🎧🍌 The Story of Forerunner Ventures, with Kirsten Green (Founder and Managing Partner)
🎧🍌 The Story of Forerunner Ventures, with Kirsten Green (Founder and Managing Partner)
The future of consumer investing, being early in Faire and Dollar Shave Club, how she raised her first $5m fund, transitioning to intuitional LPs, and navigating her first investment that went to $0
Kirsten Green is the founder of Forerunner Ventures, a venture capital firm that focuses on understanding the mindset of the modern consumer. Kirsten started Forerunner in 2010, and was an early investor in companies like Faire, Chime, Warby Parker, Dollar Shave Club, Hims, Glossier, Jet, Bonobos, HotelTonight, and The Farmer’s Dog.
This episode takes us behind the scenes of Kirsten’s two decade journey building Forerunner from scratch. She talks about her biggest mistakes, wins, and lessons learned along the way.
She also answers 2024’s most burning question: is consumer investing dead?
Topics discussed: (click the timestamps to jump into the episode)
02:50 Doing market research at the mall
08:00 Her journey from public markets to venture
18:30 Lessons from her first investment that went to $0
28:51 How she raised her first $5m angel fund
31:11 Transitioning to a $41.7m institutional fund
43:20 Why she almost didn’t invest in Dollar Shave Club
51:05 How Forerunner thinks about fund size
57:05 How she led Faire’s Series A with a small fund
58:46 How Kirsten builds relationships with LPs
1:02:10 Is consumer investing dead?
1:15:00 Her unfair advantage as an investor
Find Kirsten on Twitter and LinkedIn
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Kirsten, how's it going?
Kirsten Green:
Good, Turner. Nice to see you.
Turner Novak:
Nice to see you too. I wanted to kick things off. So you started your career covering retail, investment banking. You used to go to the mall and observe. Why did you do that and how did that work?
Kirsten Green:
This was nearly the beginning of my career and I was fortunate to work with a bunch of people that had a lot of experience and credibility in the industry, and I was trying to figure out what do I add to this conversation as a newbie who was coming in just pencil, notebook in hand, ready to learn? And it occurred to me that the companies that we were covering were addressing consumers that in many places at the time were closer to my age than they were to some of the other people in the room. And I thought that I had an opportunity to go to the mall and have a perspective on what was going on in the retail stores that we were covering, that might be unique to the rest of my team. And maybe I could figure out a way to make that relevant or useful in our coverage.
Turner Novak:
What did you find?
Kirsten Green:
It was not because I loved hanging out at the mall.
Turner Novak:
Okay. What were some of your most interesting insights that you picked up on?
Kirsten Green:
It turned out to be, honestly one of the most productive things that I did as a research analyst. Both because I got observations while I was there, specifically that I could use and interpret in my own way, but also because it gave me a touch point to go back and have conversations with companies or customers.
I would go to the same four malls. This was either a weekly or a biweekly Friday exercise. Go to the same four malls, try to keep it consistent because you're trying to get a picture of how things are evolving over time, so if you go at the same time and generally you know whether the traffic is more or less, relative to what it was the same week before.
What I was looking for was how many cars are in the parking lot? How many people... The people that are in the mall, where are they? Are they in the food court? Are they in the stores? How many bags? Do they have bags? Do they not have bags? And specifically are the products in the stores, have they been handled and touched? Are the shelves messy or is everything perfect? All of these little points gave you a window into whether people were engaging with the product, turned on by the product, interested in what was being sold, actually buying stuff. And then there was the exercise of counting discounts.
Turner Novak:
Was that a big deal?
Kirsten Green:
It was a big deal.
Turner Novak:
Really? How did discounting work back when the malls...
Kirsten Green:
Back in whatever age it was-
Turner Novak:
Did you get a coupon, or...
Kirsten Green:
No, the product had price tags that had markdowns on it, or you sat on a rounder that had X percent off or you were at a table with X percent off. So we're tracking, okay, one visit to the mall, a store would be set with new product. Then you'd go back a couple of weeks and you'd say like, "Oh, I can see that this product or that product's been sold through, this product hasn't moved." Then at some point you see things move to sale and you see like, wow, there's a lot of stuff on 25% markdown, or there's not so much because you had sell through at full price and that would give you an idea. None of it's perfect, right? It's all just fodder for consideration and for asking questions.
Turner Novak:
So if something was marked down, probably not a good thing. Versus if someone didn't have as many sales or less aggressive, they're...
Kirsten Green:
If they had had more full price sell through, they would have less stuff in the back of the store on some form of discount. And then you would judge the depth of the discount to know how much trouble were they having, moving the product.
Turner Novak:
Interesting, yeah. That's going to show up in the financials-
Kirsten Green:
It did show up.
Turner Novak:
... later, yeah.
Kirsten Green:
It did show up. And I think one of the things about covering retail stocks, it was actually a challenge because I think I always wanted to be an investor and have a more long-term focus, but because retail stocks, in particular public retail stocks at the time were covering monthly sales, it became a heavily traded group. On what was going on month to month as people would try to then infer, okay, the top line trend is this, what will the impact be on the quarterly results? And you got these windows into it.
But you can go to the mall throughout the course of the month and get a pretty good beat on what was happening with same store sales, which was the key metric they were reporting. Now it's one data point in one market, again, it was enough to have some insights and some material to work with that was unique.
Turner Novak:
Yeah, but it probably gave you something, like you said, to stand out.
Kirsten Green:
It did. Also, I was doing this at the time, it was shortly after Reg FD, which was the SEC regulation that basically limited information and limited who had access to management teams at what times. So people's edge for information had gone away in most respects, and so it was trying to figure out where could you find something unique. But I think what maybe is more relevant is it started my love for the investigative part of investing.
Turner Novak:
And then you said you always wanted to be an investor.
Kirsten Green:
Yeah.
Turner Novak:
You moved, still public markets, right?
Kirsten Green:
Yeah.
Turner Novak:
Got an investing role. How did that come about?
Kirsten Green:
I went from being a research analyst to being an investor, public markets side, and did that for a few years. I think, listen, at the time, there was a lot of things going on for me. I think it was 10 years into my career, I was really thinking about, wow, this has been a fast journey for the last decade. Do I want to be doing this for multiple decades? What do I like about this job? What have I learned about myself, my strengths, my weaknesses? What's going on in the market that I think is unique opportunities?
I really grew up at the time period where it was the proliferation of hedge funds. I think it's interesting in the context of the venture market and what we've been through the last 10 years too. We can get to that later. But I think all of that gave me some pause on whether or not my passions were being met with how investing was in the public markets. And ultimately I craved something that was more longer term focused, that had an element of relationship focused.
I liked the opportunity to be in front or ahead of things, and so I think I was drawn to those types of opportunities. And it was an unplanned, but evolved over time process where I went from exploring a move from public market investing to private investing. The most obvious thing was people know more at the time about the private equity industry, looking at the buyouts and then the growth equity, all the way down to venture. It was a journey to discover what venture was.
I think at that point I fell in love with the idea of sitting across the table from a founder and somebody who was all in on something they were passionate about, had a unique view of the world and had this ambition to build something that would be unique in the market and stand the test of time. That seemed to align with dreams I had as it related to investing.
Turner Novak:
And when you talk about trying to get in front of things or trying to invest proactively, finding things earlier, meeting a founder who's starting a company, that's as early as you can get. They are the ones that are really seeing how things are changing.
