Selva Ventures' Kiva Dickinson on why the Grüns exit signals a new era for CPG investing

Ray-B band competitors, the smart glasses uh because we have our first guest in the waiting room, Eva Dickinson from the a leads.

Groos Pea, how are you doing?

Welcome to the show.

Doing great, guys. What's going on?

Uh, it is great to see you. I was looking in your background trying to see if we could maybe see

where

our own office in the distance. You're

Yeah, we're looking we're looking northwest. Where are you guys? Okay.

Okay. We are more east. Okay.

Yeah.

Um, so not quite, but uh great to see you on here. How's your last uh how's your last week been? Was that your Was that your first like uh billion dollar exit?

First billion. Yeah, for sure. And um that definitely definitely the biggest exit that we've been a part of and um yeah, it's been fantastic. It's it's exciting to share the good news and really incredibly thrilled for the company. Um spent a lot of time with them this week

and uh fantastic for the category overall. Uh you you guys have been through it. Uh obviously you never lost uh you never lost faith otherwise you wouldn't have invested in goons but uh certainly it's been funny today uh watching all birds have new life uh hope hopefully your portfolio isn't isn't getting any ideas you know hey you know uh the supplements category is running away from us but we can pivot to AI compute but um but yeah walk give us uh I I wanted to have you on just to kind of get an update on like consumer investing broadly

can we start with like some background and

how the fund was set up, how you got into investing, all of that.

Yeah, totally. Um, I started my career in investment banking, uh, joined TPG about 12 years ago, uh, in the consumer group and, and, you know, I think it was an incredibly like formative time of learning what private investing was and and, you know, learning about consumer businesses. But what I was thematically excited about was really uninvestable for us. I was seeing these incredible companies line the shelves of Whole Foods and Target that were getting more and more exciting every year, taking share of the companies that I had grown up with. Uh, and you know, when we talked about them internally in our investment committee, the problem that we faced was they didn't consume enough capital for us to get our kind of $2300 million minimum check in on the way up. Y

and we couldn't out bid Unilver or Mars on the way out.

Yep.

And so my takeaway was like I'm in the wrong seat like I I got to be doing something in the earlier stage some be some part of of the early journey these companies. So

So wait double clicking on that trend that you see. I think everyone's familiar with the boom of I mean there were a bunch of different factors and I want to know your take on on all of them. Like Whole Foods at one point had like local buying. So if you could go in and like talk to the local like the Whole Foods in your town, they could actually stock you. They didn't have centralized buying. There was also the DTOC boom, uh online advertising, the influencer boom, celebrities getting the space. Like what were you identifying as the undercurrents of that broader trend of like new products taking shelf st uh like space on the shelf? Yeah, I mean this was definitely like height of the DTOC boom and so what was being talked about in the technology industry and in the press were companies frankly like Alberts and Gasper.

Yeah.

And I think that was distracting a lot of attention and capital away from what I thought was the most interesting thing which was when you walk through the aisles of a grocery store, you see completely different things than you did 10 years ago.

You saw companies like Kind Bar taking enormous share and transacting with Mars. You saw companies like Dr. uh uh buy selling to Dr. Pepper Snapple for like $1.7 billion. The these were not grabbing tech headlines. These were not grabbing traditional venture capital. Um but they were taking share of an absolutely enormous industry. I mean consumer package goods depending on where you get the info from is like 7 to 10% of GDP.

Yeah. Yeah. Bay is such a funny story because uh I mean it has a traditional startup founder in his basement making the product grinding unique insight but uh during the DTOC boom they didn't have a DTOC website their website was just links to Amazon they never set up a first party e-commerce site because they just didn't need to they went which can make sense for

Oh it makes a ton of sense beverage specifically

yeah exactly beverage is really expensive Amazon has the the logistics for it um so yeah what what So walk me through the decision and how you actually positioned yourself to get in at the earlier stages.

Yeah, I mean I made a stop at a company called Circle Up. They had pivoted from helping emerging CPG companies raise capital to actually raising a fund. And um TPG invested in the fund. I kind of put my hand up and said, "Hey, this sounds awesome. I want to be part of this."

Um

did we lose you?

We lost you.

Oh no.

It's called Nut Pods. that we eventually did I lose you guys?

Yeah, just for a second called NutPods that we

Yes. We invested in a company called NutPods that we eventually sold to VMG and then invested in a company called Liquid IV that we pretty quickly turned around and sold to Unilver um in about two and a half years and it showed me what the riskreward can look like. It showed me also that the early stage companies had a real pain point at Seed and Series A. They needed not just like specific specialized capital comp firms who understood their journey um but also resources and common challenges for these companies look different from early technology companies. It's like how do we do online growth marketing? How do we launch in retail? How do we scale a supply chain? How do we deal with uh not having all our eggs in the basket of one contract manufacturer? Um traditional venture capital firms were not built to solve these problems. And so in 2019, I broke off and basically tried to build a proof of concept of what a modern venture capital firm built to serve these companies could look like. Um that's what Selva Ventures is today. Um we're now investing out of our second fund and and that fund has been a part of um like you see I said Grunes but also businesses like Onkin um Javi midday squares array to name a few. What's the uh sorry

yeah what what what does bestin-class look like today? Uh one of your one of your portfolio companies which I won't name because I don't think uh that it's public. I I was able to watch them go from basically zero to hundreds of millions of revenue uh in the span of like I think like roughly four years something like that. Very very short period of time. Very small team. Is that like like is that kind of what you expect out of out of out of a good investment or are there still some like you know kind of like slow burn uh kind of you know companies that that kind of like find that takeoff moment uh quite a bit later.

