20VC: HelloFresh CEO on Why When You Raise VC You Only Have Two Options, Why Your IPO Price is Irrelevant, Why Timing is So Important in Going Public & Why D2C is Not Dead with Dominik Richter

25:43Two aspects before we move to people. One is like the unbundling of the space. I feel like people are getting more and more specific with preferences. You have like the gym bunnies who want protein meal kits. And you see like gym meal kit companies that just do like protein gym bunnies. And then you see, you know, specific religious groups that have like religious meal kit companies. And it just seems like it's getting so unbundled as a space and segmented by a societal group. Does that concern you, that unbundling of the space in this way? I don't think it concerns me. When you look at different consumer categories, it's very rare that you have a consumer category where one company has 100 % market share.

26:25What you tend to have in consumer categories, you have one or two really big brands, usually global brands that own a large share of that category. But then you always have like smaller niche players. Tastes are very different. And that's not only about food, right? That's in beauty. That's basically everywhere in the direct to consumer or in different consumer categories. You tend to have the gorillas in a certain category and you tend to have a much more fragmented long tail because you also have long tail tastes and some niches. If we think about macro, I was thinking about this before and it's like obviously we're in a tough time and like we think about recessions coming in a recessionary period ahead.

27:03I was thinking, does that help you or does that hurt you? People can get food cheaper if they go to more discount than supermarkets, but then also they may not be going out to restaurants and they may get it instead. How do you think a recession impacts the meal kit business as a whole? So one of the first buckets people start saving is they're going less to restaurants. That's definitely what you have seen in previous recessions. the share of out-of-home food has actually declined, whereas the share of food that you consume inside your own home actually goes up. I think that's something that is marginally positive for us.

27:43On the other hand, there are definitely some customers who are much more concerned about their disposable incomes, and they might think longer and harder about taking up a new routine. And that's also something that you can see with us. I think our existing customer base actually shows very good retention. They're on average ordering more meals with us than they did before. Part of that, because we made a lot of investments into the assortment, into the menu. But in tough macro times, a little harder to get customers to that first purchase to basically say, I'm gonna start something which maybe is the same price, maybe slightly higher.

28:18So I'd say we have now shown over the last two years that we can also navigate through economic cycles without having like a hugely negative impact on our business. Do you think it's the hardest time ever to be a direct-to-consumer founder? I was talking to another one the other day and they said between Facebook performance challenges, Google challenges, recession, this is the hardest time it's ever been for direct-to-consumer founders. I'd say it's a very different time than what it was maybe five or seven or eight years ago when the whole direct-to-consumer boom started. We started the company when direct-to-consumer was not really a term.

28:55I think we're today one of the largest direct-to-consumer companies outside of China. I don't really know any direct-to-consumer company that is much larger than we are, but it's certainly like very different today than it was back then. And I think back then you had a lot of people that started the direct-to-consumer company by going to a retail store, looking at shelf space, looking at what are the most outdated brands there that could use a new font and a new branding. And you started your direct-to-consumer company. it was very easy to get the first customers in. And especially if you were operating in the US with such a large domestic market, it was very easy with one or two growth channels to actually get to 50 or 100 million of revenue without being like extremely sophisticated.

29:39I think very clearly those times are over, but I don't think that the time for direct to consumer is over because in the end, right, direct to consumer means you make it more convenient for the consumer. The consumer probably has a lot more information has a lot more advice, has a lot more crowd feedback on your products. So I think from a consumer perspective, direct to consumer is anything but that. But what you need to do today, you need to have a very differentiated proposition. You need to either be deeply integrated on the supply chain or you need to have a unique angle with distribution or you need to be like very, very good to outperform some of your competitors or others to make the marketing equation work.

30:21But still every single year, you have great direct-to-consumer companies being started. And every single year, you have great exits of direct-to-consumer companies, which have scaled to levels very few imagined they would actually get to. I was debating whether to go here, but fuck it, I'm enjoying this. And so I will, and we'll see how it goes. My question is like, is direct-to-consumer a venture-backable segment? HelloFresh is like fucking amazing market leader, but it's like one of the all-time leaders and it's three and a half billion but like it's not like sass where there's 50 25 over 10 billion it's like as a category is it venture-backable how would you respond if i asked that question to you i don't think you can make a plain or broad statement that applies to all companies but i do think they work i just try a lot of companies ended up being venture backed, when the better path would have been to raise an angel around, trying to get to profitability and actually scale the business to 100, 200 million in revenue.