Kirsten Green:
That is as early as you can get. And I think for a lot of times it can be a dreamy experience to sit around the table and debate, like, "Why you think that? Why you think now? How do you think about the approach? What do you know about your user base? What do you know about your market?" It's all about the possibilities and I find that can be captivating.
Turner Novak:
Then how did you get your first job or insert whatever the move was, to start going a little bit earlier? How did that evolve?
Kirsten Green:
Literally, I'd been on this pretty intense work around the clock time period in my earliest days of my career, and I had to force myself to call a halt on it, and say that I'm not going to figure out what I want to be doing, even if it's related to this realm while, I'm working at this pace. I need to allow myself to take a step back and explore a little bit. I didn't need to do this, but I justified it to myself as I didn't go to business school and I thought I was going to go to business school. So I was like, I'm going to give myself this break. I'm going to call it my own business school, so to speak, and get out there and really kick the tires and learn about what other ways there are to be an investor.
That was a journey that I started. I think it was very uncomfortable for me at that time to not have a job. So I had to make a pact with myself to take the time to really prioritize this learning journey and not take a job. That was hard but it got easier over time as I got more comfortable with meeting people, with identifying more with ideas than I was with working at a particular firm. And liking the process of learning, of being out there and having opportunity to ask somebody about their job and what they liked about their job, and where they saw the opportunities.
A lot of those conversations over time turned into consulting work, which gave me a chance to be around the table in some of those different types of situations, and get a window into what does a buyout firm, what conversation are they having around a table about a deal? And what does a growth firm look at, et cetera? I think all of that, again led me to early stage founders and really falling in love with that space, and then deciding that I wanted to pursue something there. And I think that that was meeting a founder that had a business that I felt like aligned with where I thought an opportunity, going forward, would exist. And then I had to make that work on my own because there wasn't a place to go do that.
Turner Novak:
Really? Did you try to get a job somewhere?
Kirsten Green:
No, I mean, I don't know. That's actually because in some ways I was maybe always trying to get a job, but I never went to a recruiter and I never went to an interviewing process. But I certainly was open for business. I didn't have dreams originally to be an entrepreneur of my own, I was more interested in partnering to support entrepreneurs. But at some point I got enough conviction of the kinds of things I wanted to invest in and the role I wanted to play, and what I thought I could offer to help, that I just felt eager to do it. And the way to do it was to make it happen myself.
Turner Novak:
Interesting. One of my friends, Nicole Wishoff, prior guest of the show, I told her I was going to talk to you and her question was, "What made you do it?" The decision to go for it?
Kirsten Green:
I think there were really two time periods where that was. It was this first investment that we were talking about, which then led to this time period where I did a bunch of separate investments, like I guess raising SPVs to make the investments. And then there was the time where it was like, okay, start Forerunner. So the first one was really organic in the path of project work, diligence work, turning into a company that I really liked, a company that I thought had some potential. A founder didn't know where to start raising money, and not that I necessarily did, but I was like, I'm not afraid of trying, so I will come and help and be a thought partner in business strategy and thinking about the model and what's possible, and let me see if I can bring some investor money to bear.
And I really went back to all the people that I worked with in my first work journey. I think those people probably thought that I was a diligent, hard worker, really trying to make something happen, and invested because of that more than they did, maybe because of the company. But it was that organic process that got it started. And once you did one, then it was like, this is an interesting way to be engaged, and so I did six or seven of those.
Turner Novak:
Yeah, it's one of those things where it seems intimidating. It's maybe hard. But then once you do it, you're like, "Oh, maybe it wasn't that hard. Maybe I could do it again." The next one's probably easier too, so maybe you had a little bit of momentum?
Kirsten Green:
I think all of life is a series of ups and downs. Nothing is a straight line, nothing is hard, and then all of a sudden easy and starts to become easier. There definitely was some momentum that I was fueling to get the first one off the ground. I think that lent itself to the second one. By the third one, I didn't have any more contacts to go to for 10, 15, $25,000 checks, so then it was a whole 'nother level of like, okay, what does it take to go outside of my immediate circle and start talking to investors about a business?
Turner Novak:
How did you do that?
Kirsten Green:
It became about the business that I was sponsoring an investment in, and not about me.
Turner Novak:
So initially it was like, "I'm Kirsten. You've known me for 10 years."
Kirsten Green:
"You know how much heart and soul and everything I'm going to put into trying to make this a great investment for you." And I think that was a primary... I certainly don't want to say it was the only factor. They asked a lot of questions about the business too, but I think it was a driver of it. I think the second one, similarly, these were both beauty product companies, it was similarly like another product in the space. I had some experience, that made sense.
The leap from there was just like, okay, now I've got to go outside my immediate network to try to get people excited about the business and solely the economic opportunity that they were signing up for. And I think, listen, I guess I look back on that time period and I look back on all the journeys or the chapters of Forerunner that hopefully are still very much in the process of being written, and I like the new challenge. I think it made it exciting. I think it's exciting to always have something that you're stretching for.
To me, being able to leverage where you've been with a push for where you want to go, is great tension to operate in. And I got way out of my comfort zone because when I started this whole thing, I was a shy person, unlikely to be going out and fundraising. And I had to build confidence into going outside of my own network to ask for money, and to really own that this was about making money and I wanted to make money. I mean, I think getting comfortable saying that, "We're here to make money, we're here to be capitalists. We're here to... Yes, we want to build a good business. Yes, we want to have jobs and great products in the market and everything, but ultimately we are here to drive top returns." That is...
Turner Novak:
Sometimes it's just a different way of thinking.
Kirsten Green:
It's a different way of thinking and just owning it and saying it and feeling great about that, as opposed to feeling like somehow I'm being greedy for wanting to make money. I think there's various stages of hurdles of getting through things. Anyways, I moved outside of my own circle into a broader circle, and continued to meet new people along the way and unlock new relationships.
Turner Novak:
How did you go about doing that, because that was... One advice I've gotten is when someone invests, you ask them to introduce you to two other people, or something like that. Is that a good way of thinking about it?
Kirsten Green:
I think that is a good way of doing it. I mean, I think that that process and probably any process does involve a lot of conversations and a lot of nos. And I think getting comfortable or getting okay with hearing no, it's a requirement. Nos come before yeses. Declines to RSVPs come before yes. So I think that people don't like to say no, but I think that when you're talking about money, it's harder to give people money early on, and so you've got to get comfortable with that.
Turner Novak:
What year was this? Was this 2006 to 2008-ish?
Kirsten Green:
Yeah. Yeah, good.
Turner Novak:
Okay. And you mentioned something before. One of those SPVs, 2008, didn't end well. And I believe your quote that I listened or heard or read, you said you thought Forerunner was done, and I guess technically it was just barely getting started. What happened?
Kirsten Green:
Yeah, that's true. In this chapter of individual SPVs, there were seven companies I invested in, and it was a real representation and mixed bag of what outcomes can look like. And it supports the theory that to do early stage investing, you really need a portfolio approach. Remember, each of these had individual investor groups, which carried an extra whole level of stress with it.
But with each company there was maybe some bigger ambition, some bigger complexity to the business, some more innovation, some more capital. So they got more ambitious in time, and I think had as much to do with, again, my desire to keep learning and keep pushing, as anything. When I first met this company that you're referring to, I was wowed completely by the experience of the executive team that had come together, and just at the time, the audacious vision for what they had, as far as you can get as audacious in retail. It was still a branded product company, and it was a new retail model at the time.