Yeah, there are there are longer journeys, there are shorter journeys. Gruns is probably the shortest one I've ever seen. I mean that business is like 32 months old now uh since since launching the consumers. I think what we do find is that the combination of online subscription which is uh for a great habitual personal care or supplement business can be really really sticky like software like retention plus the scale of the best retailers out there. I'm talking Walmart, Target, Costco, Sephora. Um, you can build a very very large business that doesn't consume a lot of capital in a pretty short period of time.

And so when we talk short, like we underwrite our investments to 5 to 8 years, uh, you know, the the exits can certainly be shorter than what we've started to see in the technology markets of like longer dated IPOs. Yeah. Um, but you know, the the off-ramp for these companies is traditionally uh, you know, like Grunes in the best-in-class way, an exit to a strategic once you're somewhere between one and $300 million in revenue. Um, and and that's something if the flywheel online and offline is going, you don't have to wait too long for.

Yeah, it seems like a I mean, it's a great it's a great outcome whenever you see one of these uh, like unfold. I mean, Gruns is particularly fast, but there's a lot of examples of, you know, raising money carefully, deploying it, growing steadily, figuring out the product, the supply chain, and then exiting to a strategic. We've seen that over and over and over again. Do you ever run into founders who are like, I'm going to take on Unilever. I'm going to become the next Unilever. I'm never selling. And I'm going all

I think everyone says that until they get an offer from Unilver at at at over a billion and then

but I I'm just wondering like

we have it it's it's funny actually when I started this firm I I'd have a bunch of traditional VCs like send me pitch decks to be like what do you think and and the subject line was like the next PNG or the next human.

These are incredibly sophisticated organizations. They are so good at manufacturing, marketing, sales, distribution, regulatory. Um, what they're not good at is innovating.

And so the idea of like building a new one from scratch

is kind of like

uh

it's like you need to do the hard scale.

Yeah. you need to do the innovative thing and do that really well while simultaneously doing it multiple times and getting the the scale

and the systems and the distribution dialed which

I mean the one in our space that people naturally talk about is Harry's. They're now called Mammoth Brands, but you know, they had a definitive agreement to be acquired by Edgewell, who owns Shik like six years ago, and it was blocked by the FTC. And yeah,

you know, now their only path is going public. And in order to go public, they need to basically build the modern PNG. And so, you know, they bought Codory,

they bought um they bought a, you know, personal care business called Lumi a few years ago and like they're probably the closest thing to it. Um but I think these like pure play fast growing disruptors are really what we focus on because we feel like you know you take share you cause enough pain for these modern companies and you fit very well into the machine that they have built.

Yeah.

Uh are you expecting chaos in the supplement category going forward after an exit like this? I'm assuming there's at least a hundred pretty smart entrepreneurs that that think, you know what, I've always wanted to build a supplement company

and uh start going after it.

Uh I'd say like 2022 2023 when the market crashed. Uh there was a period of time where we talked about how all the all the tourists left CPG Investing

and it was sort of locals only and and

I would say the space was sort of under capitalized. That's when that's when that's when Grunes and and I know a number of your other winners like formed which is fitting

that that tends to be a great time to form a company. Um also a hard time to raise capital but you know the competitive dynamics benefit you. Um I really hope that we don't have a flood of halfbaked ideas backed by, you know, non-traditional investors coming in and doing this the wrong way. I I feel like there's still a lot of scar tissue from the industry when traditional venture capital started backing BTOC brands in the mid2010s. And like obviously it's ironic with the Albert's pivot today, but like I feel like I spend a decent amount of my time explaining to people why we don't invest in businesses like Alberts

and why CPG is fundamentally different than that. That direct to consumer is not the purpose. It's it's the products themselves and how much better they serve the consumer. Yeah, that makes sense.

Uh, one one thought is that I feel like a lot of VCs are paralyzed right now because they've invested uh, you know, significant amount of money into the labs, but they want to invest in more companies because they have capital to deploy, but they're afraid to invest in the app layer and traditional software because of just AI disruption broadly. And I think that that could that could uh lead at least some folks from uh from uh to deciding to hey maybe we should take a flyer in this let's let's just throw like 5 million bucks in this in this CPG company you know

uh Grunes is a good is a good comp for it you know why why not it's it's just you know so hopefully you don't

if I were those folks by the way I'd be looking at the technology stack of Grunes I mean Chad who you had on last week was a great he was a great interview like he he published publishes lot on on LinkedIn like all of his vendors, all the technology solutions.

