EP244 - Upfront Ventures Greg Bettinelli
EP244 - Upfront Ventures Greg Bettinelli
Greg Bettinelli (@gregbettinelli) is a partner at Upfront Ventures. Greg was previously the CMO for LA-based HauteLook, a leading online flash-sale retailer (acquired by Nordstrom). Upfronts portfolio includes ThredUp, Parachute Home, Adore Me, Skylar, Verishop Goat, Happy Returns, Invia Robotics, ChowNow, Verishop and in transportation Fair, Bird, and SureSale.
We discuss DNVBs, Marketplaces, Shipageddon, and much more.
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Episode 244 of the Jason & Scot show was recorded live on Thursday, October 28th 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.Transcript
Jason: [0:24] Welcome to the Jason and Scott show this is episode 244 being recorded on Wednesday October 28th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
Scot: [0:40] Hey Jason and welcome back Jason Scott showed listeners we are recording this days before Halloween, and also the release of the next season 2 of the Mandalorian so unfortunately on the podcast you can’t see it but Jason is wearing full Mandalorian gear for this episode so that’s exciting. And since since it’s coming up on Halloween and we’re heading into the busy holiday season. And before we get into that chaos we thought it would be good to go up to 30,000 feet for a little bit and look around and have someone here on the show help us think about some of the bigger trends, around digital and e-commerce from the West Coast so we’re really excited to have on the show Greg bettinelli he is partner at upfront Ventures, upfront portfolio includes this is just a small sampling, some Brands I think you’ll recognize such as thredup parachute home Adore Me Skylar Vera shop goat happy returns in Via robotics Channel Vera shop, I said that one twice so that that.
Jason: [1:45] You can tell which is Scott’s favorite.
Scot: [1:47] Yeah yeah shout out to Imran and then and then little gratuitous plug for some of the transportation Investments Fair bird and sure sale Greg welcome to the show.
Greg: [1:59] Hey guys great to be here appreciate the invite I sure hope the first 243 guests were average and I will come over the top and we’ll have a great discussion.
Jason: [2:08] Yeah we feel like those 243 rehearsals are going to pay off tonight.
Greg: [2:12] Exactly I’ve been practicing that listen to it a lot.
Jason: [2:15] Yeah well you know Greg one of the things we learned from those shows is the guest always like to be grounded a little bit in the background of our guests so can you introduce yourself and maybe talk to us about how you came into your current role.
Greg: [2:28] Yeah absolutely and Scott and I go way back from early days at eBay or was called mid-years at eBay but it’s really where I got my start in and around e-commerce and marketplaces I join. EBay in early 2003 which is really the second wave of eBay when auctions were at its peak.
[2:51] And anyway I had some pretty exciting roles and it’s what I think is some interesting things and so back then we had a very robust category management team and the North America business. And I was lucky enough to really the one of the first people at eBay to recognize. A lot of interest in categories like ticketing I also ran the entertainment business eBay which back then we sold DVDs and textbooks and video games on top of entertainment memorabilia and things like that, it also played a big role in what we did with sports whether it was on the collectible side on the, the jersey and apparel side and so got to really work with some interesting businesses there but I was I was at eBay for 5 years and all everyone really knows me for is the guy who said we should buy StubHub. And we bought StubHub for I think about 285 million dollars in 2007. And as you both know eBay just sold that business for four billion dollars about a month before the pandemic which turned out to be the greatest transaction of all time, because now I love that brand I’m not sure it’s a great time to be in the ticketing business but from there from eBay I spent some time in StubHub.
[4:06] And eventually moved down to Los Angeles I have been in the Bay area for a while and went to work for a company called Live Nation for period of time, whereas on the executive team recruiter at eBay to kind of help build a competitor to Ticket Master of all things. And if you go back into 2008 2009 the economy first in 2009 was not great and Ticketmaster and Live Nation ended up merging, which was not a place I wanted to be having spent most of my career at eBay competing against Ticketmaster and and candidly receiving a lot of cease and desist letters from Ticketmaster, for the work we were doing it either in StubHub it was not something for me so I ended up leaving and, I went to a that point a very young company in Los Angeles called HauteLook, which was a fashion e-commerce business more of an island online sample sale business at that time there was a couple companies similar to us Gil group Andrew Lala in particular and eventually Zulily which ended up being the best of the bunch. But I was a chief marketing officer at HauteLook and was there for two years. I’m actually before we sold the business to Nordstrom for about 300 million dollars.
[5:18] I like to call it a you know it’s a solid RBI double it was a great outcome in a short period of time and very good for me personally and professionally, but also helped me you know I had a couple of years left of my best staying post that acquisition so I was able to spend a lot of time working with the Nordstrom team. Thinking about what they were doing around e-commerce what they were doing on mobile in particular and what to do with kind of the full price and off-price brand so I was I was there through 2013 and then eventually left in 2013 and, made my way into Venture Capital because everybody wants to be a venture capitalist because it’s super easy and so I hopped on board in 2013 if you go back, there wasn’t a lot going on in Los Angeles at that time and K a little bit before and. I knew there was you know huge opportunities having spent time in Silicon Valley, but also making home Los Angeles it’s where the most creative people in the world live.
[6:17] We’re very powerful on things like Commerce and communication and content and Community you know companies now we think about like Snapchat which is now 40 billion dollar company, companies like good RX which is a 20 billion dollar company companies like Riot games which is a leader that the maker of League of lemon Legion League of Legends, a lot of super interesting things you know Tinder was invented in Los Angeles and I’ve always been Bullis almost Angeles and coin the phrase long Allah which is just a, assign that you know there’s a lot of exciting things happening in Los Angeles and I really bet my career that I could be a part of that ecosystem helping to fund new companies so I joined, from Ventures and for the past seven or so years I’ve been a series a investor and early-stage technology companies, I work in businesses from direct to Consumer businesses to marketplaces in managed marketplaces businesses marketing Services business is I do work around what I call Commerce Innovation so, identifying companies at the very earliest stage where they’re working to solve friction points that exist in Commerce. And it’s really I do other things as well like consumer fintech and the like but I edited my core I’m a Commerce guy.
