Demistifying fundraising in D2C with Ben from SuperAngel
Asking all the questions that might help you in your fundraise
Ben Zises is one of the ecommerce industry's leading investors. He's invested at the earliest stage for brands like quip & arber but also for tools like disco and ecocart. I couldn't think of a better person to interrogate on the topic of fundraising. PS: If you have a pitch to submit, do it here.
Welcome Ben! At what stage do you invest at?
We prefer to invest as close to the first check as possible. Overall, SuperAngel.Fund focuses on pre-seed/seed stage, and, for companies that show breakout success/growth metrics, we will follow on through the Series A round.
How much money do you typically invest? And, at what valuations?
Our average check size is $25k-$100k from the fund, and, in certain cases we will augment that with an investment of $250k-$500k+ from our Syndicate. So far, our median entry valuation has been approximately $10m-$15m, and that number will fluctuate as the market changes. The truth is, unless you are leading a round, writing a $1m+ check and establishing the terms on behalf of all the other investors, you are a ‘Price Taker’ and not a ‘Price Setter.’ Many investors do not understand this.
How much equity do you target on your initial investment?
Ideally, we invest $100k for a 1% ownership stake in each company, which implies a $10m valuation. If a company goes on to sell for $1B and obtain so-called “unicorn” status, our stake could be worth $5m (a 50x return), inclusive of a 50% dilution along the way. In that case, even if every other investment in a $1m quarterly fund goes to $0, we will still return 5x.
Do you lead? If not - who else usually leads?
There are a few cases where we’ve acted as a ‘Lead’ investor early on. One example is Arber, an all-natural lawn, garden and plant care brand. We invested $550k in their pre-seed, and $650k in their seed, and represent the largest investor on the cap table at the moment. That will likely change once they complete their next round of funding. Another example is Character, a modern home improvement brand. We invested $700k in their pre-seed and similarly represent the largest outside investor. Even if we are not leading, however, my hope is that our investment will provide a strong signal to other investors in the market and help catalyze a round.
Who are the big names / other investors to look at?
There are so many exceptional investors out there, and tons of great resources on where to find them (see here and below). Some investors that we enjoy co-investing with are: Sugar Capital, Willow Growth Partners, ERA, Bullish, Resolute Venture Partners, MetaProp, Vinyl Capital, Springdale Ventures, Vanterra, Magic Fund, Miracle Ventures, Alpaca, Base10, Irrvrnt VC, Bain Capital Ventures, New York Venture Partners, RiverPark Ventures, Sharma Brands, Ground Up Ventures, LAUNCH, Maywic Select Investments, Overlooked Ventures, NineFour Ventures, Centre Street Partners, Consumer Ventures, Color Capital.
- Mercury Investor Database
- Lolita Taub’s Startup-Investor Matching Tool
- OpenVC Directory
- Docsend - Active VC List
- Visible VC
- Trace Cohen’s Active Investor List
- NYC Early Stage VC List
- Thunder VC
- Shai Goldman List
- NFX List
How much revenue does a company need to get a check from you?
Zero. As mentioned, we invest as early as the first check and, in certain cases, the company is a year or more away from even having a product or service to sell!
How do you think about subscription vs. one-off businesses from an investment standpoint?
Not every business is meant to be sold as a subscription, and, while it’s great to have a product customers will need to purchase often, it’s not a prerequisite from an investment standpoint.
Do you expect companies you invest in to raise more? If so, when, and after how many years on average?
Certainly, I expect the companies we invest in to raise additional capital. Historically, it seems high-growth companies seek to raise every 18-24 months. In the last few years, however, that timeframe was cut down even shorter as investors were flush with capital and sought to deploy it into their best founders as quickly as humanly possible. So long as a business is growing with a focus on profitability, or has a realistic timeline and game plan towards achieving it, and has new product ideas, revenue and marketing channels to expand into, it makes a lot of sense to raise capital and look to expand market share.
What does your diligence process look like for evaluating a company?
One thing that separates us from some later stage funds, is that we generally undertake the most diligence, and apply the most weight to the founder/team vs their product or service and traction. I often say, early stage investing is much more of an art than a science. Page 7 in our fund deck is called ‘Key Selection Criteria and lists the primary areas that we assess.
