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- [00:13]
A
Hello and welcome to the Consumer VC Podcast where we discuss the intersection of venture capital and consumer innovation. I'm your host Mike Gelb, and if you're enjoying the show, you can subscribe to my newsletter where you'll receive every new episode a week early. Head to the consumerbc.com and click subscribe. All content episodes are for informational entertainment purposes only and is not investment advice. Hello and Happy Holidays. Just like we've done in years past, during this special time of year we're going to be sharing recaps of our most popular episodes from this past year, 2022, an annual roundup, so to speak. It's going to be during Hanukkah and Christmas, so every day from December 18th through December 26th. Today's highlight episode is with Jessica Peltz Zatulo, co founder and General Partner of Hannah Gray. Hannah Gray is a first check venture capital fund investing in founders reimagining everyday experiences to improve work and life, which he co founded with Kate Beardsley, who also has been on the show she was on back in 2021. We focused this conversation of what are community driven brands, identity driven brands, and how brands are engaging with Web3. Without further ado, here's Jessica. Jessica, thank you so much for joining me. I know this was a long time coming. How are you doing?
- [01:28]
B
I'm good. I'm so excited to be here. I love the pod.
- [01:31]
A
What was that transition like though, since you came from corporate VC specializing in advertising technology startups and looking at innovation within advertising to starting Hannah Gray with Kate?
- [01:45]
B
Yeah, and so Hannah Gray, we're a first check fund that's really investing in very customer centric founders reimagining everyday experiences to improve work and life. So we're more of a generalist fund as opposed to more of a sector specific fund that I was at my corporate vc. I could not have a better partner than Kate. We've known each other for seven years. This is she's been investing since 2009 and so her acumen as an investor is just exceptional and that's made my transition a lot easier in terms of just picking up a lot of the things that I didn't have to do at a corporate VC that we now do at an institutionally backed fund. So the transition I would say was just a lot easier just because I have a phenomenal partner. But the way we think about it also is one of Kate's best party treks, which I like to say is a party trek. She formerly was a founding member at LYRA Hippo and then was founding partner of Galvanized Ventures. So she's seen hundreds and hundreds of investments, over 200. And so I joke, her party trick is like, name the sector, name the category. And she's probably worked with six or seven different companies in that space and can be really helpful to founders thinking through business challenges or what worked or what didn't work. And so taking that investor acumen and that range of experience, coupled with my background, which is really around marketing and commercialization and branding, and it just really becomes a one plus one equals three. And so when we think about the value that we can add to founders and how we work with them and their businesses, it's just become a really nice complimentary transition for, for me and for us as a firm that we're building.
- [03:20]
A
I have to ask, why did you end up naming your firm Hannah Gray?
- [03:24]
B
Oh, I'm so glad you asked. So obviously we, we are, we're brand people at heart. Kate actually started her career working for Martha Stewart and so living in her brain and really absorbing all of that. And obviously coupled with my background, we wanted to create a firm and a brand that was really differentiated and recognize that human connection and that human relationship we have with our founders. So Hannah Gray is named after our daughters. They're four years old, six months apart. My daughter is Raya. Hannah Kate's daughter is Gunnison Gray. And so there's, there's a lot of different dimensions to our brand name. We invest in all founders. We are not a gender specific fund, but we recognize that we're role models not just to our girls, but to people everywhere, that you can have a great career and balance a family. And that just needs to be celebrated as the new normal. And so couple that with the fact that, you know, as fund managers, we're here to create generational wealth not just for ourselves and for our founders, but also for their employees and for our investors. And so when we think about it through the lens of venture being a very human business, you know, and having that empathy, we have founders that have gotten married, founders that have had a baby, founders that have gotten divorced, founders that have lost a parent. And so it's also just a testament to that really deep connection that you have with your investors and with your founders, because these are long standing relationships and we like to say, think that we're a partner with our founders throughout that entire journey.
- [04:52]
A
Where's the opportunity within consumer brands today? What are some of the trends that you're paying close attention to?
