Rising Above the Noise in Consumer VC with Kirsten Green of Forerunner | E1961

Kirsten Green joins guest host Mark Suster. (00:00:00)

• Kirsten Green is the founder of Forerunner Ventures, a venture capital firm that has raised approximately $2.3 billion in 12 years.
• She is known as one of the most prominent consumer investors in venture capital, having backed successful companies like Chime, Warby Parker, Dollar Shave Club, Glossier, and Hotel Tonight.
• A product or service should possess both novelty and utility.
• It should have a unique element that makes it stand out in the market and cuts through the noise.
• Addressing a need is important, but it's also crucial to captivate people and provide reasons for them to talk about, try, and recommend the product or service.
• Delivering on a truly exceptional product or service is essential.
• The market is currently experiencing a lot of noise and competition.
• Founders need to find ways to differentiate themselves and capture attention in order to succeed.
• It's important to focus on building a strong brand and creating a compelling narrative around the product or service.
• Founders should also consider partnering with influencers and tastemakers to help spread the word about their offerings.

Kirsten’s advice to stand out in consumer venture with only seven percent of VC dollars being allocated to consumer. (00:02:49)

• Consumer VC funding has declined to around 7% of total VC dollars, making it more challenging for consumer founders to raise money.
• High upfront marketing costs, a crowded marketplace, and fickle consumers contribute to the decline in consumer funding.
• Social networks have shifted from attracting massive audiences to extracting value through advertising, increasing customer acquisition costs for businesses.
• Successful consumer businesses must have a strong value proposition, be novel, and provide a delightful experience to stand out in the crowded market.
• To succeed in the competitive consumer VC market, founders should focus on creating unique and useful products that capture consumers' imagination and drive word-of-mouth marketing.
• Building a successful consumer business requires a holistic approach, with attention to product differentiation, accessibility, and customer engagement.
• Successful consumer businesses often become verbs, indicating their widespread adoption and integration into daily life.

Forerunner’s framework on making investments. (00:08:33)

• Understand consumer demand by being on the ground and observing how people's proclivities, needs, and preferences are changing.
• Identify trends that support the narrative of consumers taking control of their health and well-being.
• Recognize that health and wellness is a growing category of consumer spending, with consumers willing to invest in proactive measures to live their best lives.

Vanta - Get $1000 off your SOC 2 (00:11:16)

• A strong sales team is crucial for B2B startups, but compliance hurdles like SOC 2 can slow them down.
• Vanta simplifies the process of obtaining and renewing SOC 2 compliance, enabling companies to close major deals faster.
• Vanta can save companies hundreds of hours of work and up to 85% on compliance costs.
• Vanta also automates up to 90% of compliance for GDPR, HIPAA, and more.

The value of searching for where businesses are missing the mark, and the “wow” factor of the Oura Ring. (00:12:09)

• Identifying unmet consumer needs and developing innovative products to address them is crucial for success in consumer VC.
• Aura Ring's success lies in its ability to provide valuable health data and insights in a convenient and stylish form factor, resonating with consumers.
• Creating a unique brand identity helps products stand out and become conversation pieces, as seen with Aura Ring and Ring doorbell.
• Leveraging technology and data to create new products and services offers a competitive advantage and meets evolving consumer needs.
• Kirsten Green, a partner at Forerunner Ventures, emphasizes understanding the consumer, market dynamics, and being selective when making investment decisions.
• VCs should focus on companies with a clear competitive advantage and a strong team, while also being patient and supportive of founders.
• Green believes VCs should be value-add partners, providing more than just capital, and should be willing to take risks on bold ideas.

How AI will change how consumer companies and applications are built (00:16:28)

• AI is a new tool that can be leveraged to improve products and experiences or make new things possible.
• The basic premise of addressing a need, offering a great experience, and connecting with the user remains the same.
• It's still unclear how consumers want to interact with technology differently because of AI.
• Primary research suggests a two-dimensional framework for understanding consumer preferences:
  • Do it with me vs. do it for me
  • Do it faster vs. do it better
• Currently, people seem to be more focused on "do it with me" and "do it higher quality."