We focus on getting to know the founders intimately and try to understand what motivates them, as well as where that motivation comes from. We look for founders with “unwavering ambition, relentless pursuit of perfection, laser focus and obsession around their product.” I also seek founders with an ability to learn new things and absorb information quickly. After seeing first hand a select group of founders go from nothing to hundreds of millions in sales and over a billion in value creation, we believe there are distinct patterns that can be realized. All that said, we are in the business of “exception cases,” and are cognizant not to be too narrow minded, while noting that GREAT founders can come from anywhere and nobody should be underestimated!
One other piece of our diligence puzzle is reading prior investor updates. These are gold and provide a fantastic way to assess if a company has followed through on what they said they would previously, and give us a solid foundation of what we can expect from a team moving forward, should we decide to invest.
What trends have you started to notice the most in new D2C businesses?
A few trends I see sticking around are 1) focus on sustainability, 2)leveraging creators for content creation and distribution, 3) a return to fundamentals - both on the execution/operations and marketing side.
Focus on sustainability (Example investments):
- Biom: 100% plant-based and biodegradable wipes. Instead of being sold in single use plastic, these wipes are sold in a stunningly designed refillable dispenser.
- Freestyle: The first 100% tree-free, bamboo core diaper. Traditional diapers are made of tree pulp while Freestyle diapers are plant-based leaving it easier on the eyes, and on the planet.
- Cadence: Personal care, sustainable travel system. Cadence capsules are made from recycled ocean-bound plastic and they also reuse their own manufacturing “scrap” which is reintegrated back into their finished products.
- EcoCart: EcoCart’s mission is to make the fight against climate change easy, affordable, and accessible so that everybody can do their part. Sustainability initiatives for eCommerce brands, empowering online shoppers to offset the carbon footprint of their orders.
Leveraging creators for content creation and distribution (Example investments):
- Bounty: Bounty’s mission is to turn eCommerce customers into video marketing machines, starting with TikTok. The company allows a brand’s customers to earn unlimited cashback in exchange for views that are driven through the customer’s own user generated content.
- Archive: Archive automatically detects when your brand gets tagged on Instagram and allows brands to leverage their user-generated content to launch better Facebook & Instagram ads.
Return to fundamentals: No longer can brands rely on outspending their competition on Facebook and Google, it’s back to the basics with direct mail marketing and operational efficiency across supply chain, inventory management, quality control, data and analytics, and cash flow management. (Example investments):
- PostPilot: PostPilot is the leading direct mail platform for eCommerce brands, and makes it a cinch to send one-off and automated lifecycle postcard marketing campaigns.
- Cogsy: Cogsy empowers brands to reach operational excellence. Their first product is an inventory planning solution that helps companies forecast and automate purchasing. Cogsy helps DTC brands eliminate manual spreadsheets and guesswork to automatically order the right inventory at optimal levels, at the optimal time.
- Intelligems: Revenue optimization tools for eCommerce companies. Intelligems has built the first profit-optimization engine for eCommerce. The platform makes it easy for Shopify Plus stores to run real-time A/B tests on prices, shipping fees, or on-site discounts, and understand the impact on conversion and profitability.
- Factored Quality: Factored Quality is building a digital quality control platform to help the world's top consumer brands manage their overseas manufacturing. Factored helps businesses book and manage quality control inspectors, align on quality control standards, and create quality control checklists.
- Settle: Cash flow management for the modern business. Settle offers bill pay, accounts payable, and flexible financing options all-in-one. Built for the savviest e-commerce brands.
How do you source new investments and stand out from all the other investors out there?
Word of mouth is generally a business’s most powerful marketing channel, and we are no exception. To that end, I pride myself on being each founder's favorite and most helpful investor, championing them and their companies religiously. This has led to overwhelming positive references. With more than 200+ founders in our portfolio, each can become fantastic sources of new deal flow! Our fund also has over 100 LPs, many of whom are founders with strong connections seeking diversification, and GPs of other funds - all of whom we collaborate with closely to share deals and networks. I try to cast a wide net, what I also refer to as “make a lot of noise,” whether through my weekly blog posts that get distributed to over 25k+ people, social media presence, and viral marketing videos (see here and here). I also participate in industry events, panels, pitch competitions, podcast interviews, and make sure our fund is listed across all the numerous industry databases. Not to mention, my massive personal and professional network which continues to expand, along with the fund’s positive reputation for supporting founders - this leads to more quality deal flow, both from founders directly and referrals from other investors and institutionally backed venture funds, whom we often co-invest with.
What is your favorite DTC product that you currently use as a consumer, and why?
I love ALL the brands I invest in but my favorite has to be my quip toothbrush. Besides being the first investor, I was also the first customer! And now, I enjoy teaching my daughter to brush with it as well :)