31:27I've made a bunch of angel investments and I've had that discussion with founders a lot, where they say like, you scaled the company to that level, you raised some venture money. I wanna do the same. And I very often advise them and said like, look at the personal outcome for you. The much less risky way is for many, many of those categories in many, many of those companies to not raise venture. You couldn't have done what you did without venture though, could you? Do you regret raising as much venture money as you did? I think we have a number of particular features, characteristics of our business model.

32:01Why it makes sense to raise venture. Number one, you're cooking or eating basically on a daily basis, right? It's something that has like a very high frequency, which means what a lot of direct-to-consumer companies suffer from, that they don't get the frequency. We have very high frequency. Secondly, food is like such a big category that you can build like a really, really big company. So in the end, I think for what we actually did and achieved, we didn't raise like crazy amounts of venture. How much did you raise in the end? Up to IPO, we raised around about 300 million. We had a cumulative cash burn of about 300 million before we actually started generating cash flow.

32:39And since we have started generating cash flow, I think about three years post IPO, we had our cash flow break even. And since then, we have returned cash to shareholders, invested in all the businesses, did M &A, etc. So I feel for the type of ambition level that we had and for the revenue growth and category that we were going after, it was not insane amounts that we raised. When you review your fund, it's not at all. I mean, we see AIC rounds raise that much, Dominic. So, I mean, you're positively lean. When you review your fundraising, though, is there anything that you know now that you would tell yourself, having all the knowledge you do now?

33:17We definitely developed our scar tissue around fundraising. We definitely started fundraising processes too late. And it was very, very close to actually closing around and getting it done. Can you tell me a story of when it was thinnest, like closest? So I think in the early days, there were one or two occasions where we were literally like three to five days before thinking about filing for chapter 11, which I guess is the right term, at least in US terms. Very, very close. Because in the end, I mean, you're probably sitting on the other side of the table. But in the end, there's always like, you know, things popping up, gets delayed by two weeks, gets delayed by another month, there is this one document missing, etc, etc.

33:56And all of a sudden, you're like, hey, my duty is actually when I feel like I cannot be able to do payroll. It's actually my duty to flag that. They were definitely in the first one or two years, I think two occasions that I remember very vividly where it was very, very close to getting to that point. Dominic, how do you deal with those intensely stressful moments? Like that is like all night, you are not sleeping and you are having heart palpitations. How do you deal with the real stress moments? I think it definitely helps when you run a profitable company. You definitely sleep much better. You still have like as many problems and as many things that worry you, but you don't have this existential angst that you carry around with you.

34:38I think I definitely sleep better since the point that we were sustainably profitable and started generating like real profits. How do I deal with it? Generally with stress. I think my way to deal with stress is just having like a very good routine of doing sports. I'm a sports fanatic. It helps me clear my mind. It helps me get peace of mind. And every time I pick up one of many injuries that I pick up while doing sports and I can't do something for two weeks or three weeks, I'm getting really anxious and I can feel that I get like way more stress, that I don't feel as healthy, that I don't feel as fit, that I do feel a lot more stressed.

35:12A lot of people say it doesn't get easier over time. I think that's bullshit. I think it does get easier. Do you think it gets easier over time? In the end, it's always a race against yourself and against your mind and how you feel about things. You have all those cases where people, you know, from one day to the next make a lot of money. And that high goes away after two or three months already. And I think that is something that in the end, you need to be at peace with yourself. Always just a race against yourself. Yes, you can probably afford a nicer chair and a better laptop and a nicer mattress.

35:45But in the end, it's all about being in control of your head, in control of your mind and being at peace with yourself. I think that's the most important thing. What motivates you today then? If the only voice that matters is the one in your head, what motivates you today? I would describe it with problem solving at scale. I don't want to take the easy route. I want to figure things out. It's that sense of competition. It's that sense of winning. And it's that sense of probably like proving yourself over and over again that you can do it. But that is something that I really enjoy. I do want to ask about the expansion.

36:19You said about angel investments you've made. We obviously both sit in Europe. Many European companies try and win the US and fail. You've done it immensely well. Can you help me understand what does it take to win the US? And what are some of your biggest lessons from doing so well in the US as a originally European company? The differences really all go back to just the massive size of the domestic market in the US, right? the massive TAM that you can go after. If you're operating in such a big domestic TAM, you're making right from the start, you tend to make different decisions. You're trying to scale much faster.

36:57You're trying to hire more expensive people because in the end, you're gonna have a lot more operating leverage. You're gonna have higher salaries. You're probably not caring as much about the details as about telling your vision. What I always felt is that bringing some of the more European skillset, diving deep, more of an engineering mindset, having attention to detail to such a large domestic market like the US is like a really great success formula. The size of the domestic market caters more towards certain types of founders than what you tend to find in Europe. And what that means is that if you have grown up as a company in Europe and you go to the US, you definitely need to throw overboard a lot of the things that you feel that you have learned.