[7:36] And I’ve been doing that for a long time and enjoy it I have trade on certain instincts throughout consumer Behavior I recognized I think I can see around some corners and things that a lot of people in the marketplace can’t see, and I think I’ve done pretty well I don’t we as a firm we do broader investing upfront Ventures will probably look at us as the, the first or second check into a very early stage business that we do across a wide discipline of investment opportunities from software businesses to, Healthcare technology to food Tech and AG Tech in digital media but I do really over index on the Commerce. In consumer size of the investment opportunity.
Jason: [8:16] And it’s fair to say that Commerce is the coolest part of the portfolio anyway right.
Greg: [8:22] Yeah as far as you know I communicate to my partners for sure it’s definitely the thing that is easiest for coffee talk I’ve I’ve been very lucky, I always seem to work for companies that people know and have experienced before and you know it’s something I really like I can’t even remember the earliest days of eBay, where you would hear you know I could go to my Aunt Marilyn’s house for Thanksgiving and, I tell them I work at eBay and everyone there knows what eBay was in this is in the early 2000s and there aren’t a lot of jobs like that so I’ve always liked kind of being around and something about working more consumer and commerce plays, people have more understanding of what you do versus if you’re selling some enterprise software solution or something like that with you can’t explain to your Uncle George what it actually is.
Jason: [9:08] I think my wife happened to ask who the guest was tonight and I was pointing out all the products around our household that you guys were in right so you.
Greg: [9:18] Great anyone in any favorite any fan favorites or.
Jason: [9:21] She’s actually a big fan of these ritual vitamins I feel like might be her her go-to you may have exited from that already I can’t remember oh oh.
Greg: [9:29] No we haven’t but it’s part of.
Jason: [9:32] Yeah you have you just don’t know it yet I’m just.
Greg: [9:34] Yes yeah not that I am busy I know but that we were the first check into that business. And I had worked for a long time and just identifying these d2c direct consumer opportunities, which there was candidly no brand leadership with reoccurring purchasing characters. I like the same smart but it’s not that sophisticated but in categories like vitamins if I were to ask you to name the leading vitamin manufacturer you wouldn’t be able to do so because no consumer actually can, and at the same time there is replenishment and as you know with. Replenishment I especially things that you can put in a small box like those are very attractive e-commerce business High margins reoccurring and no Grand leadership. And so I’ve actually had a few of those and we as affirmative a few of those and it’s a simple strategy but I think it’s turned out to be pretty well.
[10:27] I also have always think the thought about attacking categories where there’s only one brand leader and so you talked about Adore Me, you know they’re at the time that a dorm we started it was kind of Victoria’s Secret and that was it a door me does sells Intimates in in soft goods for women, and it tends to be when you’re competing against those single Brands who are leaders think of luxottica and worry Parker, you know they’re as vulnerable as most companies because they don’t think anyone’s coming up their heels and then a couple years later they wake up and you have a pretty big business in your hand so, you know like I said I don’t like to overthink things but there are some pretty compelling opportunities that I think.
Jason: [11:06] Yeah yeah I think we also we do have some Adore Me products and parachute product there’s some bird scooters parked in front of my condo and I actually wanted to talk to you about that later but. I’m just I’m teasing yeah so that’s awesome and because you challenge me the largest vitamin manufacturer in the u.s. is aligner Healthcare products and they make private label vitamins for Walmart and Walgreens. Um yeah I’m the the one guy you probably don’t want to. But that that is all awesome and then I happened and I mean timing is everything but you’ve worked for a bunch of companies that were great while you were there but we’re not covid-19 very friendly to I feel like, the whole ticket and sporting goods and then it’s also not that fun to be selling apparel through a department store right about now.
Greg: [11:56] No and it’s weird unless you’re in the off-price side which. Lisa has a now those stocks have you know if you look at TJX and Ross and Burlington. Their stocks are really only off 20 maybe 20% from the peak pre covid Peaks which is amazing. Considering they have zero e-commerce and I’m guessing they’re selling it 50 this 30 to 50 percent capacity freak event but I think there’s a big bet that the consumers are going to gravitate towards off price, long-term and most likely most of the department stores that we grew up with are going to be at a business with the.
Jason: [12:33] Yeah yeah and there’s going to be a lot more inventory for those off price guys the you did mentioned how fabulous the StubHub timing was the opposite end of that might have been Burlington which decided to turn off its e-commerce site a month before covid-19.
Greg: [12:47] Yeah do you really think they would have been able to handle the demand had they been live.
Jason: [12:53] Hi Joe I mean it’s it just sounds funny and I do think it’s a mistake I think there’s a way to do digital for for off price and I think. Did digital is an important shopping amenity for off price so I think there’s I hated to see them pull back but economically I doubt it hurt him I don’t think they would have liked. Driven a lot of Revenue dollars and then in their space the unit economics of e-commerce are would be tricky.
Greg: [13:23] Yeah well if you talk to the leadership teams that Ross Burlington obviously in TJX TJ Maxx Advanced TJ Maxx and Marshalls they don’t think e-commerce moves the needle for the, and they’ve already emphasized I think TJ Maxx is made Acquisitions they’ve hired good people who aren’t there anymore and their view is the return on capital is just better off. Putting money into stores and continue to perfect the buying experience but I did have my one of my good covid experiences was I was I think I was pretty early and I went on like we all won the hand sanitizer see I’m Journeys. And I pounded Dollar Tree online when they still had an online store and they had like a case of those two ounce bottles of hand sanitizer. And three weeks later I received my hand sanitizer actually 15 business days which as you know sounds like two weeks but it’s really three and that’s a marketing trick and yeah so that was my first and only time I’ve ever bought from a dollar store was in search of the hand sanitizer because I can find it anywhere else.
Scot: [14:30] Yeah Amazon Prime has a spoiled whenever something takes more than 4 days you’re like you assume it’s just been lost forever.
Greg: [14:36] Right exactly.