- [04:57]
B
Yeah, so there's a couple trends that we're really excited about. The first is really centered around the, the creator economy. And you know a lot of that is that we're, we're in the middle of the great resignation, right? I mean for the past few months 4 billion people have been quitting their jobs. And if you think like that is, that is huge. That is like the population of north and South Dakota, Alaska, Vermont, Wyoming and District of Columbia combined. That was kind of a crazy stat that we saw. But the reason we think that this is so interesting is that we've seen this progression working with influencers since the early days of 2012 and we've seen this maturity from influencers into creators. Whereas it started as really renting your newsfeed brands asking you to create content with them to basically take advantage of their audience to promote certain products to then influencers getting smarter and asking to do more affiliate relationships as opposed to just selling other people's products to now particularly with seeing Gen Z come of age and ownership being so important and Gen Z consumers just wanting that authenticity that now we're seeing the creators become the brands. And so where we really think there is going to be this next phase of challenger brands is the movement that We've been calling C2C Creator to community commerce. And so what we mean by that is that those creator led brands, they have all the recipes that they need, right? They have a feedback loop with their audience, they already have a mass audience, they connect with them authentically, they speak to them directly. And so thinking about different infrastructure and tools that are powering business operations for these creators we think are really interesting. We're already starting to see some of these emerge. Things like Chamberlain Coffee and wake hard and social tourists, Ani Energy just to name a few. And so when we think about the next wave of consumer brands, we really believe it's going to be grounded in this C2C movement because it also doesn't need to be mass products. I mean I love Kevin Kelly wrote a piece around the 1000 true fans which I know is referenced a lot but we do believe that we're going to see a lot of these more bespoke type products but it also doesn't need to literally be products. I mean the future of consumer is also it's anything that is really competing for consumers attention or their wallet. So it's not just going to be creator led products and services but also media and entertainment companies. As we kind of start to see some of these incumbent media companies start to unravel too. So I would say that is one trend in particular that we're just really curious to see how it evolves is because this coming of age audience of Gen Z, which now is starting to have their own purchase decisions, their own brand affinities, they want to be spoken to differently and that category advocacy just isn't there. So I'd say that's kind of the first trend that we're really excited about. The second trend is really coming from. We did a whole deep dive around looking at the history of challenger brands over the past decade. And what we really recognize is that these challenger brands really emerge from this perfect storm between experience innovation coupled with emotional drivers that had this macro forcing function on top of it. The way that we started to sketch out this framework is when we look back around the first DTC movement direct to consumer movement, it was really centered around this experience innovation of cutting out the middleman, selling directly, removing that price boat with the emotional drivers around cost savings and this kind of human nature of wanting to help people, right? Like this is the era of buy one, get one, these like purpose driven brands. And you know, the forcing function for that was around the financial crisis of 2009. And so that really spawned this first wave of challenger brands of Warby, Parker and Casper and things like that. And so if we just put a pinhole in that moment of history and then fast forward to the next one around digitally native vertical brands and where those were, this was an experience innovation really grounded in digital first brands that were very community driven. And so they were playing on these emotional drivers of consumers that were really around female empowerment and around confidence and around sustainability. And so if we think about what was really happening from a cultural standpoint in that moment in time, like this is when Trump just won the election. This is like the Me Too movement. This is when the climate strike was happening. And so that era really brought us brands like Billie who, you know that that body hair campaign that they did was, was really progressive and like it just stopped a lot of people in their tracks. Obviously Billy is a phenomenal company. Kate was actually one of their first investors. But then also companies like Lively that really took down Victoria's Secret in terms of women's empowerment, around wild hearts and boss brains and talking about their busty bralettes. And so that really kind of defined that moment around consumer brands. And so if we think about like where we are now, there's a lot of shit happening in terms of just where we are as a society. And so when we started to peel the layers back around just the experience, innovation. It is around a lot of new ways to purchase that are more convenient. You know, it's new channels through social, it's dark stores around distribution. And it's really around this like very destigmatized, unfiltered brand voice. And that's sparking this, these emotional drivers of consumers that just like want to be seen. Like we're dealing with so much trauma and isolation coming out of this obvious forcing function of COVID that consumers just want to be given permission to be themselves and to have this sense of relief. And so products that are speaking to consumers in this very nonjudgmental way is just really interesting. So we're really excited about these products that are removing shame of people that might have been embarrassed to consume them beforehand. So this is thinking about personal care, this is maybe thinking about mental health products, maybe boldness or like men's health issues, things like that. And so we, we recently invested in a company called August, which is really redefining period care for Gen Z. And this is just a phenomenal team that me as a millennial is like a little uncomfortable with some of the stuff they're they're doing. But Gen Z is just eating it up. I mean the founder Nadia is incredible when before launch she had a TikTok following of about 6,6000 followers. Now she has over 600,000. And the brand started out with around 2000 before launch. They launched about three months ago. Now they have close to 40,000 followers. And it's because their brand voice is so radically inclusive, they purposely speak about it as menstruators, not as feminine products. And it's because it recognizes that 1 in 6 gen Zers are LGBTQ. More than half of them don't conform with gender norms. And so it's, it's recognizing that inclusivity, that there are non binary, there are trans people that also menstruate. And so speaking to them authentically and weaving that into their imagery, coupled with the fact that all their products are biodegradable, it's a carbon neutral supply chain, it's plastic free. It's taking a category that has a high LTV that has no category advocacy and reimagining and redefining that experience, that half the population has to create a brand that that is historically been really rooted in embarrassment and shame and instead celebrating it. So we're really excited about this trend around brands that just remove that barrier and speak to consumers differently about these everyday products and services.