37:42What do you need to throw overboard? I think number one, everything that you know about competition will be 10x what you'll find in the US. Because the size of the price is just so much bigger that you will naturally have new competitors going after the same space. They will be able to raise vastly more venture capital than any of your competitors could do in Europe. They will probably kind of like move equally fast as you do or even faster. So I think that's just one of those notions where we also struggled in the beginning. like what does that actually mean now? Do we need to pay people very differently now?

38:16That was definitely like a big discussion, right? And that I think is a big discussion for every company from Europe that goes to the US. And you do, don't you? That's the conclusion you come to. In the beginning, it's a lot more cowboy math that you need to do and where you need to get comfortable with certain levels so that you can actually build a competitor that's worth competing with. Any others that we need to throw overboard or any other traditional European stigmas, approaches mindset so you're like that's not going to work either approach to salaries approach to competition anything else so the approach to fundraising as well right i believe for my seat round and for my series a round i've been asked about providing business plans for the next five years which were obviously all made up etc that is also like very different in the u.s i think it has changed we have been public since 2017 but back in the day 2012 2013 2014 2015 i think that environment was very, very different.

39:10And it was very different what people were asking for. Why did you decide to go public so early? When you think about that 2012, I think you said the founding of the company in 2017, the IPO, we have five or six years to IPO is really fast. You know, traditionally, it's the 10 year journey to IPO. Why did you decide to go out that early? We had the notion that we want to run this company for a long time. When you raise a lot of venture capital, you need to make a decision. Are you going to sell that company? Or are you going to take it public. My view is the price at which you go public is completely irrelevant.

39:43Almost nobody sells at the price of the IPO. Everybody is locked up. In the end, it just matters at the point sort of like when lockups are over, when somebody wants to sell, etc. So the price at which you go public doesn't matter. It's all about grabbing the window. And we felt back in 2017, there was a window for business models like ours, tried to make sure that we can get out through that window and then felt like if we establish a public market track record, then sort of like valuation will take care of itself versus saying like, hey, let's optimize the last 10 percentage points and go public at that share price.

40:21And then, you know, the market is not there or you're actually going public. And six months later, when lockups are up, kind of like you're down 50 percent. The price at which you go public is completely irrelevant for everybody. I sometimes think that public markets in their mind have the idea that a company is finished or negative. I had the founder of Allbirds on the show and I tweeted that it went public at 3.8 billion and it's now 120 million. And I still, by the way, really like my Allbirds. The sentiment is just like the public markets wants it crushed. And so I just worry that sometimes perception can lead to reality although the price doesn't matter it does because if you have a shit first day that leads to a shit first week and everyone goes no i knew that that was a bad category and then that leads to a shit first month and then team members go fucking hell we're down so much i want to go to air table now like it can be a real knock-on effect so i'm just pressing you, does it not matter?

41:26I think it's irrelevant. First day price, completely irrelevant. The price after 12 months, after two years, yes, that starts being relevant. The price after three years, that's what you should be optimizing for. Think about it like that, right? I think also for us, if we had missed the window in 2017, potentially there would have been another window in 2020. Now, who knows whether that window actually opens or not? Whether you have a big crisis like the pandemic coming and the window is actually closed or not. All of the macro factors that you have, that you can't control. There is so much uncertainty.

42:02History is littered with companies that wanted to go public and optimize and squeeze out the last 10 % for the first day, and they missed the window and then had to do emergency fundraising if they weren't profitable or put a lot of structure and ratchets in. We never had any structure. We never had any ratchets. We always were like very conservative on that end. And we wanted to go kind of like very quickly towards having common shares, no prep stacks in there. And we felt like if there is a window, we want to go out. And then on public markets, we can prove ourselves and everybody can decide.

42:35Let's make a decision whether that was successful or not three years in. In the end, I think it was the right decision. I think the way that our category traded would have not allowed us to IPO the business at any other point in time. Can I ask you, on you as a CEO, I actually spoke to, as I said, Jeff, Harley, Nico, many more actually around the table. They did actually kind of coalesce around a weakness as a CEO. I'm intrigued if you say the same weakness. It's like an all-star Mr. and Mrs. What do you think your biggest weakness as a CEO is? I don't particularly enjoy being the center of attention.