Scot: [14:38] Dia so on The Upfront side you said you guys are one of the first checks in is that kind of give us like the little kind of the VC spilled are you is that like seed series a and in La vernacular and then like what’s kind of the average check size and where you guys how assets under management that kind of thing.
Greg: [14:57] Yeah so look at us as I would say late seed to series a so our typical average first check is about 4 million dollars. And we are active lead investors so were most likely leading around, I’m taking a board seat really helping to formulate a company and be a truly added value investor. We will make out of a fund which right now we’re investing at about 400 million dollar fund it’s our sixth fund upfront 6, but will make 30 to 35 what we call platform Investments so those are lead Investments and unlike a lot of from we reserved a significant amount of capital for follow-on investment so use that for million-dollar example, if you do 4 times 30 that’s a hundred and twenty we have a 400 million-dollar fun so we’re clear reserving upwards of two thirds of our capital for follow-on and that’s both because look a lot of great companies take a long time to build. And in addition in our world who wanted to play Capital against our best companies over a long period of time so we like those we say back up the truck against companies that, do you need new capital for growth but we want to invest in those because they’re moving there’s an optimal time to wait for optimal opportunity for returns. So we really play in that space of you know it’s really maybe you know the late seed series a stage.
Scot: [16:17] This is a little bit outside of our wheelhouse but I was kind of curious what you think so this may be a Silicon Valley thing so it was a big Trend in Silicon Valley to not go public for as long as possible going Publix evil and terrible and whatnot so so you had like uber and Airbnb these companies wait till they got to this really really big scale but then it seems like the pendulum has swung swinging really hard the other way where now we have this hole kind of spak craziness where a lot of the Silicon Valley guys are going out and getting these these vehicles that can take a company public through this kind of different way what’s your feeling about that that turn.
Greg: [16:55] Yeah for sure especially like I think this pack is relevant to businesses by which there’s this perception that there’s this Robin Hood type of investor, so any company that a Robin Hood Trader would have heard of should be public right so DraftKings really started it, you know it’s Robin the technically hasn’t gone public yet but this so you’re seeing, a lot of conversation about more consumer type of transactional businesses I think the reason why this happening is nobody went public for a long time and so there was really just a dearth of opportunities to invest in fast-growing companies especially on the consumer side now the SAS businesses have been doing extremely well for a long period of time, and the public markets and those there are SPAC opportunities there but those have been, you know a lot of great performance right companies that have gone public over the past five years and candidly a tremendous amount of shareholder value created after their public just look at Shopify as like the great example right, is I think that went public at. $12 a share or something like that maybe we traded like 30 and now it’s over a thousand and that was only five years ago roughly so how many hundred you know a hundred plus billion dollars in value created as a public company. And so yeah so there are so that’s example yeah and I think look the reality is. The public markets are strong right now I think there was about a six-week period between March 12 in May first.
[18:23] Where people were nervous I was nervous everybody was nervous a lot of our companies made very hard choices.
[18:30] Around organizations around marketing spend and I think there was a sigh of relief I think it was prompted by the a lot of. The checks went out that money wasn’t all spent on rent it was spent and compelled a lot especially in the consumer side. I think it also enabled a recognition that software is eating the world as Marc Andreessen would say. And just the gravitation to anything that was you know.
[18:58] Is code based or Commerce based that doesn’t doesn’t touch bricks and mortar or doesn’t touch Legacy businesses and I think the markets of just NASDAQ in particular just responded in the way and I think the public markets are now feeding that, I’m frenzy personally I hope it lasts forever it probably won’t, but I think you’re seeing that play out and even the companies that you know I think of like the Casper IPO as a use it example I think they even they are trading, where they were about to say it wasn’t an overwhelming successful IPO but you know they’re about where they were pre Koga. And so but there’s been a lot of you know I track all have although my on my iPhone all those companies from revolve to. Real real and posture Mart or not Poshmark Stitch fix and others and they’ve all you know. Bounce back 3 to 4X since even their lows which was usually no pain about April 1st or so but it’s been it’s been crazy for lack of a better term for sure.
Scot: [20:01] Yeah I think that’s a good backdrop so you know I think it’s really interesting because as a VC what a lot of people probably don’t realize you know I think most people kind of think of shark tank is kind of their their their perspective and maybe you know, The Social Network kind of as how these work, but you guys have to your kind of betting on a 10-year forward basis right and that seems like it’s going to be tricky so I thought we’d hit on some of the themes where you have some clustering in your portfolio, one of the ones that you and I share is our love of marketplaces obviously you were at eBay and get to see the birth of one of the bigger Market places, um and then in your portfolio one of the ones that we wanted to talk about was goat, I am not a sneakerhead but but you know I love I love that category I think it’s really wild to watch what’s going on there so I wanted to get on that and then my favorite one that you have is some of my best investments have been Collectibles so, so I’m a comic book guy and Star Wars guy and you know if I compare those to even things like the Google IPO, the Collectibles Market has been just white-hot and its really accelerated during covid, I love rally because it allows me to look at it as an investment class thing and invest in Collectibles I normally wouldn’t and even some that would be you know Out Of Reach like. The first appearance of Spider-Man or something like that maybe maybe give listeners a rundown of rally with was that your investment apart.
Greg: [21:30] Yep yep all those are mine let me try and put them all together because I think there’s you made a couple of points in you first talked about kind of time Horizons.
[21:40] And like you know Venture Capital it takes a long time to build a great company. The reality is you know sometimes you get Super Lucky Nick everything goes up into the right but the reality is building businesses is extremely challenging and one thing I’ve learned in as an investor, it’s just the amount of work in, pride in everything that goes into these teams were both of these companies and for example I’m goat I think I wasn’t even at upfront Ventures when they team invested, in what the company that became goes I think we made our first investment in May of 2012 so we are now eight, and a half years into that investment can get some perspective and goat is about a four year four and a half year old business now, so they spent three and a half years Treading Water trying to find something that works, it was originally an app that was trying to connect people with like interests in physical setting so if you and I all like comic books. We would go and set up a dinner and we talked comic books and we didn’t know each other but we would build a community online Offline that we initiated online. And the reality is you know people don’t like to meet people they don’t know so it was a tough business.