These people had hailed from big companies. They'd had incredible careers, they'd had C-suite jobs and incredible access to all the manufacturing partners that they were going to need to bring these products to life, and throughout the industry with respect to getting real estate, and all the things to put the business together. They really had, we're going to have our own product line, our own manufacturing lineup. Seven stores. Hit the ground running. Build tech. This was before there was something as easy to work with as Shopify, you had to build your own website from scratch, so it was a lot of effort on all these fronts.
Turner Novak:
And they had this all-
Kirsten Green:
They had all of those contacts and experience, but inside of big companies that they were looking to now harness in the context of this new startup. They were innovating on the product, they were innovating on the supply chain, they were innovating on the retail model, and they were honestly innovating at the time on even the e-commerce angle.
Turner Novak:
Interesting.
Kirsten Green:
Yeah, so it was a lot of big swings at once, which is what-
Turner Novak:
And they let you invest as a-
Kirsten Green:
Which is what made it so exciting.
Turner Novak:
As somebody who's just getting started, that's pretty impressive.
Kirsten Green:
Yes, I bet there was some element of there wasn't somebody else, maybe that had experience, that was willing to take a bet on something as fraught with challenges that they were going after. And then I'd like to think that I had spent a lot of time working my way through different sectors and through industries, and this was in a space that was touching on the different verticals that I had covered for 10 years back.
So I had some credibility in that category in particular, and I had some good contacts that I think could vouch for me. And now I'd had some experience from a couple of other startups that I could lean on when I thought about being a voice of support or questioning in the boardroom. It was a significant financial raise too, so I had institutional investors that I had worked for in the context of my public market days that were now doing privates, that were part of the capital that I was bringing. They'd also raised a good amount of money outside of me too. There wasn't another firm or whatever, but there was definitely experienced people who were institutionally minded about building the business, involved.
Anyways, it was a exciting business. They were named as one of Time's 10 most innovative companies of the year. There was a picture of the whole team on the front page. Things had been going really well with respect to following the plan that they had set out to launch. And then 2008 happened and they got really caught off guard, like many companies did at the time, where their capital plans and the way that they had planned to continue building their business, got disrupted by big changes in the financial market.
I remember it was the eve of this second tranche of funding that was due to come in, when Bear Stearns collapsed. And we needed to go out immediately on the heels of that and try to get another new funder to come in because the money that we had secured had hedge fund ties and their market had completely changed overnight.
Turner Novak:
I mean, parallels to 2022.
Kirsten Green:
A lot of parallels to 2022. Which I think actually, let's make this story relevant today because it's highly relevant to today. Which I think one of the big things that I learned through that experience was how important it is for a startup to be nimble. It's certainly one of your biggest advantages as a startup, is to be nimble. And if you give that away, you're adding risk on risk. So I think really knowing what the levers are in your business, having enough traction on revenue before you build infrastructure, having enough understanding of your unit economics before you hit the button on growth, particularly when some of that growth is in the form of long-term commitments for inventory, for leases, et cetera. You've taken your ability to be nimble out of the equation, and then you're at the mercy of the capital markets, and they can change.
That was definitely the moment this company caught in. I still think that they could've made a series of decisions to change the course, but the big company mindset still ruled the day, and going back to being scrappy and going to the lean team... The journey that so many founders went through from '21 to '22, in whipsaw fashion, where we went from a lot of money being relatively easy to raise, a lot of companies, really growth ruled the day for any priorities.
People were leaning into team building, leaning into setting up structure ahead of the business scale, and needing to make a quick pivot from that. Fortunately, I think that many founders made great decisions over the last year and a half or two years, towards that. But in this case, back then, that was not the course they went on. And it was the same week that they were on the front of Time magazine that they also had to decide to close the company.
And the first call I ever got from a reporter was from CNBC because this company was a big deal, I have no idea how they got to me. But anyways, to talk about how this company went away overnight. All of this was upsetting and scary on so many levels, and particularly in the moment and in the time period afterwards. I think as I got further and further away from it, I recognized how many lessons there were that I learned from that. And how much growth and even sophistication that I gained in that short period of time, that I think I've been able to leverage in super meaningful ways. Even as recent as last year when we went through this upheaval in the financial markets.
Turner Novak:
Yeah, I mean, I can't even imagine, you'd spent quite a bit of time learning all these skills, working for someone else, finally started your own thing. You put your name on the door and then it's like, "Shit." That's got to be probably one of the most difficult times.
Kirsten Green:
It was so difficult. I certainly hadn't formalized Forerunner in the way it was today. It was me. I had a business card, I needed a name. I called it Forerunner because I was trying to be ahead of trends and in front of things.
Turner Novak:
That's the reason?
Kirsten Green:
Yeah.
Turner Novak:
Interesting, okay.
Kirsten Green:
And I definitely felt the pressure and the worry that it was over before it started. Literally before it started. And I think that I can still remember almost as clear as day a conversation that had high impact for me, was with an investor who had had a lot of experience, had seen a lot of things. He asked me a lot of questions about the experience, probing questions, questions that I, in reflecting back on, it was a lot of like, did I learn the lessons, right?
He said after that meeting, "Good for you. It was expensive. No one likes to learn lessons that way, but you learned a lot. And the next thing you have to invest in, I will seriously consider investing." I think that was just the thing I needed to be able to put it in context and appreciate that I could figure out how to use this as an inflection point for the good and not be crushed by it. But it was a lot of mental gymnastics to get there, to be really honest with you.
Turner Novak:
Yeah. Well, I'm sure people listening who were investing in '20, '21, '22, SPVs were fairly common. And guarantee if you did at least four or five, you probably had at least one during the last couple of years that didn't go well. So probably a lot of parallels for people to think through right now. How did you then navigate that time period to then you raise your first institutional fund? What was that like?
Kirsten Green:
In between that time period and going to raise my first fund, I had my first child. Some of the other investments played out a little bit more, some successes, some failures. And I think what I really learned through that whole time period was how committed I was to investing at this stage, and how convicted I felt that there was a lot of opportunity.
And the opportunity, broadly speaking, was still 10, 12 years ago. Tech was definitely part of our business ecosystem and part of consumers, but it was still on a really high adoption rate, and a really steep trajectory of change. There's been a lot of new businesses and value created in the last decade, so imagine sitting here before that time period and seeing like, okay, there's Facebook started, there's a couple of big companies, but we're really just getting momentum. And I think the combination of both of those, so my own experience and then where the market was, just made me feel like it was the time to go for it.
Turner Novak:
Then how did you raise that first fund? I think I saw you had an anchor LP that you'd known for a while. Maybe I don't quite have the story straight, but how did that come about? How did you do it?
Kirsten Green:
Before I had an institutional fund, I had an angel fund. I had these SPVs that I did over a handful of years, that I had this, okay, this is what I want to do. I want to invest in these kind of companies. This is the kind of partner I want to be. Here's how I imagined setting up a portfolio. That lived in my mind as much as anything. I had somebody who had been very successful in his career as an investor that I'd known for 20 years, and over the years we had conversations about me coming and working for him, et cetera. And I think he was planning for another chapter in his business and mentioned to me what a great time it would be to get involved and start.
And I mentioned to him, "Actually, I've just really landed on what I want to do. And there's this opportunity in early stage investing. Consumer is really waking up to a whole new way of doing business. They're driving a lot of this trend alongside the innovation on the technology side, and I think there's a chance to invest in some game changer companies." And that conversation turned into a three hour discussion, which he then committed to being my first angel investor.