43:11I can be fairly good at it, but I just don't enjoy it that much. I always have to push myself. I think they are important up to a certain point, but it's definitely something that I'm definitely scoring very light on that one. They coalesced around like storytelling and being public was the coalescing point. The one thing that it does help with is talent acquisition. And I do want to touch on this before we do a quick fire, because Harley in particular told me I had to ask this. He said you're particularly brilliant at hiring non-obvious talent, talent that many people might overlook. and you choose people that people wouldn't hire, but are actually brilliant.

43:47What do you look for that gives you the confidence to hire these non-obvious people? There's like different stages. And definitely in the beginning, I think we prioritized a lot frugality and mostly recruited friends, family and acquaintances. That's also always what I tell everybody in my angel portfolio. If you cannot convince some of your friends, family or acquaintances to join your company, then either your idea is not that good or you're just not a great salesperson. After that period, you have the opportunity for a couple of years to hire for raw smartness only. You don't need to hire for a lot of experience at that point in time.

44:25Business tries to figure itself out. All of the domains kind of like are still open. We've had really good experience with hiring people with very high degree of raw smartness, putting them on certain domains. And those people over the sort of like next five, seven years becoming like some of the deepest domain experts in those topics. And I think back then, my board always pushed me during that stage, I think that is what he's referring to, always pushed me at that stage to hire more experienced people, to hire people that have led larger organization, larger teams, etc, etc. But we always felt like we need people who are super scalable in terms of their skill set, in terms of their personality, who have an incredibly high work ethics.

45:08I think back in those days was very much expected of everybody to stay in the office till 10pm. I think that's also very different today. But nonetheless, I think that was a time where we hired for raw smartness only. And I think that was at that point, I think very contrarian with some of both our US investors as well as our European investors. Are you back in office? For a certain amount of time, I think it's very important for collaboration and also for mentorship and building team cohesion. I think it's fundamental. Can you tell me, I played this game with, our team did like this walk the other day in London.

45:41I said, can you tell me one role that is not made better by being in person? I can't. And they're like, devs. No, devs work better together. They're building product. It's a team. Yeah, look, one of the biggest trends in engineering is mob programming, which basically means like you're getting together three people around one laptop giving them each other instant feedback. There's a huge value in that. Everything that has to do with planning, that has to do with aligning on strategy, figuring out architecture, playing thoughts back and forth, these things work way better. I do think if you have a plan, if you need to deliver, if it's like very clear what are the milestones, where do you need to get to, then potentially you don't need to necessarily sit next to your colleague.

46:23But I do think there are huge benefits to working together very, very closely and having strong bonds in your team. I'm like a grandpa, like just old school. It feels you're more grandpa than me on this. Listen, I want to do a quick fire round. So I say a short statement, Dominic, and you give me your immediate thoughts. Does that sound okay? All right. What do others not know that you know to be true? Everything around tactics is much more important than strategy. If you have the right strategy. You don't need to change your strategy every six months, every year. You have a long-term strategy, three to five years, and you are spending 99 % of your time on tactics.

47:02You can be CEO of any other company for a day. What company are you CEO of? Going back to my youth fascination with professional football, I probably would love to be the CEO of a Premier League football club for a day. Which one? Oh, I don't mind that much. I think it's not so much my personal affiliation with any club as to rather wanting to to be on the table and understand how those businesses are run how sophisticated some of the decision making is etc etc tell me how do you view competition is it like head down row your own race or should founders like be very aware of competition in my view competition is a constant source of innovation and inspiration i think it's extremely arrogant to not pay super close attention to competition and i'm not only talking about your direct competitors.

47:49I'm also talking about all other companies that market to consumers that want to reach the same consumer. Like what are they doing? What are they experimenting with? What have they learned? Thousands of super smart people at all of those companies, which are thinking every day about how to reach customers, how to build new technology, etc. To not listen to them, observe them and not basically get inspired and see that as a big shortcut to your own experimentation and learning is extremely arrogant in my view. Tell me, you can have dinner with anyone, dead or alive. Who do you have dinner with and what do you ask them?

48:24I'm probably going to choose Jeff Bezos. It's such an outlier, such an anomaly, how Amazon has scaled with such high investments in infrastructure, in technology and processes, completely reinvented how people think about organizations. And given that I'm also building in that space, sort of like at the intersection of supply chain, marketing and technology. I probably have questions for two weeks straight. Which competitor impresses you most? I think DoorDash has done an amazing job. I don't think they're directly competitive with us, maybe on the margin, like we're going after the same wallet.

49:02In the end, I think the way that they have also had a huge focus on operational excellence, how they have scaled in non-obvious ways, where everybody else in that space was focusing on other areas, had a certain hypothesis, and they took the contrarian view. Have a business that is, I think, operationally also very challenging, a three-sided marketplace. That is something that I have huge respect for. And I think they've built a massively successful business, and they're very much focused on the long term. Tony and the team are doing such an amazing job. How do you think about your relationship to money, Dominic?