Scot: [23:02] Especially comic book collectors.
Greg: [23:03] Right exactly yeah a little bit of an introverted crowd and so when I got to when I got to the front. That was kind of one of my first projects was hey we have this very talented team they just haven’t found product Market fit. And the story of and it’s been written about it it’s been but Eddie and Dyson who are the founders daishon was a sneakerhead. And when they were brainstorming ideas about what to do with the million dollars they have left in the bank. And I asked them how come there’s not StubHub for sneakers.
[23:35] Because I as a consumer investor I spend time you know maybe not a covid world but Saturday mornings I have to go shopping and when there’s all these kids lined up outside a store on a Saturday morning. I want to know what’s going on inside there because that’s not normal whenever you see a cue that’s a signal of either something is very good or something is very bad but in the Venture world that means something is happening they need to pay attention to, and so from there was born goat which I didn’t even know what good stood for and when they said that’s what we’re naming the company, and they took some of their money which wasn’t a lot they bought a bunch of sneakers on eBay and Flight Club and put it in seed in the marketplace and I remember the first month of goat they might have done. You know thirty thousand dollars was the GM V and I you know I can’t say specifically but we’re doing north of a hundred million dollars a month in GMB now, and that wasn’t that long ago and we’re selling sneakers or they’re selling sneakers right and I think what’s interesting about that category is they had identified.
[24:39] Two things one and this is an investment they might have is you look for areas where they’re very active communities, passion LED communities where people spend a lot of time and a lot of money but you catch them right before they go mainstream. And if you can catch especially the marketplace a a niche business like sneakers secondary Seekers but there’s a catalyst to it going mainstream and you become the market and for sneakers canele was, the release of the easy the Kanye West easy from Adidas.
[25:10] Really Propel the secondary Market because they had an artificial shortage they purposely didn’t release a lot of sneakers and a lot of people wanted them and go was kind of the only place to go get it at the time other than eBay and as we’ve talked about our as I’ve talked about before, and while love eBay and I know a lot my career is owed to eBay I’ll compete against than any day. And that was just an example where this community was already existence and they were just looking for a well-lit playing field. Which is an expression we used to use it eBay all the time and they were looking for that and it provided and it turned out that the key to that category was, the perception of Fraud and that that type of customer or that kind of a buyer and seller didn’t trust each other, and so goat came in and said we’re going to guarantee authenticity in fact you send them to us we’ll make sure they’re real and we’ll send them, so this idea of a managed Marketplace and that was what responded but you know it kind of ties to Rally which is think of it as a stock market for Collectibles where, you can actually trade individual shares of an asset but both of those businesses rely on scarcity, scarcity is a very powerful thing consumers retirement respond as care consumers respond to scarcity businesses responded scarcity and if you have a space scarce asset, whether it’s Talent or a tangible good.
[26:34] Markets go crazy and I think a lot of the great Marketplace businesses trade on scarcity and the commonality between tickets, between sneakers between streetwear and now Collectibles as you point is white hot, is there all scarce items again I’d not that smart but it’s obvious to me that when you have something that only there aren’t a lot of them and everybody wants them it’s a pretty good thing to trade, and so they The Coincidence around what’s happening with collectibles, is it was already happening pre covid but especially on the sports side there’s just a Nostalgia that developed in March, where I’m sure you all odds un’s with people in high school they hadn’t talked before and you’re spending a lot more time with text groups with your sister and your brother and your mom and your dad I think we just came back to recognize that simple things matter and when it comes to collectibles whether it’s comic books or baseball cards or. You know video games that we just felt it was our comfort zone it was our safe space and it felt good to be able to talk and trade about things that made us comfortable. And that was a key part of what happened. With Collectibles But the irony or okay it’s coincidence is I originally thought sneakers were the baseball card of gen Z.
[27:52] And it turns out that baseball cards are relevant to gen Z and it’s actually basketball cards they’re not really into baseball cards but they’re definitely in the basketball cards and that has now created you know caught fire and it’s you know I think.
[28:05] My guess is you know.
[28:07] The collectible assets are training at two to three times what they were a year ago it’s now it’s now being determined as a you know an asset class and it suddenly becomes an asset class with rallies perspective. Is you know you can be the market maker for things that historically were illiquid and again back to the marketplace theme if you can make it liquid markets liquid, you can dramatically grow the addressable markets and if you can draw the addressable markets and you can get a piece of that growth from those markets and think of great Marketplace businesses, like eBay like uber like Airbnb every investor who passed on it will say the Tans were too small the total addressable markets were too small, eBay was how big is the pawnshop market right Airbnb is how big is the hotel Market boober was how big was the taxi murder. The reality is they all created substantially greater addressable markets because the marketplace enabled it StubHub was the same way you know how big is that market and you don’t ask those questions anymore because the secondary Market, has really become such a powerful thing in those markets and I think that’s what’s happened with sneakers and other categories.
Scot: [29:15] If listeners get one thing from this hole 244 episodes that we’ve done go to your closets find your Pokemon cards and then if you have any of the NBA cards I think the isn’t it LeBron rookie cards are going for like 8 million, there’s a specific one yeah yeah.
Greg: [29:33] Now specifically if you have your 1999 Pokemon cards and specifically there is one card I think it’s the Charizard is a how you say I don’t know my Pokemon it’s the nine oh it’s number four. But that card is I think just traded for a hundred and twenty thousand dollars yes but it is and don’t don’t touch the card though. The biggest thing you you is. Really learned I learned today that a majority of cards that are wrapped in packs have already not. Rated to a 9 or 10 scale like they came up they come off the printing press as not. And that’s you know just because there’s a lot of those a lot of interest in Cardin authenticators and Grading right now but it’s just crazy what’s happened with some of the end wasn’t didn’t Jake Paul or someone just by he bought that car done talking about. Crazy.