Oracle - Take a free test drive of OCI (00:19:46)

• AI requires a lot of processing power and speed, which can lead to spiraling costs.
• Oracle Cloud Infrastructure (OCI) offers a single platform for infrastructure, database, application development, and AI needs.
• OCI has four to eight times the bandwidth of other clouds and offers one consistent price instead of variable regional pricing.
• OCI allows users to train AI models at twice the speed and less than half the cost of other clouds.
• Companies like Uber, 8x8, and Databricks use OCI.

The current state of the consumer search experience and the power of personalization that AI can bring. (00:20:50)

• The current search experience is not productive and does not save time.
• People want a more personalized search experience that is tailored to their individual needs.
• Personalization has been talked about for decades but has not been effectively delivered.
• AI has the potential to make personalization a reality and create a new expectation for what a great experience is.
• This will lead to new users trying new products and a reinvention of business models.
• It is important to understand the consumer and their needs in order to create a successful product.
• Consumers are overwhelmed with information and want something that is personalized to them.
• AI can help to create a more personalized experience for consumers.
• AI is going to play a major role in the future of consumer VC.
• AI can help to identify new trends and opportunities.
• AI can also help to create more personalized experiences for consumers.
• This will lead to new users trying new products and a reinvention of business models.

The disruptive lesson from mobile and the next level of being context aware. (00:24:16)

• Mobile phones changed how we interact with technology by introducing location awareness and new behaviors.
• AI has the potential to do the same by extracting away a lot of the complexity and getting us quicker to what we want out of technology.
• The next level of being context aware involves using all of the context that is out there about people and putting it into an experience.
• This could lead to a more natural and intuitive way of interacting with technology, such as through audio-based commands.
• AI-powered tools like Chat GPT have the potential to revolutionize the way we interact with information and technology.
• They can provide personalized and context-aware experiences, making it easier for users to find the information they need.
• However, there are also concerns about the accuracy and reliability of AI-generated information, and the potential for it to be used for malicious purposes.

Mercury - Join 200K startups who use Mercury to operate at their best (00:28:24)

• Mercury is a financial technology company that provides banking services to startups.
• Mercury's platform integrates all financial workflows, providing accurate visibility into money movements.
• Mercury eliminates third-party processing, allowing startups to maximize cash flow and close books faster.
• Mercury simplifies financial workflows, saving time and increasing efficiency.

Forerunner Ventures lives within the intersection of invention and culture. (00:31:57)

• Forerunner Ventures is a venture capital firm that focuses on early-stage businesses.
• Forerunner Ventures believes that culture is a driving component of demand.
• Forerunner Ventures defines culture as how people's needs, preferences, and behaviors are changing.
• Forerunner Ventures believes that understanding culture is essential for identifying investment opportunities.
• Forerunner Ventures encourages curiosity, open-mindedness, and flexibility in understanding culture.

Cultural shifts that are investable. (00:33:38)

• Shift in how people view health, moving towards taking responsibility for their own well-being.
• Example: Therapy becoming a cultural norm of acceptance, especially among younger generations.
• Investable trend due to the demand for new products and services related to wellness.
• Kirsten Green is a partner at Forerunner Ventures, a venture capital firm focused on early-stage consumer investments.
• Forerunner Ventures has invested in companies such as Warby Parker, Glossier, and Dollar Shave Club.
• Kirsten's background includes working at Bain & Company and L'Oreal.
• Forerunner Ventures invests in consumer brands that are "category-defining" and have the potential to become household names.
• The firm focuses on companies that are disrupting traditional industries or creating new markets.
• Forerunner also considers factors such as the strength of the founding team and the company's ability to scale.
• Be authentic and passionate about your product or service.
• Build a strong team with diverse backgrounds and experiences.
• Be willing to take risks and learn from your mistakes.
• Be persistent and never give up on your dreams.