- [13:07]
A
I know as well another one of your, your interest areas. I know that we all, we alluded to it because it's certainly very important to the creator economy and part of the creator economy, but there's a lot of chatter about, you know, NFTs, the metaverse, and a lot of excitement over different aspects to it. How important are NFTs? What's your perspective on NFTs in the long run?
- [13:28]
B
Yeah, so the growth has, has just been insane. I just think I just read that they did over 10 billion in sales in third quarter, up from like around a billion in Q2. And so for anybody that might not be as familiar with NFTs, it's also just important to recognize that it's, it's non fungible tokens but it's a little bit of a catch all umbrella phrase right now because there's profile pick NFTs, there's generative art, there's collectibles, there's digital fashion, there's virtual land, there's play to earn. So there's, there's just a lot of these different subcategories to be mindful of now. But if we want to kind of specifically look at profile pick NFTs, these could also become challenger brands around status symbols, which I think is just fascinating. So I think one of the most important things to recognize for purposes of consumer marketing is that NFTs are not JPEGs in theory. Like they kind of are, but they're, they're the new membership cards. They're a gateway into these exclusive limited supply communities. And so when you are purchasing an nft, it is providing you access into not just a new community that can give you a sense of belonging, but also a new sense of creative expression and a new virtual identity. And so what I just find so fascinating is like so Bored Ape Yacht Club is kind of one of the blue chip NFTs everybody's talking about right now. That's going for 30 ETH 30 Ethereum. And so just for context, with what Ethereum costs Today, that's around 120eth thousand dollars for this quote unquote JPEG. Like that's more than a Rolex, that's more than your fancy car, that's more than a Chevennel bag or a Birkin bag. And like you see these use cases of people getting bored Apia Club tattoos, which is just the gold standard for brands. And so if I'm one of these luxury brands that is grounded in status, I would really be thinking about what are going to be these new Communities that are going to capture the attention of my consumer. And so when you, when you think about what makes a person want to tattoo a brand on them, right? Like if we think about the psychology behind why somebody would do that and it usually comes down to a few things, right? Like it's usually they have this like fanatic obsession with the association or with that membership community. You know, obviously like a super extreme example is like people tattooing their gang signs. Like, that's a terrible example. But like you, you get the point that it's like you tattoo something because you want the association. That brand reflects an experience that you want to emulate. So you see people tattooing like the Playboy bunny or like the Harley Davidson logo, and it's like those brands like encompass an experience that you as a consumer want to have. Or it might be just like a meaningful personal connection with the values or the ideals of that company. Like you look at Apple, you look at Nike, like these are iconic brands that like consumers really identify with. And so NFTs and something like the Bored Yacht Clubs or Cool Cats or whatever it might be, it creates this sense of identity and self expression instead of status and FOMO that are really resonating with people. And so every NFT community has its own flavor, its own subculture, its own tone, its own utility. But what's so interesting is that like we're starting to see more of the utility coming from these communities and these NFTs. And you know, that could be, that could be airdrops, that could be whitelist to other drops, that could be access to exclusive content, that could be governance tokens. If it's a dao, it could be commercial rights to do whatever you want with your NFTs, if you want to create a comic, have a T shirt shop, whatever. But it just, it elevates the community and it elevates the brand. And so that's why I think from a, from a brand perspective, NFTs in particular are just a really fascinating space to watch right now because crypto is just like, it sits at the intersection of like an investment asset class, but then it's also a technology and it's a culture. And NFTs really just like embody all of that in one Persona.
- [18:04]
A
So have you seen some interesting, like consumer brands, partnerships with NFT communities?