Scot: [30:32] Yeah and LeBron said oh I’ve got like 10 of these.
Greg: [30:36] There’s a lot of talk about athletes who are now you know as part of their deals there they’re going to the card manufacturers and asking. Well I want some of these two historically they would just sign things but now they only know part of their negotiation with those card companies is they want to be able to put those directly in their safes as well because why should someone else profit from, from their likeness if they’re not going to so it’s super compelling.
Jason: [31:03] I feel like you you helped answer a question Scott’s wife had sent me a question asking if rally was just a scam to enable Scott to buy more Star Wars memorabilia but apparently it’s legit.
Greg: [31:15] Yeah and hopefully it’s up I’m guessing depending on we’ve done we’ve done I don’t have I don’t think we’ve done Star Wars we’ve done like Hulk we’ve done a lot of comic books. And we did Teenage Mutant Ninja Turtles we did yeah.
Scot: [31:33] I do it to diversify like I would never own an exotic but I can get like a slice of some of that and the first one I played around and I made like 40% is like and it happened very quickly someone came in with a very high offer and I guess they liquidated.
Greg: [31:47] Yeah I know it’s great I’m I’m was I grew up in San Francisco or in the in a place called Petaluma which is north of San Francisco and I was safe to go Giants fan and one of the first, rally started off doing cars it was called Rally Road and so collectible cars was really the first couple years of the business then we moved it more into broader Collectibles but there was a Willie Mays Jersey, with this kind of tobacco stain on the front of it and it was a great it’s just a great looking Jersey it’s this kind of giants gray with the orange, San Francisco ran across and that was you know you know as I never really got to see maze play I’m too young for that but I would hear my dad and my grandpa talked about Willie Mays and so back to the the emotion parts of the Collectibles categories that was you know I own you know $80 worth of that Jersey, but I tell you know it’s not the first time told the story and so you just get kind of the benefits of the way and it really enables a whole new, type of investor customers to participate in markets that historically they couldn’t and I think those can make for exciting businesses for sure.
Jason: [32:47] Oh definitely one other small little fun fact about goat you mentioned that they authenticate all the the merchandise so there’s a role for authenticator and one of their primary tactics is, they smell the shoe. To identify the fake glues versus the authentic glue so I’m just I’m chuckling at these folks that got this good job and went home to tell their families that they’re now officially a sneaker sniffer.
Greg: [33:18] Yes yes and look these are you know let’s just say the original authenticators where do you think they came from they know these were these are kids who were working at Foot Locker. Right over kids who were kind of trading Jordans and you know who knew that we could be no pay them no money we pay and look we weigh them, we checked the colors we smell them, you make sure there’s not two left’s two rights make sure there’s in a lot of different things and you can tell a lot about authentic identity of a shoe by how much it weighs and where there was manufactured and, and things like that because you know again like we talked about. Authenticity matters and if Marketplace as any hints of things not being authentic it won’t work and you know I think that was a big challenge that the eBay had in his and I think it’s a challenge to Canada and the Amazon has now. That it’s very hard for that business to play at the high end. Watches or handbags or pie in sneakers or golf clubs they don’t work very well on Amazon and I think the perception of a 3rd party seller could do. A buyer is real and even Amazon worth when they were trillion plus dollars now hasn’t figured that part out.
Jason: [34:29] Yeah and I think we may get to that I do want to Pivot though to talk about another class of investment that I know you have some whole things in Andy Dunn’s digitally native vertical brands. And just to set the table my my sense is sort of pre it felt like the narrative was that hey you know considering how many of these there are out there that not a lot of them had had a particularly good exit or any exit at all and I had a lot of people in the media calling this a hay is is D&B be dead I talked with a lot of clients about how much more successful like Target was it launching Brands then DMV bees but, now that you know everyone’s back into the the Commerce base as a result of covid I’m curious what was it ever true the DMV be was not a good investment and what’s the perspective now.
Greg: [35:28] Yeah like I think it’s hogwash right if you you can even argue like Dollar Shave Club which was the first one to exit I think did so at a billion dollars plus, right I think. You know there’s been a lot of worry Parker Hager haters over time but that business that business could be worth twenty billion dollars some day it may take a while but you had no I think companies like glossy a, hymns Roman even pre covid that they were they were trapped away although clue they may be on the wrong side of the trend just want to travel like these companies were. For on their way to doing some great things I think of like you know the all birds what’s Raffi’s was headed as a trend has been a myth momentum we talked about Casper.
[36:13] So maybe but I’m always been I think it’s been important I think what maybe gotta whack was valuations. And this happened with a few companies like a stance or their others well these are very good brands but they were valued like software companies and they’re still at the end of the day there are consumer brands, and so when those businesses Trade It, 5 to 10 times revenue and they stop growing or the burning a lot of money then there’s kind of investor sentiment is like, I don’t think consumer sentiment ever goes that way because the consumer is not asking what your U-turn economics look like when they’re buying are engaging in your product your brand but investors were just kind of fluctuate in and out relative to the predictability.
[36:57] And scale related to software enterprise software businesses so I think that’s kind of interesting I think what’s also happened is a lot of businesses that really weren’t Tech businesses were, you know like a lot of food businesses for example our drink beverage businesses which have done or jerky businesses like they’ve done great but those really aren’t traditional Venture businesses but then you had you know like Blue Bottle Coffee have a huge outcome than that the Nestle, which is a venture back business so I don’t think they ever came out of favor I think what kind of what was out of favor and should have been as this that these companies were burning too much capital, relative to their growth rates and eventually if you’re not increasing your margins, while growing at rapid rates you’re just going to not be worth as much as I think some Venture Capital thought they could be and then that creates friction and the relationship and the eventual outcome of the business for sure.