The consumer shift from large to small screen. (00:36:36)

• Shift from big screen to small screen.
• Change in content production.
• YouTube as a new form of content and storytelling.
• Authentic relationship with creators.
• Trend spotted in 2006-2008.
• Kids, especially 18-year-olds, prefer used items over new ones.
• Thrift shopping as a trend.
• Trend driven by individuality and sustainability.
• Conflict between sustainability and inexpensive items.
• Debate on direct revenue vs. monetization through ads, data, or insurance underwriting.

The importance of the mix between direct and indirect revenue. (00:40:42)

• Kirsten Green emphasizes the significance of direct revenue and the balance between direct and indirect revenue streams in consumer businesses.
• Direct revenue, where users are willing to pay for a product or service, serves as a strong indicator of value and user preference.
• Consumer businesses have the potential to be even more interesting due to multiple monetization opportunities.
• Monetizing various aspects of a business, such as data or marketplace dynamics, can enhance the overall business model.
• User payments indicate the value of a product or service and can lead to innovative pricing strategies like "pay upfront and over time" with potential credit or payback mechanisms.
• The viability of premium pricing models remains a relevant consideration.

Discussing the relevance of “freemium”. (00:42:32)

• The freemium model can be effective in converting users to paid subscribers, especially if it provides access to desired features or benefits the business, such as improving the product or gathering valuable data.
• Hardware products ("atoms") are riskier investments for VCs compared to software ("bits") due to high upfront capital, multiple failure points, and challenges in bringing a physical product to market.
• The rise of advanced technologies, such as humanoid robots, intensifies competition in the investment landscape, as there are more compelling companies than available funding.
• Macroeconomic trends, particularly demographic changes like declining population and increasing longevity, impact unemployment rates and labor availability, affecting businesses' ability to scale and operate.
• The retiring baby boomer generation will create a need for robotics and automation to fill the labor gap.
• Consumer VC is a promising investment area as other investors shift their focus elsewhere.
• Hardware is the most significant determinant of value and defensibility in tech products, with successful companies like Apple, Facebook, Amazon, and Google investing in hardware to serve high-margin software.
• Contrarian investing, believing in things that others don't, can lead to outsized returns.
• Finding the balance between conviction and confidence in the market is crucial for success in early-stage investing.
• Kirsten Green believes in lifecycle investing, where investors stay with a company from its early stages to later rounds if it shows promise.
• Portfolio management is essential, allocating resources to well-performing investments while minimizing exposure to underperforming ones.
• Market dynamics can influence investment decisions, and in fast-paced markets, there may not be enough time to assess a company's potential for significant follow-on investments.

What the exit environment is like going forward. (00:55:48)

• Investors and founders should consider the future exit environment when backing companies, as the bar to go public has significantly increased, requiring $500 million in revenue and a long growth horizon.
• Even going public doesn't guarantee liquidity, as there may not be buyers for the stock.
• The venture industry focuses on finding outlier success stories that drive huge returns, and investors should plan their portfolios for wild upside outcomes and be savvy with M&A and secondary markets to maximize their chances of success.
• Consumer VC is not limited to retail and includes a wide range of companies of various sizes and scopes, including tech companies like Facebook that rely on users.
• Forerunner Ventures has had successful exits in the consumer sector, including the sale of Ring to Amazon for over a billion dollars and the public listing of a company with a $2 billion valuation.

What will it take to bring back the small and mid-cap market? (01:02:55)

• The small and midcap public stock market is unlikely to return due to algorithmic trading, the business models of financial institutions, the dominance of big tech companies, and the growth of index investing.
• Late-stage private equity and venture capital funding have replaced small-cap public stocks.
• Venture capitalists missed the opportunity to support the small-cap and midcap market by not taking advantage of secondary offerings as a partial liquidity option.
• Kirsten Green, founder of Forerunner Ventures, believes venture capitalists should be more open-minded and flexible about the future and encourages "naive optimism" in founders, as it can lead to breakthroughs and innovation.
• Green advises people in their 20s and 30s to have goals and direction but also to allow themselves the freedom to grow, change, and challenge themselves along the path, making the most of every opportunity without dwelling on past decisions.