who pulls the data and tells it strategically and i see just founders telling a story where i'm like i don't know if everyone in here knows this but i can see the data and where you're pulling it from and that is total bs what you're explaining right now we have the best velocities in the entire category but we're only in fred meyer and we have the best philosophies in fred meyer you know um so it's just like you gotta be careful what you say and i just there's a fine line yeah between like you know lobbying for yourself and just almost kind of pushing that line of you know being ethical or just trying to pull one over on people and like you look at the footnote in the very bottom and it's like oh like top two stores in their entire chain we only actually use the right you have to be careful because like that just like makes me doubt integrity and it's so important um yeah so let me go let me go to your question um which was like one slide that like really got me over the line i love one slide one data point you know one one anecdote yeah i love like i can think of like a few things like one i love slides that show a company that's generated a ton of revenue off very little capital raised like that ratio if you can do that in the early days to me that's like unbelievably impressive like there was a business we saw that had a slide that was like lifetime we've generated 22 million in revenue on 4 million in capital raised like that to me it was like wow because that tells me is like you have really great gross margins you're very capital efficient even below the gross margin line and like you're generating like real revenue that to me was like a kind of a holy shit moment that's pretty amazing because i remember hearing on shark tank once there was a beverage company and mark cuban saying yeah but to get to 50 in revenue it's gonna take you 50 it's gonna take us 50 million into the business and i'm not down for that journey yeah what's like a great number what's like an okay number that you'd be fine with yeah i mean 3x is solid um especially in like the early days like where like it's just you're you're operating at like minimum volume quantities and you're not really like you know having economies of scale come to play with your gross margin like you know the one that i just gave you was like a 6x almost or a 5x um it's very correlated though with gross margins right like we have supplement brands that we've seen that have 80 gross margins that are like a 10 to 1 that have like barely raised money so it's like it's almost very category dependent gross margin dependent but yeah like if you can keep like a three to one like that's pretty solid if you're like really early days like a two to one is like pretty good um but like three to one is great in the early days and then anywhere above there is like pretty solid so and because we're talking about some different categories a little bit like supplements you say that i'm like oh okay cool like people should launch a supplement brand because you can have good margins but like you're also talking about okay beverages you're not investing in as much these days is that because you never like beverages or because it takes so much to raise in the product qualities like to get out there or is it because it is so competitive now because of the very public success of celsius and poppy and olipop that everybody is just coming for that space now with so much competition that there's all this noise yeah i i prefer capital efficient businesses that don't require a ton to raise to get to scale that's just my preference um if you've seen like the exit sizes for poppy and alani new like they're massive and and ghosts like so like i guess the argument against what i'm saying is even if they burn money along the way and your investment gets diluted you're going to be rewarded because the average outcome is bigger than like the capital efficient food or supplement business potentially um but i just think fundamentally there's a lot of risk in knowing that in order to scale, you're going to have to raise a ton of capital because who knows if that will actually be feasible.

37:04Certain people are great at fundraising. Certain people aren't. So I would rather rack a business that I know isn't going to be handcuffed to the fact that they have to raise a ton of money to get to the finish line than invest in a business that, while it might have a huge outcome, is going to have to raise at least$50 million to have the big outcome. Again, I get punished for that in some regards because if I would have seen Poppy, I probably would have passed and like I would have looked dumb so um you know but that's just my that's just my approach and other investors are more like let's invest in lucky energy it could be the biggest energy drink ever even though it's going to require 60 million dollars plus to get there you know yeah I think it's going to be an interesting one to watch just because I mean beverages in general so hot these days but also I don't know I think we're going to see some interesting stuff happen with sales velocity on things like celsius and you know what yeah and and yeah all of this competition i have an unhealthy celsius addiction honestly i don't drink it daily but like whenever i have to do a long drive it's like a treat for me because i get to have celsius and i love it so much um it's a crazy product i've really been sad so daniel you're people really want early stage investment it sounds like there aren't so many places to get it but you probably would tell founders you should do your due diligence on us too right what are the kind of things that they should ask you before accepting an investment yeah i mean i think a few things like one do you guys intend to follow on if you know we're achieving solid performance and in line expectation wise with kpis that we've kind of set for the business i think certain funds have a very deliberate prorata strategy where like they'll invest prorata in like 50 of their businesses that are performing others like to place more bets i'd say honestly we're more in because we go so early and there's so much risk like we probably spread our bets and then we're kind of prorating like in 25 of companies that we invest in so that's just something to like consider it's not necessarily like a great thing or a bad thing it's just like a certain approach to venture investing i think like you know number two is just like what is your kind of expectation surrounding information asymmetry.

39:16Obviously, in a handful of our deals, we have information rights. So there's like standard sets surrounding what the founder needs to share on like a quarterly basis. In certain cases, we don't have information rights. But I think like ensuring that there's alignment between how there will be like formal communication between the founder and investor is important because as a founder, you may want to just be heads down and not like sending investor updates. As an investor, we may want you to send investor updates every quarter so we can have kind of conversations with our LPs surrounding how the business is doing.