[37:52] But you know I think that earlier is is I have a relatively simple view of direct to Consumer businesses is I just like things that have, margin from high gross margin perspective I’m not afraid of retailgeek, but I think you have to be to see first you have to have a team that has the DNA of going directly. You have to be able to understand the importance of brand and brand development you want to have something that’s got some the community associated with it, you looking for things that are you know candidly economically economical the ship if it’s digital he’s even better but if it is a product that it fits in a something the size of a shoebox like an even bigger than that gets a little tougher to be honest. And you want something that you know, either has natural reoccurring characteristic or such loyalty that people keep coming back to buy you talked about parachute home is example you know I started out really doing sheets and duvet covers, and now you can get you know all sorts of products for altars of soft good products for the home and kitchen right and what people just fallen in love with that brand, and they’ll buy anything from that brand that Services their home and so it you know you can’t release a hundred skus at once on day one but over time you build that loyalty and you extend your product reach into categories that you really your customers are, are pushing you to go to and I think a lot of companies have had some success with that for sure.
Scot: [39:17] Very cool so we’ve covered marketplaces in DMV be another one that I’m tracking really closely and goat is kind of in here but we haven’t talked about thredup so so there are really good kind of poster child for this one is, it’s this kind of Consignment and then a big Trend in fashion was this fast fashion kind of concept where you would buy lots of lower price Goods. But then there’s been kind of backlash against that from the millennial the younger generation to the Zoomers or gen Z and millennials. Because they’re really acutely aware of what’s going on with environment and whatnot in fast-fashion generates a lot of fast fast landfill I guess I would say so thread UPS really interesting it’s kind of part of this you know upcycling and. Kind of. Instead of wearing these things three or four times and throwing away how do we get more people to use these products is thread up one of your Investments and maybe give us an overview of how they’re doing.
Greg: [40:13] Yeah throw tips and threads think I invested in 2014 and they’ve done tremendously well great team and right as you know I grew up or grow up I spent a lot of time working in off price. Right and recognize that consumers gravitate to brands at value and. At the same time if you just open up your closet you know even if you trimmed it during covid there still 75% of stuff in your closet you’re never going to wear again. Men and women threat of really focuses on women and kids but you know there is value in everyone’s closet and. Really taken advantage of a lot of the stuff is good product now probably half the stuff that goes to thread up doesn’t end up in the marketplace because it’s just, like a car house everyone thinks their products worth more than it might actually be but the reality is there is a market for that and importantly for threatens business there is an unlimited amount of supply.
[41:11] And so you know we are just begun to make a dent in the amount of inventory that consumers own and so threat it really takes you know I was built an incredibly robust. Infrastructure and multiple warehouses in multiple cities where we ingest Millions upon millions of items. Are able to recognize using technology. Which ones are worth something which ones not and try and create an economic model that that pays the seller without having to bend to do anything other than put some stuff in a polka dot bag. Growing again back to my eBay is the biggest problem was it was a pain in the ass to sell on eBay. I’m so you really only wanted to sell the stuff that you knew was going to sell for something of Great Value and it wasn’t worth your time for something that was 15 bucks. Or 10 bucks and thredup is kind of sibling will take it we may not pay you 15 what you’re going to get more than you would get if you wanted to just drop it off in the thrift shop and just will send you the bags put in there send it back to us and we’ll send you a check.
[42:18] It’s you know it’s kind of modified from there but this idea of these managed marketplaces and the and both similar is we use technology and we built a lot of infrastructure do the hard work. And if we can do the hard work that make the value proposition very easy for Sellers and very valuable for buyers it can create a pretty powerful and really differentiated businesses scale. And what’s interesting about threat up is you know there have more product on hangers than any company in the world, so if you were to go to their distribution centers and like Harrisburg or Phoenix or Lanta they’re just running three four stories of Hangers On conveyor belt. And that’s how they’re picking ingesting and then picking inventory we have millions upon millions of products on hangers. And it would be almost impossible for anyone to build something at that scale in a short period. Including you know someday the T.J.Maxx is in Ross’s are going to have to sell online. And I have to think that they’re going to look at businesses like thredup assuming I wonder if we could put our new product in there.
[43:20] News product world and think of all the money and time we could save and I don’t know when that happens I’ve been waiting six years it hasn’t happened yet but I do think like you know for that happen to like. I’ve done some everything I am not a big peer-to-peer Marketplace investor and again this is my eBay. Kind of learning is I tend to gravitate more towards the managed marketplaces because there you can just buy or take rates. The peer-to-peer marketplaces are much more competitive from a price perspective and can delete just not I don’t believe peer-to-peer works at eventually everything gravitates towards more of the power seller, and so I kind of skip its data and look for those businesses where we jump right into some more of that powers our or just provide a great value where the the traditional, the regular person just put the stuff in a bag and and business is taking.
Scot: [44:13] Here’s convenience factor on one side of the marketplace and a value on the other.
Greg: [44:15] Yeah exactly something it yes.
Scot: [44:17] I think it’s a I think I saw thredup is actually entered into some story relationships where their inventory will be at like I think there’s a Macy’s one and there was a JC Penney one when JC Penney was.
Greg: [44:28] Yeah and a lot of anaconda and a lot of Brands themselves who want to be talked about the social conscious or the eco-friendly nature, I think brands are conscious conscious of the fact that that does matter to Consumers so by working with red up and creating a trade in trade up formula, just creates another reason for a customer to be happy with a, and if it dries a little bit more loyalty and more than pays for itself and from threats perspective we get access to Great customers and in great inventory. Clearly certain brands will Lululemon sells better than Gap it’s just a matter of supply and demand. And so you know from various perspectives are not just great marketing and Business Development opportunities but we do get access to inventory that work is likely to sell faster and higher prices on them.
Jason: [45:18] Yeah we actually had Anthony Marino on the show asked you’re like episode 170 I want to say and I was telling him if I chuckle because Allah some of my clients are those discount apparel retailers that are not very bullish on e-commerce and, one of the main reasons they say they’re not bullish as oh man our inventory is too thin and dynamic. To work on e-commerce and I you know I always like to point out to those CEOs have you seen thread up and real real I mean. They totally figured out how to do it, I am concerned about time that I want to cover a couple other topics as you know one we’ve talked a lot about on the show recently is this idea of ship again and that that everyone’s counting on e-commerce to make up for all the the diminished or traffic this holiday season but there really isn’t enough shipping capacity for e-commerce to save the day. Is that a concern for your portfolio companies do you have a hypothesis for how holidays going to play out and I guess follow-up question. Do you worry about that systemically Beyond this year like you worry about the fact that, that e-commerce is just going to get artificially limited by these these constraining factors in the last mile.