Turner Novak:
And you'd known him for 20 years.
Kirsten Green:
I had known him for 20 years.
Turner Novak:
So this wasn't a Zoom call-
Kirsten Green:
Then I went back and really put pen to paper and came up with a business plan, and came up with a portfolio model, and came up with what are the resources or things I'm going to need to try to be successful and commit to a set of goals? For myself as much as anything, right? Because I think at that point I was making the decision to go at it on my own path as opposed to throw my hat in the ring and hope somebody would take a chance on me and hire me, right? Because that was still maybe a possibility, and I hadn't explored that, really.
Turner Novak:
I'm glad you didn't. It is-
Kirsten Green:
This conversation had a lot of momentum and I had a lot of energy behind it. And fortunately, the plan that I laid out furthered my conviction and my investor's, Sandy's. So I had an angel fund that I invested over the course of a year and a half, at which point I was also thinking about the next stage. So knowing that this wasn't going to be the way that I was going to continue to grow the business, that I was going to need to leapfrog into the institutional market. So I could do some work while investing the angel fund, on what does the institutional market look like, and what do I need to look like to be appealing to them?
I think Turner, this was actually, in a lot of ways, it was how I'd been thinking for the last decade. I'd been taking every conversation and trying to turn it into what's the next opportunity after this conversation? I met with you today. It's great. I learned something, now I can go learn about X, Y, Z because I have a little bit of perspective, I can ask better questions over here. And I could take that to ask more questions. That led me to a consulting job, eventually led me to the conviction to invest in a company. Investing in a company broadened. Over time, I could feel more confident in understanding more dynamics about business to expand the purview of what I was investing in. So I think it's very much a stepping stone and is the opposite of overnight.
Turner Novak:
Yeah. So you are always thinking about the next step, but it's like 20 year journey. I mean, it's not something that happens immediately. You're in the moment, you're learning things, but you're always thinking about what comes next.
Kirsten Green:
And I think before I got comfortable with that, I was uncomfortable with that, if not frustrated with that. But if I hadn't allowed myself to lean into that, I might've not ever learned how passionate or turned on I felt by early stage investing. I might've taken a job and things might've played out very differently. Maybe good, but I'm happy they played out this way. And I think that that same philosophy has really underpinned Forerunners' growth for the last decade too.
Turner Novak:
Just to level set, how big were the SPVs, and then how big was the angel fund?
Kirsten Green:
The first SPV was a million and a quarter.
Turner Novak:
Okay. It's a decent size. Do some damage with that.
Kirsten Green:
There's was a lot of hustling $25,000 checks, let me tell you.
Turner Novak:
It's like raising a pre-seed round today for a founder. Collect all the checks.
Kirsten Green:
Exactly, exactly. And one of them was 10 million.
Turner Novak:
Oh, wow, okay. And then the very first angel fund.
Kirsten Green:
Oh, the very first angel fund was five.
Turner Novak:
Okay. And big chunk was from the friend, mentor, partner that you'd known for a long time?
Kirsten Green:
Yes.
Turner Novak:
Okay. And then what was the composition like? Was it-
Kirsten Green:
Actually, I don't think I invested the whole five before I went out and raised the institutional fund. So I think ultimately ended up being a little bit over $3 million in that first fund.
Turner Novak:
Oh, so you did not call all of it. Oh, interesting. Okay.
Kirsten Green:
To me, it was a business building exercise. It was a proof of concept, and it was my first time really engaging with the venture ecosystem. Most all of this has happened outside of that. Even though I was living in San Francisco, San Francisco, it's always been a financially centered economy, also travel, but financially centered economy and startups. But back in the late nineties, early 2000s, there was an incredible boom in the public market of small cap, mid cap stocks. And those businesses were all different kinds of businesses, and a lot of the banking was happening here.
So I had been able to do these things that we talked about with a rich ecosystem around me that weren't deep ties into just tech. But now you got over to the venture side, which has been really rooted in technology, and there's all kinds of really qualified reasons for that, but that was out of network for me, largely. And so my job really was to understand this ecosystem, figure out could I be relevant in it? How to make myself relevant in it. And then was there a value prop that maybe I could build a team around, that was also relevant? Once I gained conviction in that, then it was an exercise in, okay, how do I go about fundraising? What should I fundraise? How should I go about fundraising?
Turner Novak:
How did you get into the ecosystem?
Kirsten Green:
A definite framework for working for me always has been fewer things better, quality versus quantity. And my fewer things better thing at the time period was I'm going to make these angel investments. I got to make some great angel investments. I got to work with great founders. I got to show up and be a good partner to these founders, and hopefully good founders know other good founders. And I started to build a deal flow wheel.
In addition to that, good founders would have other good investors around the table. That thesis played out, and in that first angel fund, I had a chance to meet a lot of people at firms that we know of, that are reputable, and start to build relationships. At the time, I was ambitious to do this, so I was intentional about doing that as well, knowing who else was around the table and how I could show up and contribute, and start building some relationships. And as much as anything it was to learn, I just wanted to learn too. I wanted to one, further confirm that I wanted to do this. Second, further confirm that I had a right to do this. And then it was about the how.
Turner Novak:
And then you raised... Was this 2010 that you did angel fund?
Kirsten Green:
Angel fund, 2010, and then the institutional fund was 2012.
Turner Novak:
Okay. And yeah, you said it was what, a year and a half?
Kirsten Green:
Yeah.
Turner Novak:
And you said you raised it before you were really done deploying. How did that go, raising it? How did you meet them, convince them? What did the conversations look like?
Kirsten Green:
Okay, so now, not to miss the context, I've been doing this in some way, albeit maybe a circuitous way, but I've been out there driving my own efforts to make things happen for almost a decade. So this has become a muscle of like, okay, I got to do it on my own. How do I figure out how to do it? And I always think that back in 2012, the market was different than today. There's plenty of similarities, but there were some differences. It was really, there had been an evolution of the venture market after 2008, and this idea of the lean startup had been a big topic in Silicon Valley. And there was a number of emerging managers that started before the crash on the lean startup, after the crash because the market was reorganizing.
So I always think the good news was there was a handful of people that had already done some version of what I envisioned doing. The bad news was it was still a handful of people, and those people were largely qualified or endorsed because they'd been part of Silicon Valley, so I still had to fight that tape. But there were some people to look up to, both in the firms they were building and in their path to fundraise, so I made every effort to get to know those people.
And fortunately, they were kind to me and told me their stories, how they'd started their businesses and what their approach to fundraising was, and offered suggestions on how I might think about fundraising. I left all of those conversations feeling inspired because nobody told me the same story. Everybody did it in a different way. Everybody did it in a different way and everybody had a bit of a different piece of advice to me. So what I concluded after all of that was I would just do it my way. Which is, I think if I had to describe myself other than an investor, it would be a student. I like the mosaic approach of learning. I think we apply that a lot as we think about what's going on with consumers as our north star in setting up our investment thesis.
I think about that in terms of how I thought and learned about venture to begin with. It was all these different people's experiences and stories that they told, the different experiences that I'd had along the way, added up at some point to make sense to me in the way that I decided to move forward. I couldn't have come up with this path myself. I came up with it after the benefit of all these conversations and learnings and experiences that I'd had, but at some point it becomes your own too. So this good news that there was an identified universe, there was also an identified universe of LPs.