- [18:09]
B
Yeah, I mean, we're starting to see a few of them. So Arizona is Tea did something with Bored Ape Yacht Club. Dolce and Gabbana just did an NFT drop. Time magazine just did their first NFT Drop. And I think it's really fascinating to start to see some of these incumbent brands work to play and experiment and learn in web 3. We're in the really early innings of it. And I think in particular, these brands that are not native to web3 just really have a ways to go to learn how to connect authentically with within those new environments. And so when we think about kind of some of these behavior changes and these like, lasting behavior changes as it relates to these technology paradigm shifts that we see, and we really believe that we're in right now, like, we believe this is really a generational shift, it usually follows a similar pattern. And so first, it usually will delight the consumer, and it'll be like, you can do something new, and that's cool. So Obviously in Web 1.0, it was, I can send an email really fast. I can find information really fast. And then in web 2.0, it was more with social media, I can connect with my friends and see what they're doing really fast. So I think that brands are trying to figure out what is that authentic way to delight their fans and delight their community in Web three now. And I don't know if they've really figured that out yet. But then once we kind of move along that path, it more so becomes how do you start to create value for that consumer? And I think that that's partially where VR could have fallen short is that I think it had that delight component as kind of that first phase of a behavior shift, but it was falling short around, like, the utility. And really, like, what problem is this solving? And so if we look at the value creation of web1 and web 2.0, the value creation clearly started to be there as the App Store was exploding. You could get your groceries delivered. You could connect with all of your friends around the world really quickly. You know, you can call an Uber like that utility. And that value creation was there. And then to really make it lasting is how does that utility become like an addiction? And how does that become essential to your way of life? Like, you can't imagine life without it right now. And so From a web 3.0 and a metaverse and an NFT space, like, I believe that we're in those very early innings around delighting customers and delighting consumers around this. And we're starting to see some early examples of utility and a lot of promises of utility, which is exciting, but we still obviously have a ways to go around how do we get to that addiction to make this a way of life for consumers? In the coming decades. But I completely commend the brands, some of the incumbent brands, like I said, Arizona, Time Magazine, Dolce and Capacity, that are, that are starting to learn and experiment because you have to future proof your business like that's what this is all about. And particularly as we see the rise of social tokens with creators and things like that, they are challenging the norm in traditional institutions in a way we've never seen before. And so it is important that all brands just start to learn and experiment with these new technology environments.
- [21:24]
A
Yeah, no, I mean, that's a great point. And I think that it's true when there is like a new paradigm shift, you know, as a brand you need to adapt. And it's true that you might get it wrong. Right. But at the same time, it's so early with Web 3.0 that I think everyone's just kind of learning, right?
- [21:40]
B
Yeah, absolutely. And I think the other thing that's really fascinating that we're going to see with web 3.0 is just like we're really curious about not just the future of work, but specifically the future of virtual workers in this environment. And that's also something not just brands, but companies in general, obviously, as they're looking to fulfill talent, needs to be mindful of. And so again, just when you decouple income from traditional institutions, like what does that look like? So of course you can generate income from an NFT drop or play to earn. Games like Zed Run or Axie Infinity are obviously just like booming right now. But we also think it's really interesting around how is the consumer behavior of the sharing economy going to translate? And in the Metaverse, in the virtual world, you know, is there going to be an Airbnb of the virtual world or a Rent the Runway? Like, I don't know, I feel like I just have this long list of questions of are people going to rent out their sweet digital property for events? Are people going to rent out their awesome limited edition sneakers to somebody? Are they going to loan out their limited supply generative art into somebody else's? Like, how can that be another way to earn income? Which again just ties back to the creator economy. And thinking about how is going to look in the coming decade. And we're just, we're in such early innings here that I just think it's fascinating as brands not only think about their, their workforce, but also what does that mean in terms of who are going to be the, the new brands that are going to just thrive in this coming decade?
- [23:15]
A
What's one thing that you would change, do you think about venture capital currently?
- [23:19]
B
I think there's always a lot you can, you can change. I think venture capital as an industry started out really as a cottage industry and it's expanded to be much more inclusive. So I would say we're getting there on the diversity side. But you know, we have to just continue to push the envelope around changing the composition of who controls the capital and really just making sure we have more women, people of color and minorities in those decision making roles because we just, we want to be investing in products and services and markets. Opportunities are reflective of the broader population. And so I don't know, I feel like that's a cop out answer. But given that I co founded Women in vc, I just, I always believe that venture capital can, can improve on that side.
- [24:06]
A
So what's one piece of advice that you have for entrepreneurs?
- [24:09]
B
This is going to be a, I feel like a Moment in Time podcast, but I would say be really thoughtful about where you take capital from and how much capital you take and what valuation you take it at. We're in a really unprecedented market right now with valuations just being often disconnected from reality in terms of the progress of the business. And so something that we talk to founders about a lot is just how do you not only set yourself up for success with this round, but for your next round in 12 to 24 months and recognizing that whatever valuation you put on your business is not just for today and to grow into, but you're going to be expected to 2 to 4x that. So just because you might be able to get a really high valuation now doesn't mean that that's right for your business in the long run. We saw this Movie before in 2014, 2015 with really high valuations and a lot of those founders really stumbled in the coming years because they couldn't raise additional capital or they couldn't grow into that valuation. So I think that's just always something to be really mindful of. And of course, just make sure you have great founder product fit and that it's really something that you care about the customer, not just about the market, but you care about the customer to solve their problems.
- [25:28]
A
Jessica, this has been so much fun. Thank you so much for your time.
- [25:31]
B
Yeah, thank you so much for having me. Appreciate you having me on the show.
- [25:36]
A
And there you have it. I hope you enjoyed this highlight episode. If you enjoyed this episode, I'd love it if you'd write a review on the Apple podcast. You're also welcome to follow me your host, Mike on Twitter ikegelb and also follow for episode announcements at ConsumerVC. Thanks for listening everyone.
- [25:58]
B
Sam.