Greg: [46:38] Am I allowed to swear on his podcast.
Jason: [46:40] You are I just have to check the right box when I upload the podcast but wet.
Greg: [46:43] Yeah no I think I think after the election. Kind of coming around let’s assume everyone pushes their because of this they’re going to push their Thanksgiving Day promotions forward. Earlier in the calendar to avoid you know so you think you’re going to see my instinct is once we get through election assuming everything’s regards to wins. Yeah things are kind of back to normal covid-19 mall so let’s say November 15th. Maybe right after Veterans Day it’s going to be you can see a lot of promo start them and it’s going to be a total shit show it’s going to show for probably six weeks and then it’s going to be reverse Logistics it show when everything comes back. And the reality is what concerns me is the fact that.
[47:31] The shippers that UPS is and FedEx’s are going to these retailers or Commerce partner with quotas saying you can do as much as you did last year but if you expect your business to grow a hundred percent a year that’s not going to work. So I’m worried more about I think they’ll deliver the probably they’re under promising but they’re going to justify a substantial surcharge on things above your quote-unquote quota. And so I think it’s going to be very expensive I think, again if you’re well that’s or Venture perspective you build a justify why your shipping expense in Q4 of 2020 was more than you expected, I think that will be universally accepted I think you know if your more traditional public company under, anticipating that it’s going to be you know not great because you’re going to see more expense and I think we’re going to have a lot of unhappy customers I think hopefully the customer will, kind of you know a lot of impact the election were encouraged to send our ballots in early maybe we’ll shop earlier I think you know I would expect I don’t know if you seen my expect.
[48:32] 30 25 to 30 percent growth year over year in Q4. And we’d been historically 12 to 15 in the last couple years I think that’s clearly going to double if not more, and I think the Fed Ex is and UPS is USPS know what’s coming and they’ve done all they can for the past 6 months to get ready but we’re still going to get caught short handed. I do think it catches up at the end because you just look at the stock price of FedEx and UPS its doubled like they’re going to figure out a way to add capacity they are smart people they’re both going to increase prices that are going to you know do all the things they do. But I think it’ll work itself out I don’t think there’s enough slack from the startups I guess Amazon conceivably could take them as like but there isn’t any, company that is has raised venture capital and suddenly going to make it dense and there’s they might put it in their pitch decks but the volumes of velocities that the big three plus Amazon carry it just dwarfs anything else that’s out there. So I think it’s going to be a problem then we’ve talked about like I’m super excited about returns I’ve been bullish on returns as a business since I worked at. Nordstrom. And back to company that solely focuses on trying to figure out how to lower costs and create better experiences around returns a company called happy returns and I can’t wait to talk about that business in. Like it’s going to be amazing.
Jason: [49:53] No I think you’re a hundred percent agree for all the Today Show producers that are listening to this podcast you know we’ve been talking about ship again in but arguably the bigger story is going to be returned to get in because you know when you buy a pair of from a brick-and-mortar store you return it about ten percent of the time when you buy it online returns are over thirty percent so you know this quarter where we are artificially selling everything online if we follow past Trends there’s going to be an enormous amount of returns and reverse Logistics is way harder and has way more constrained capacity than, outgoing Logistics and so I you know.
Greg: [50:35] Well look the with the bigger headache is two things one is in this is the big contrarian but I think people haven’t been spending money on soft goods meaning like clothes and apparel relative to other categories, so there’s going to be a lot of gifting around things like that that aren’t you know comfy pants so sweaters and more traditional clothes so those are returned to higher rates right Christmas gifts and holiday gifts tend to be higher asps, so hire a ESPYs is a correlation to returns and importantly the biggest friction with returns for consumers is how long it takes you to get your money back, under the credit card or the order the gift card in return and so if there is a if right now it takes 5 business days or seven business days to get your credit back. In a world of congestion you may not it may be a month or six weeks before you get your money back by the time all that stuff gets processed in warehouses better, people are working half shifts because of covid and so I think it’s going to be as much people yelling, not like where’s my money where’s my credit as much as it is just the time it takes to get the items back so I don’t think retailers are accomplished for even thinking about that yet but I guarantee you.
Jason: [51:45] No I agree and I specially like there could be a lot of stress in the subprime portion of consumer credit come come January and so yeah that that’s a huge play one super funny premise I heard well maybe it’s true but in addition you know they’re all these arguments like hey winter people are going to need warm clothes even if they haven’t bought a lot of apparel the one funny one is almost no one that’s that’s sheltered in place has the same size they were at the beginning of the pandemic and so that could potentially Drive, more apparel sales and more more returns.
Greg: [52:23] Now you either lost a bunch of weight or gained a bunch of weight right yeah.
Scot: [52:27] The covid-19 is this yeah one quick one I wanted to hit on just because I like to talk about robots is you guys have invested in a robot automation system called in Via inv I a reminiscent of Kiva and then Amazon bought Kiva and then obviously kind of kept it to themselves the only other customer I think that had it was a pose and then they bought them to so that’s a pretty interesting one is Imagine demand for that kind of a thing is skyrocketing with with covid obviously having less people running around warehouses good too.
Greg: [53:04] Yeah look I think there’s and there’s another was a Envy as number one competitor was a company called six river which was acquired by Shopify, a few about probably about a year ago now so look I think the reality is that was original I’m going to get my numbers wrong but I think there’s 15 million people who work in Commerce fulfillment warehouses in the US. And pre covid you know you couldn’t labor was exceptionally tight and they’re just you know, it wasn’t about robots replacing jobs is about driving more efficiency and efficacy in a warehouse and you know these businesses like India are as much software as they are Hardware there really warehouse management systems, that utilize Automation and robotic technology to really pick bins and bring the bins to the pickers who can because robots can’t really pick yet, but they can deliver the bins and they can return the bins to the the staging location in Oakland replenish the bins and so like I think it’s a super interesting business that’s really trying to use. The whole premise on that was candidly.