So my thought was, if I'm going to do this, I'd like to build a team because I didn't want to do it alone. I really love sitting around the table and debating with people. I think that you get better with other people's challenges and inputs. And I think from public market days even, the power of portfolio diversification and diversified thinking was something that I was really interested in. So I wanted that in doing this. And with that in mind, I was like, I have to think about building a team or building a firm or something like that.
So I wanted institutional investors and I thought, I'm going to have to convince somebody to give me a shot as a new manager, and not as somebody who maybe came from the more likely path, or what they're used to seeing in venture. So at least I'll go to LPs that have already decided that they're willing to take risk on first time managers. Because at least that will be off the table. They're willing to do that. Now I just have to work on getting them to believe that my pitch is compelling.
Turner Novak:
Because that is a tight funnel.
Kirsten Green:
It's a tight-
Turner Novak:
Just somebody who invests in venture and then also new, emerging managers. That’s a small universe.
Kirsten Green:
So again, I call that good news, bad news. Bad news, it was a tight funnel, but good news was it was a shortlist that could be actioned against. And literally, I mean, I probably in my file have this list somewhere, but there was maybe 10 institutions on it. But also the other edit I had was, what's the "hardest" LP money to get? Because if I'm going to go do this and prove myself out, at least if I get that, then I can do dominoes on the other things.
Turner Novak:
Yeah, so what is the hardest?
Kirsten Green:
I don't know. I mean people can... You know?
Turner Novak:
What's your opinion?
Kirsten Green:
But at the time, I concluded that the hardest was endowments that had been entrenched in the VC business, in the VC industry since it had started. And I think their experience made them a receptive audience, but it also made them a hard audience because they had access and they had knowledge.
Turner Novak:
And they'd seen it all.
Kirsten Green:
They'd seen it all.
Turner Novak:
They know what good looks like and what not good looks like. And you convinced one, right?
Kirsten Green:
I did.
Turner Novak:
More than one, or was it really one big one?
Kirsten Green:
No, yeah, I had more than one.
Turner Novak:
Oh, more than one. Okay, so how did you do it?
Kirsten Green:
I think actually, if I think about this question, sincere answer is, is if I've convinced anybody of anything, I did it because I was working to convince myself of it too. So I knew that, okay, I'm going to set up something that has a process around it, that demonstrates being thoughtful. I want to make sure I'm challenging the rigor of my own investment criteria, diligence process, follow through, all of that. So even when I was doing my angel investments and I didn't necessarily need to, I was writing memos. And it was for my own conviction. If I could organize my thoughts on paper and I could read it back to myself, and I was like, "Yeah, I'll buy that." I felt better about what I was doing. That allowed me to start this initial institutional fundraise process with-
Turner Novak:
Materials, kind of.
Kirsten Green:
... 20 investment memos. So I put up a diligence room and I put up a PowerPoint presentation on here's my thesis, here's where I see the market going. Here's why I'm credible in this space. Here are the investments I've made. If I am fortunate enough to have enough assets under management, I can start to build a team. Here's the kind of people I want to hire.
It was probably overkill, but it was work that I had been doing, and it was work that I could do, and at least it could showcase that I was really committed in a way that I was being this thoughtful about it. And I think that resonated. I didn't come in there with a flash in the pan story or thinking that I was ultimately backable. I mean, I believed I was backable because I know I was responsible and really dedicated to doing it, but I wanted to try and make the decision as easy as I could for people.
Turner Novak:
Well, I think you did one thing that made it easy. I heard that while you were raising the fund, very first investment that you made was Dollar Shave Club, which was a good investment, if I'm remembering right.
Kirsten Green:
I'm not entirely sure it made my fundraise easier though.
Turner Novak:
Really?
Kirsten Green:
Because since you brought up Dollar Shave Club, I have to give credit to that investment and to that founder, Michael Dubin, who did such an exceptional job building a business that I think everybody was interested enough in to give him angel checks, but nobody wanted to give him an institutional check.
Turner Novak:
Really?
Kirsten Green:
I think it was with good reason. You're going to go after razors. It's a commodity product. You're going to compete with the biggest conglomerates on the globe who have huge marketing budgets, huge reach and resources in all shapes and forms.
Turner Novak:
And it's men's personal care.
Kirsten Green:
And it's men's.
Turner Novak:
And they don't buy this stuff.
Kirsten Green:
It's men's online, and your video is rocking, but maybe that's one thing you've got, I don't know.
Turner Novak:
Well, you hadn't even seen the video. That's what heard.
Kirsten Green:
I hadn't seen the video. I hadn't seen the video, but I did have a really super first conversation with Michael. Somebody had actually loosely pitched me the deal or told me about the deal, and I was like, "No." For all the reasons I just told you, it's all hard. All startups are hard. This is why I don't need to do this one right now. And then, I don't know if it was two or three days later, I met Michael and he was like, "Wait, I know your name. You're the one that didn't want to meet me for my deal."
And from my perspective, all you needed to do was spend half an hour with Michael and decide that he was someone you wanted to be in business with. That he was the real deal. He didn't change the dynamics of the challenges that I just pitched to you, but if anybody could break through those, work around them, challenge them, I believed he could. And that is exactly why startup investing is so exciting and fun. That is always the truth. That is always the truth.
It is so easy to out diligence yourself out of every single opportunity, but at some point, some part of the process, the founder that, I don't know, compels you in a way where you're like, we're going to go for it and hopefully it's going to work, but it's going to be very different than we think it is today, and so we've got to be nimble and we've got to execute and change to meet the moment. I think that's when you're really trying to understand who this person is that is taking on this ambition and this challenge. And I knew that Michael was the real deal, so I felt really lucky that he was willing to take me along with Aileen Lee, as co-lead investors in his seed round. But I then had to answer for that because LPs were like-
Turner Novak:
"What is this?"
Kirsten Green:
"What is this?"
Turner Novak:
That's what they said. What did you say? How did you answer that question?
Kirsten Green:
I said all these things I'm saying to you. And I think that probably everybody could have continued to debate the merits of it with me. But I think that what it showcased is a thought process that I had around something, criteria that I was putting through, an openness to recognizing what the challenges were. Not being totally turned off from those challenges, but hopefully practically thinking about how we could rise to the moment against those. And then having the conviction to go for it on something. So I do ultimately think that it was a positive lever in a fundraise, but not in the easy way.
Turner Novak:
Yeah, it probably gave you a case study of this is a Forerunner investment. All the things you just described, and we did it. We had an opinion or we were compelled before anyone else. And then it's like a body of work.
Kirsten Green:
And I think, you know what? It's been 12 years. You have to do that every day, all the time.
Turner Novak:
Yeah, that's fair. How did that one go? Are you allowed to say numbers on that investment, on the Dollar Shave Club?
Kirsten Green:
On Dollar Shave Club?
Turner Novak:
Yeah.
Kirsten Green:
Well, it was a $4 million, maybe a four and a half million dollar pre-money valuation that exited one month over four years later for a billion dollars of cash.
Turner Novak:
Okay.
Kirsten Green:
So it was okay.
Turner Novak:
Yeah. So how much of that company did you own?
Kirsten Green:
Oh goodness. Turner, you want me to start doing math? Not enough.
Turner Novak:
So if you would've had a bigger fund, could you have probably written a bigger check?
Kirsten Green:
Well, so I didn't have a fund.