I mean there is a huge opportunity to be the picks and shovels of this type of company that will not stop taking share from large CPG

and are willing to you know try out new AI tools or new technology tools.

What what what outcomes have there really been in that because because again that that was like a wildly popular category during the DTOC era too. It was like I'm going to invest in I'm going to invest in the brands and then I'm going to invest in the technology stack. And you had like the Clavios of the world

did well. Obviously Shopify has you know been been incredible but it's hard to think of a bunch of other

examples that got out at actually a venture scale.

Yeah. None obviously come to mind although there's there's been some smaller attractive exits. I mean one one of the best like tech enabled Amazon agencies sold yesterday. Um, and so like you know, you got to think about entry prices and the value creation to the early investors in these companies. They don't have to sell for billions of dollars to be really interesting investments.

Um, but you know, we see companies all the time that are just like changing the way these companies operate and reducing the number of people that you need to run

a CPG business that inter interfaces with the physical world. So you would think naturally would need more people. Um, I think it's really

Do you guys do any of the infrastructure or are you

We don't We don't, but we we try and be pretty fluent in it. I love the I love the focusing. Uh,

it's basically like there's there's two companies a year that you need to find and back and you need to try to

We're hunting for them.

Hunting for

and uh just focus all your energy on that.

So, I mean, on that hunt, uh, you said you you wouldn't back just a DTOC company with, you know, decent growth metrics potentially. the product matters. What does that actually look like? Is it all your own taste? Are you doing surveys and panels and trying to understand uh where the whites space is for a particular product? How durable that whites space is? Because every once in a while there's like a new c-acker that comes online and unlocks a new stick pack or a new gummy format or something and then there's a boom around that and it feels differentiated, but really what you're looking at is like, oh, there's just a new piece of machinery that's in a bunch of different c-ackers. So what's your process for actually understanding whether a company has a great product and will continue to uh be able to compound on the back of like the quality of the product?

Yeah, I mean I think you got to be pretty thoughtful about value proposition and uh a lot of new consumer value propositions for a CBG product are like downstream of changes

in how uh nutritional knowledge and human health plays out in our world. So uh you know GLP1s have a bunch of downstream effects. We don't just invest in GLP1 companies. We invest in companies that ultimately take share because of a world where GLP1s are important.

And so the first thing we're trying to understand is like where is the where is the puck going in terms of human understanding and and therefore value proposition in the future. We're trying to find signal of great companies with DOC and offline metrics and then most of our job frankly is figuring out what are the false positives like what are the reasons why a company might be growing really fast and efficiently that ultimately won't translate to successful omni channel distribution and velocity and a successful acquisition. That was the thing with goons that that uh I think some people maybe like were

you know drove them to pass is that there had been that company on Amazon that had scaled to like 500 million or something like that in sales. I was doing that. Yeah. Goalie just basically no value creation at all even though they had tons of sales and I think people kind of like wrote off gummies as a category.

Um and clearly that was

you know wrong. Yeah, we were grateful for that misunderstanding.

Sure. Uh what about uh the the temperature with LPS right now? I imagine that you have a unique value proposition and LPS are watching you know so much like K-shaped winner take all dynamic in AI and it's such a complicated uh industry to allocate towards. What are you hearing from LPs on appetite for uh for consumer package goods investing broadly? Yeah, I think it's a lot of curiosity.

Um, you know, naturally these are things that they see in their physical world and you know, when a when an outcome like Grunes crosses, but Grudin's not the only one, by the way. I mean, Poppy, Dr. Squatch, we've had actually like a slew of billion plus dollar acquisitions in the past year in our industry. And so, you know, they see that in their news cycle. They see it at the grocery store. Uh, I think there's a there's a curiosity moment like what's what's happening here and how does it work? And I think a little bit of that is trying to square that against what they've heard about the DTOC revolution not working over the past 10 years.

And so um I would say there's there's a waiting into the waters there's definitely anytime a new cycle of these acquisition hits like people start to double click and try to understand it and spend time. I think what we found in our meetings specifically is folks appreciate the specialization in recognizing that this is different from technology. So if we were a traditional firm that was trying to spend 15% of our time on it, I don't know that we could do a very good job on this. Us spending 100% of our time on it feels like, you know, more comfort in their mind, but a little bit distant from what they usually do.

Yeah, that makes a lot of sense.

Yeah. And uh I think at this point like if somebody starts a consumer brand and they are talented you they will get introduced to you some way or another and so you can kind of like meet every every great entrepreneur which I feel like would be is basically impossible in like traditional tech investing. So

that's the goal. I mean there's not a lot of people that I mean there's a few firms that we love and respect that do this but like one of the reasons I started this firm is like there's no Benchmark Sequoia A16Z like if if you're if you're an entrepreneur out there like there's not that firm that you've always dreamed of partnering with in in getting started and so you know eventually myself and a few of my peers decided like we we've got to go create that firm for them.

Amazing.

Love it. Well, congratulations all. Thanks for coming on to break it down and have a great rest of your day.

Good to see you. Great to see you guys.