[54:11] Retailers need to get closer to their customer and in the old days you would park a million square foot Warehouse in Iowa. For Kentucky because that way you could take advantage of the shipping rates across the zones 1 2 3 4, and you can get to California or New York in three days turns out the Amazon figure it out that the closer you are to the customer the more the happier they are. So now a Commerce provider has to have 10 100 square foot. Facilities instead of 1 million square foot facility turns out you can’t spend as much money on Automation in 10 locations as you can in one is you have to spread your budgets out to be 1/10, so you’re looking for more cost-effective automation Solutions and that’s really the thesis around, via is that we can provide a relatively low cost variable cost automation system to help with the smaller warehouses that are more likely, and to be used in certain local markets and clearly now post covid when you can have half as many people in a warehouse, robots are good partners they don’t complain they don’t yell they don’t breathe they don’t cough they don’t sneeze all you got to do is they don’t pee I gotta do is change their batteries, you know once every 12 hours.
Jason: [55:24] Back in time and wipe out the human race however.
Greg: [55:26] Yes yes, these ones don’t talk, but yeah so that’s a super like those are you know again a friction point the reality is you know even without code code would Converse online is going to grow 10 to 15% for at least the next 10 to 15 years, and I don’t think we’re ever going to have more than 20 million people working in warehouses and you got to the only way that we’re going to be able to deliver all that product to meet the expectations of the consumer is we’re going to have Automation and. It’s a little bit of I have no doubt it’s going to happen it’s going to be when it happens the scale that I hope for. We’ll look back in 20 years and it’ll be a rounding error about what year this became mainstream but in 20 years there’s not going to be more people in warehouses that are on there are now and I would bet any amount of money on that and so, I’m super excited about whatever is this thing goes well.
Scot: [56:18] Yeah there’s been a lot of talk about Amazon monitoring employee Communications for talk of unionization so robots also don’t form from unions which is I guess the I wanted to I know we’re up against time I wanted to rap and just kind of talk about eBay so so you I met at eBay a lot of the there’s like this eBay Mafia folks like yourself that have gone on to do a bunch of stuff, we run into them in the vehicle Auto segment all the time which is kind of interesting like wasn’t one of the fair guys an eBay person. Turo is.
Greg: [56:50] Yeah there’s what it was Scott painter was fair and he was actually true car.
Scot: [56:54] Two car yet you get.
Greg: [56:55] No but the eBay Auto guy is the founder of happy returns is a former eBay Motors guy. Rob Chesney who was the CEO of eBay Motors was the CEO of Trunk Club. He’s now a venture capitalist in Chicago Simon Rothman I think was one of the first Tesla investors he went on to be an investor at Greylock.
[57:18] And then there’s a few there’s a lot of the eBay Motors guys know there’s a lot like eBay, had a lot of tremendously smart people both in the operation side and the Really the finance side legal side and now like my old boss is now the CEO, and so Jamie Ione worked side-by-side with him for a lot of years and you know I’ve talked to him a few times since he took his job we had a, kind of had an eBay reunions right the day that he got announced to be CEO and we probably had 20 people bunch of old category you know people like didn’t Ash and George Latimer and Todd let whack and those people that I know you knew really well and we were all given we’re pitching Jamie our ideas and all the things that have been screwed up with eBay for the past 10 years when all of us were gone.
[58:04] And I think you know he’s done. You know they sold StubHub they sold the PayPal business they sold the class of a business so there’s really only two if Korea in the north of and the US. And European Marketplace businesses and I think he’s getting back to the core and recognizing what eBay was good at, which is search and discovery of unique items are great values and I think they’re spending a lot of resources protecting, businesses that are doing very well like they’re collectibles businesses that’s the one category that hasn’t been disrupted on eBay and I think Jamie and Jordan. Sweet man are recognized that I’m making Investments and doing things that we would never have done with Meg and John and regime or the boss when I was there 15 years ago.
Scot: [58:51] Yeah yeah I’m excited I think the world is a better place with a strong eBay so I’m hoping they can turn it around and definitely cheering from the sidelines over here so so hopefully I’m doing my part to drive gmv by buying some Collectibles during code.
Jason: [59:08] Awesome we’ll listen guys that is going to be a great place to leave it because once again we’ve used up all our allotted time but if there was something we should have brought up and didn’t or you have a burning question feel free to hit us up on Twitter or Facebook and we’re happy to continue the conversation as always if you enjoyed the show sure appreciate it if you could jump on iTunes and give us that five star review.
Scot: [59:31] Greg if folks want to find you online where are the best places to find you.
Greg: [59:35] Yeah easiest my emails is Greg at upfront.com. 50/50 I’ll get back to you but that’s it pretty simple you can go to LinkedIn as well, I have a fancy little drawing of me as a picture and you want to send me a message that way and then at Twitter just at Greg bettinelli and my venmo is the same so if you want to send me money you can do that as well. Greg bettinelli.
Jason: [1:00:00] I’m not sure you fully comprehend how the investment role is supposed to work.
Greg: [1:00:03] Oh right it goes the other way so you want to send me the Paypal invoice you can do that as well no yeah.
Scot: [1:00:09] Cool thanks Greg we really appreciate you taking time to share some of these macro themes that you’re looking at I think it’s super helpful as we head in the holiday to be thinking about the long-term before we get wrapped up into the short-term.
Greg: [1:00:23] Yeah great and you know congratulations on 244 and also hope you and the family are well and healthy I know this isn’t easy for anybody and at least this is add a little levity which I think you know hopefully will get back to normal someday and, I know we will see better when but hopefully the two of you remain a good health in the same period fan.
Jason: [1:00:41] Thank you very much great again and right back at you and and to everyone listening until next time happy commercing.