Turner Novak:
Oh, that's true, it was-
Kirsten Green:
I hadn't raised the fund. I went to Sandy and I was like, "I need a loan to make this investment."
Turner Novak:
So did you then put it into the fund, as the fund was raised?
Kirsten Green:
Yes.
Turner Novak:
Okay.
Kirsten Green:
I definitely always put it into the fund, but it was like a warehouse deal for the fund.
Turner Novak:
Okay. Can you explain how that works for people who aren't familiar?
Kirsten Green:
Yeah. Made the investment with the intention and the commitment that it was going to go into the fund. Then when the fund had a close, simultaneously the shareholder of record was changed from whatever entity name I used, that was some version of me, over to the fund version.
Turner Novak:
And then you pay back the person who funded that investment.
Kirsten Green:
Yes, yes.
Turner Novak:
Or whether it's you personally or another party. And then usually there's some interest or something like that. I mean, sometimes there is, sometimes there isn't.
Kirsten Green:
I can't remember if, was there? I will say on all these topics, my mantra has been to keep things simple. So I have kept most everything about Forerunner straightforward and simple. I haven't tried to do jazzy things on the side with interesting, unique structures and stuff. I think in general, I admire people who do that and eke out extra benefits for that. But I think more times than not, it can eat into what you're doing. And instead, I've kept things clean and easy. So it was a basic lend me the... I think it was $250,000 to co-lead this deal, and I'll put it into the fund when it closes.
Turner Novak:
Okay. And it was a $41.7 million fund? That's just what I saw on whatever.
Kirsten Green:
Yeah.
Turner Novak:
That's not an even number. Were you going for that? Was it-
Kirsten Green:
I was going for 40.
Turner Novak:
For 40, okay.
Kirsten Green:
Yeah, yeah.
Turner Novak:
That's always a good sign. Oversubscribe, people.
Kirsten Green:
I've been pretty regimented around setting a cap on the fund and keeping that, and being careful about how I'm marketing it along the way so that you don't have too much overage. Because that just disappoints people who've then done a lot of work and then you don't have room for them. It sounds great. I guess it would be fun to tell people you were five times oversubscribed. You have five times the interest and turn people away before you're getting down to the nitty gritty, because that's disrespecting people's time, I think. But hitting something exactly on the nose, it's always been a little bit...
Turner Novak:
Yeah. Well, I think too, it's like if you tell someone, "I'm raising a $40 million fund," and they have their own return expectations based on the size of the fund and all that, and even the strategy too, doing consumer. And then you suddenly say, "Hey, we raised a hundred million dollar fund, and we're not even doing consumer anymore." The underwrote's something completely different.
Kirsten Green:
I mean, think about if you do that, if that happened to you as an angel investor, and a founder came back and they were like, "By the way, I upsized the round, it's all good news." And you're like, "Yeah, kind of, except for it changes the dynamics of the situation. And I would prefer to have the chance to evaluate whether that's good or bad, relative to what I was looking for, for doing..." I have never changed the fundraise target mid-process.
Turner Novak:
How do you approach fundraising then? And maybe an interesting segue would be fun too. Sounds like it was 75.8.
Kirsten Green:
75, yeah.
Turner Novak:
Okay. How did you go about figuring out what you were going to do for a fund too, approaching that? I think that was the end of 2013, so it was maybe two years-ish later?
Kirsten Green:
The first one was June of 2012. The second one was December of 2013, which was a little bit ahead of maybe what would've been ideal. But I was due to have a baby in March of '14. I was like, "I'd prefer to not be trying to run a fundraise process on my way into the delivery room or on my way out." So fortunately people were understanding of that and allowed me to do it a bit early.
Turner Novak:
And then you kept investing the first fund and then switched to-
Kirsten Green:
Yeah, we didn't activate that until some time later in the back half of '14.
Turner Novak:
Okay. Then how did you go about setting up for that second fundraise? The second institutional fund?
Kirsten Green:
Actually, I would say that all the fundraisers have had more similarities than differences in how we've approached them and how we've set them up. So starting from just a planning perspective, first thing is take a look at the market and think about what's going on in the market? How has the market evolved since the last time you did this exercise? What does it take to lead a seed deal? What does it take to lead a series A deal? What's the set of opportunities at those different stages? Try to figure out, within a small range of reason relative to where you are as a firm, what the sweet spot is.
Turner Novak:
Like, what is something reasonable that makes sense?
Kirsten Green:
Yeah, but first I'm thinking about it from the perspective of where would I like to compete? And then I think from a bottoms up perspective, what does that mean I need to do? So how many deals, what prices, what checks do I need to be writing? And then what team do I have to bring that to bear? You're trying to find the sweet spot between those two. I think that just like a startup, you don't want to get your organization too far ahead of your mandate and your capabilities. You certainly don't want to stretch too far ahead for what you're needing to deliver by getting too much money at too high of a valuation, relative to where you are on a product basis. Not too different than building a firm. I think we were always trying to find that sweet spot between the two, and that really informed what the fundraisers were.
The overlay on that was, the original goal going into it was I would like to build a firm that can be around for a long time, and I would like to earn the right to invest in the best, most exciting, promising companies, regardless of what stage they're at, in the early stage. So it wasn't like I want to be a seed fund and consumer. It was that I want to be able to play across the spectrum, within reason, but to have our choice of the best companies that are coming out of the market at the time.
So each time that exercise led to a little bit of a different dynamic in what the fund was, and we scaled up our fund size. I think now we'll continue evaluating that, but I think we're at the sweet spot. We like how we're capitalized as a team and a firm now, but for so many ways, the first decade was about laying the foundation to be able to do that. And each of those fundraisers were part of laying that foundation. It was like every time there was a fundraise, it was a milestone to mark and pause and say, "Okay, where are we as a team? What's working with our team? Where do we think our strengths are? What do we need that we don't have? And how do we think about that against the backdrop of the market and where we'd really like to be investing?"
Turner Novak:
Yeah, it seems like generally, just in terms of how I'm thinking about the fund sizes and the strategies, all that stuff, did you change in terms... Because you increased the fund sizes, were you basically writing bigger checks than having some follow on reserve? And then also just being able to say, "As we go later, just the checks are bigger." Was that generally the thinking?
Kirsten Green:
Yes. The thinking was we have always had what I think is an edited portfolio, so 20 to 25 companies per fund. Even at the early stages, is pretty-
Turner Novak:
That's concentrated, yeah.
Kirsten Green:
... pretty tight and concentrated. We always had some allocation for reserves. Until recently we always ended up having less of an allocation than we wanted ideally, because as we were investing, the market was continuing to evolve-
Turner Novak:
Heat up.
Kirsten Green:
... and rounds were getting bigger. So in order for us to have the type of position in a round that we thought made the fund dynamics work, we needed to size up the size a little bit. If I step back and just think in a perfect world, I think about allocation in roughly a third, a third, a third. Like a third for your initial investments, a third for your initial follow-ons. Of course, they don't go evenly per company because some companies break out faster than others, some companies decide not to go on, but that's relative size. And then a third or some, again relative, somewhere around that for what I think of as lean in positions, which allows you to create some concentration in your fund. But you need to do that before it's too late and it's a growth investment and not an early stage investment.