49:36There is a certain threshold where probably some things become a lot easier and a little bit more comfortable, but it's not the main motivator in everything that you do or that you should be doing. What's the best piece of advice you've been given in the journey? I think best piece of advice is, I would say, question a lot of things and form your own view. I always feel if you're too much trying to follow the crowds, if you're not thinking first principle, if you're not kind of like asking the tough questions, then very often, you know, you end up being above average, but you're never going to be like part of the 0.1 % in whatever domain you choose.

50:15I think you have to be contrarian to out execute and outperform the 99.9 % of others. I don't think that you can have any form of work-life balance if you want to be part of the 0.1 % of anything. You can be good. You can be very good. But you can't be a fucking great CEO of a public company and have work-life balance. Agree or disagree? Work is part of life. I don't think that you need to be in balance. You should be enjoying what you're doing. And I think it's very fluid between am I reading that article or that book because it makes me a better CEO? Or am I reading it because I actually enjoy it?

50:50Am I reading that report or that consumer research that my team has prepared because I'm very interested or because I have to? I think that that whole term always assumes that work is bad and life is good. But in the end, sort of like they're very tightly connected and work is part of life. So everybody needs to be balanced in some way, but it's not necessarily between work and life. You read books? I probably read about 25 to 30 books a year. What's the most memorable book recently? What should I read? Probably an obvious one, because a lot of people have been talking about it. But the Elon Musk biography definitely allowed me to pick up some things and also understand some of the companies much, much better.

51:29There were definitely some elements of SpaceX in particular that I didn't understand as well before the book and then after. Tell me, final one. You said about if you want to build for the long term, you have to go public. Where are you in 10 years time, Dominic? I think most likely I'll still be running HelloFresh. Hopefully HelloFresh at that point. not only$2 billion business lines like we have today with our meal kits and our ready meals, but with a lot more different business lines that we have at that point, still solving problems at scale with some of the smartest people in the world. If I ever wake up and I feel this is not fun any longer, I feel like I'm not spending my time problem solving, but I'm spending my time solving other people's problems and not my own problems and not problems that I'm excited about, then you'll probably find me either on the beach or running a football club.

52:19If after the one day that I sneak into the boardroom I find that exciting enough. Dominic listen I've loved doing this. Thank you so much for me trying to take you to a psychologist room. I really enjoyed it and you've been fantastic. It was a lot of fun. Thanks a lot Harry. Now if you want to see that fantastic discussion in full video you can check it out on YouTube by searching for 20VC, that's 20VC, but before we leave you today, there is no shortage of helpful AI tools out there, but using them means switching back and forth between yet another digital tool. What was supposed to simplify your workflow just made it way more complicated, unless of course, you're in Notion.

52:57Notion combines your notes, docs and projects into one space that's simple and beautifully designed, and you can leverage the power of AI right inside Notion across all your notes and docs without jumping between your work and with a separate AI-powered tool. Automate the tedious tasks like summarizing meeting notes or finding next steps, freeing you up to do the deep work. It allows you to save time and write faster by letting Notion AI handle the first draft, jumpstart a brainstorm, or turn your messy notes into something polished. And you can try Notion for free when you go to notion.com slash 20VC, that's all lowercase notion.com slash 20VC to try the powerful, easy-to-use Notion AI today.

53:40And when you use our link, you're supporting our show. And speaking of game-changing products like Notion there, listen to this. Mercury has been a breath of fresh air. Getting started was maybe one of the most delightful onboarding experiences I've had. Mercury is just so easy to use. The aesthetic of it is actually quite relaxing. For me, it was less a choice and more finding a kindred spirit. Imagine feeling this way about business banking. You could if you joined more than 100 ,000 startups on Mercury, the powerful and intuitive way for ambitious companies to bank. Start building momentum and leave the friction behind by visiting mercury.com forward slash 20VC.

54:21Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank and Trust, members of the FDIC. And finally, travel and expense are never associated with cost savings. But now you can reduce costs up to 30 % and actually reward your employees. How? Well, Navan rewards your employees with personal travel credit every time they save their company money when booking business travel under company policy. Does that sound too good to be true? Well, Navan is so confident you'll move to their game-changing all-in-one travel corporate card, an expense super app, that they'll give you$250 in personal travel credit just for taking a quick demo.

55:02Check them out now at navan.com forward slash 20VC. As always, I so appreciate all the support and stay tuned for an incredible set of episodes coming next week.