That all doesn't always align, which is the difference between a fund model on a piece of paper and then how things play out in the real world. So a lot of ways the market did the work for us because I think you took a $40 million fund, it was not hard to say why a $75 million made sense. It was not hard to say why $125 million fund made sense. Those were all seed funds. When we went from 25 to the 350, that was, we are now ready to lead some series As. So were then changing the... And we had started to lead some series As in fund three. We were under capitalized to do that, but we did it because we wanted to demonstrate that.
Turner Novak:
How did you do that process? Because that's something I've always... I try to figure out how do I land that where you start to take the next step but you're not quite positioned to it?
Kirsten Green:
You're not perfectly capitalized for it?
Turner Novak:
Yeah.
Kirsten Green:
Okay, I'll give you my example because I think my step up company in fund three was fair. I invested in the seed round, but in a small way. That whole fabulous qualified team at Fair had a pretty good network and they'd also all worked with Keith Rabois before, and so he was their first investor. And I really wanted to get in on it. I felt like that business model was sweet spot for what I knew in the market, and I could provide something different than the rest of the people around the table.
I was able to invest in the seed round, but I said to them, "I'm really here to do the A. Because I can't do the seed because of the setup you have, that's not enough and this is my sweet spot." So by the time the series A came around, it had already gotten competitive, but I'd had the chance to build the relationship and build some trust between myself and the founders, and the other people around the table. And it worked out that I was able to lead the A with a smaller check, or be involved in the A in a meaningful way, with a smaller check.
Turner Novak:
Yeah, because usually a series A, it's like 20% ownership or maybe a little bit less, generally is what happens.
Kirsten Green:
I think in this case you got to find these unique situations, but this was a good one because Keith had done the seed and then he wanted to buy up into the A, but because he already owned it, the seed could make room for me. So it was just one of those situations that was a situation built for where I was in the journey. There's probably two or three other ones like that because that was what I could do and the size fund that I had. So then you go and you can talk to your LPs about how you built credibility to be in that conversation at the series A, what you had done for the company since then. And if you had had enough money, could you have taken the whole thing, or with the experience you have now, next time it comes around, can you take the whole thing?
So that's a process too. And again, convincing myself as much as LPs. Because I think it's, even from the earliest days I'm building a business that I want to be successful for all kinds of reasons, not just to please other people, but for myself too. So I've got to make sure that I'm building the best, most responsible version of it so that I can do well with it.
Turner Novak:
Yeah, for sure.
Kirsten Green:
Anyway, then I was able to parlay that into a fund that looked more like a series A and seed fund. And then the move from 360 to 500 was largely market driven and we also added a partner.
Turner Novak:
Okay, yeah, it was Brian, right?
Kirsten Green:
Yeah.
Turner Novak:
Okay. And then that was February of 2022, at least the date that I saw, a lot of Zoom involved. Did you raise that mostly on Zoom?
Kirsten Green:
There was two funds that were on Zoom. The approach to LP side of fundraising, LPs are really partners in your business. You want to build a long-term business, you're thinking about these as long-term relationships. You're thinking about continuing to demonstrate various aspects of your business, build trust, build confidence with them. And so, similar to the portfolio strategy, I've had a pretty concentrated strategy on LPs, never having over-indexed towards one because you don't want to put yourself in that situation, but not having so many that you can't make time to sit down and have a meal with them or call them.
So really investing in building relationships, and then thinking every time, who are the two or three that you want to add? Because it's just good hygiene to... Not everyone can stay around forever and that way you can always have the appropriate demand on the sidelines that you're not trying to call in the middle of your fundraise process. So it's a lot of relationship building. I think we tried to be thoughtful about what kinds of investors we were talking to and how they were thinking about their business, to understand what the long-term prospects were.
I get the chance to talk to plenty of people that are starting their own firms, and like my experience when I was interviewing people who started their own firms and now I look at it from the other side and see people who are doing it, there's no one way to do it. Everybody's got to do their own way, and there's a lot of ways that you can line this up and be successful. This just happened to be the approach we took, but we thought a lot about the mix of LPs and who was in it for the long haul and committed to the sector, versus maybe who was getting in and making sure that we weren't over indexed that way because that would create risk.
It's a portfolio approach, just like your fund. Your LP base is a portfolio approach, just like your fund, and your LP contacts are founders just like your founders you're backing. So it's just a lot similar in both the ways that we thought about it. I think that allowed us in most every fundraise instance to have fundraise before we were fundraising, because we knew where we were going to go.
Turner Novak:
You said something about dedication to the sector or interest in the sector. This is the most common question that came up when I told people we were talking. I think Dave Ambrose of Bungalow, Samwell Shot, Haystack. Have you ever met Samwell?
Kirsten Green:
Yeah.
Turner Novak:
I mean some people say consumer's dead, no exits over the last three to five years in consumer. Do you agree?
Kirsten Green:
I don't agree. I actually have this blog post that I've been working on, which is where did all the consumer investors go? That I probably need to work on getting out. But listen, some of the biggest companies to come out of Silicon Valley are consumer first companies. Amazon, Apple, these businesses, they get to a scale where they get into all kinds of things, but they started very much in the consumer-centric zone.
Some of the most successful venture backed IPOs have been consumer businesses, DoorDash, Instacart, Airbnb. So there's plenty of big companies that get built in consumers, which makes a ton of sense given that consumers drive two thirds of the economy. There're trillions of dollars of spending power in the hands of consumers. They vote with their dollars. They are the customers for the business. Whether you're a business to consumer first business, or whether you're a B2B business because somebody is selling to somebody at the end of the day. So you might be further up the food chain or closer to the consumer. Nevertheless, what's going on with consumers is like ground zero for-
Turner Novak:
The economy.
Kirsten Green:
... what is the potential for the business? So when we think about consumer, we think about that engine. We think about what is going on with that base of demand? And what is their health and what are their needs? And what's changing out there, that business needs to evolve to, to meet? Then we think about where is business set up to meet that opportunity, and where is it not? We're looking for the overlap between it's not and the consumer need. And then really importantly, what's changing in the dynamics of doing business to make now a good time to introduce something new?
So you've already identified the demand, you've already came to some conclusion around the white space opportunity. Now you're talking about can we do better business today? Is there some disruption in the industry in how business is being done? Is there some technology that's going to reshape how this particular business comes to life? But is something different that's like the why now? And that has to do with first mover advantage.
I mean we're really thinking about those three things coming together, and over the course of Forerunner investing, we've invested... I had this number last year specifically, but it is like 70% of that money has gone into consumer facing businesses and 30% has gone into B2B businesses. So we also invest in B2B businesses because again, that's just the root cause, the consumer for the demand. But to specifically talk about the consumer, I actually have a blog post that I'm sitting on that I haven't put out, which is like where did all the consumer investors go? And it's a take on what's going on with consumer?
Turner Novak:
Okay, what's that?
Kirsten Green:
I mean, I will tell you that we have hardy debates around our table on a regular basis about which deals are going to make it into the fund because there are more things that we're interested in and that we like, than we can do. So in my version of the story, consumer investing, how we think about it is alive and well. When I look on the funds that we've invested over the last 10 years, all the funds have the kinds of winners that you would like to have in your funds, I think. Some of them are early and it's too early to tell. And we did all of that with that same perspective that I just shared with you, that hasn't evolved or changed.
I think this year there's a handful of what... When people say consumer companies, I think they traditionally think of product businesses and then on the tech side, like the social businesses or whatever. I think that there are businesses that have been built in the last handful of years that are now at a stage where they're interested in going public. And there are some of those that will look to do that. There are some that are at scale for M&A, so it takes time for those businesses to be built. I think it's premature to say that there aren't any big exits out of this last generation, but I think some proof points in true hardcore, I guess, explicitly consumer, can still be had.
But along the way there have been wins. I think you just need to pick your spots really carefully. And I would say all of the same things about any aspect of investing when you slice down a sector. And things go in and out of favor, and in the last cycle we've been in a really huge software adoption cycle, and it's been enhanced by the pace of innovation on the software side, it's been really enhanced by the user's adoption of software. I would argue that software investing has been really challenged in the most recent past because most companies are looking at it and saying, "How many software tools do we have? Are we using them all? How many seats do we have? How should we think about that?"
So do I think SaaS is dead? No, no measure, but is it going to be as hot as it was two years ago? It might take another four or five years. Things go in and out, the markets move like that. So I think as an investor, it's okay with me to be really interested in a space and have a point of view on a space that not everybody is as convicted in right now.
Turner Novak:
Yeah, it makes it-
Kirsten Green:
Just changes the competitive landscape. That being said, this is an ecosystem driven business and you cannot invest in a vacuum. We need to think about what do we invest in early that someone else later is going to buy or want to invest in? So you do need to think about the downstream impacts. But one thing I really appreciate and like about this market right now, is that traction and real business model proof points matter. And I think that if you have those, you get people's attention, regardless of what sector or space you're in.
Turner Novak:
You like that because?
Kirsten Green:
I like that because then it's less of a debate around that's hot or that's hot. Or less maybe about whether it's going to play out in a certain way in five years based on what else we've seen play out. It's more about what's right in front of you right now, and how do we think about the controlled growth or the ability to control the dynamics along the way? I think when you have a business where you challenge it to be metrics forward and you want to prove those things out before you get on a heavy set of spending on marketing or infrastructure building, it's a different dynamic and different businesses will look interesting and appealing then.
Turner Novak:
How did you stay disciplined? Maybe not swaying too much to certain themes? Like let's say consumers aren't sexy for a while, how do you stay focused on that core mission and not get caught up in... I won't name anything specifically, but a new thing that might seem like the next thing and you maybe don't get too caught up in it. How do you stay focused?
Kirsten Green:
One, I think that by nature of being early stage investors, you should be really excited about what's next and what's new and what's happening. We are always open for business on that realm-
Turner Novak:
You're curious about... Yeah.
Kirsten Green:
... and really excited about it. But then you do need to say, practically speaking, I'm trying to build a portfolio that's dynamic and I have to have an assortment of types of businesses, both in terms of the business model, who they're serving, how they scale, and what the risk profile of them is. That's just good portfolio management, and I think that maybe this goes back to my initiation days as an investor and having that hat on always. That's always been a discipline that we've had at Forerunner.
But one other thing I think that captures discipline around that topic, is there's more money than there are good deals or investments to make. Venture is far from being a cottage industry, it is a full institutional game. There is money coming into this ecosystem from all kinds of capital sources, and it's a competitive market. It's always been competitive, certainly for the best deals, but there's a lot of money and there's a lot of innovation. Innovation ebbs and flows too, but it takes a lot more than innovation to make a company great. And then you're talking about teams and execution, all the things.
So arguably speaking, it's more competitive on the money side to get the good deals. That being said, there are way more good deals than we can do at Forerunner. We aren't trying to do every deal. We're trying to build edited portfolios, we're trying to be good partners. We're trying to set ourselves and the teams that we invest in up for success. So we think a lot on all these different dimensions, like the portfolio management side that I said, and what's new and changing in the market. We also think a lot about where are we set up to be really great partners and deliver something that is a good experience to the founder? Like we're knowledgeable at your table, we have... So I think when you put all those things together, there's a set of companies that come into view and that's where we focus our attention and...
Turner Novak:
Being an early stage investor, how much do you focus on TAM and market? Do you do a bunch of analysis on this is how big it is? Or is it more of...
Kirsten Green:
If you get too strict on the TAM, it's a backward looking metric. A lot of times you are in the path of progress, you are opening up new markets and new opportunities. I think you can assess how big is the need? How big is the audience for this? Of course we sit at a seed investment and we think, what is the upside case here? And we allow ourselves to dream big that this nugget of an idea and the ambition that the founder has said, is possible to deliver this kind of an outcome.
And also this could happen, that could happen and this could happen because it's dreamy and it's fun to do that. And if you have a great team, they probably are going to try to go off into some of those areas. But a lot of times you're talking about something that's going to play out over the course of half of a decade, a decade, or longer, right?
Turner Novak:
It’s undefined, yeah.
Kirsten Green:
So getting too caught up in what the TAM is today is not something we over index on. That being said, there's a base size market you have to have for it to make sense, to have a venture business that could have a scaled liquidity event.
Turner Novak:
Yeah, that's fair. It sounds like maybe synthesizing all the things you said over the last 20 minutes, Dollar Shave Club is an interesting example where, when you think about the TAM, I don't even know how you would define all those numbers, but it's like men. And maybe even it's women too also, did they expand outside?
Kirsten Green:
Yeah, right.
Turner Novak:
Then also when you talk about changing, shifting consumer behaviors, it's like, well, men used to not really care about personal care, but is that changing?
Kirsten Green:
Yup.
Turner Novak:
Again, that's another thing. There's an incumbent that's set up, sure, they're massive, they're one of the biggest companies in the world. But they sell in stores, not on the internet, and that takes different infrastructure.
Kirsten Green:
That's been their advantage, but that doesn't give them the right advantage for how things are changing.
Turner Novak:
So switching gears on questions a little bit. If you are meeting a founder for the very first time, do you have a go-to really concise question or framework that you work through to just get right to the point and really understand what they're doing?
Kirsten Green:
I think these conversations are not one size fits all. No business is one size fits all and no founder is. So I think it's important, I come in assuming that there is a lot of things that I can learn asynchronous. There's a lot of data I can ask for that I can go through, that I can have detailed follow-up questions. There's a lot of industry and market work that I can do on my own. What's precious that I can only do with this person in the room is understand something about them. Who are they? Why are they doing this? What are their strengths? How well do they know their strengths? So I try to use the opportunity to create a personal moment. To like, can I learn something about who they are as a person? What's their worldview? What gets them excited? What irritates them?
And I think a lot of times that starts with something that's disarming and it's not so different than any conversation you would have when you were with somebody socially and you wanted to start a conversation and make them feel comfortable talking to you. Maybe that's something trivial or maybe it's something important. Maybe it's something specific to their company or their industry, or maybe not. But I try to allow a minute to get into the conversation, and then really think about what can I accomplish in this conversation that I cannot do in an async way, or in some other format?
Turner Novak:
What do you think is your unfair advantage as an investor? Maybe you communicate these people a lot, maybe you don't. Why do you think you're so good?
Kirsten Green:
That tee up is intimidating, but you know what, the first thing that comes to my mind is, Turner? I love what I do. I love what I do, and so-
Turner Novak:
Do you think some people don't?
Kirsten Green:
I think people might love what they do. Maybe they use that to their advantage or maybe they don't. I think for me it allows me to be engaged, be interested. Be always on, thinking about that company in whatever conversation I'm having or whatever I'm reading, or whatever new thing I learned, to just have that element of business is not just at certain hours in the office, but it's something that permeates so many different aspects of your day and your conversation and your thinking. And if you show up to founders like that... Because that's how founders are about their business. And I think if you show up to founders like that and you know how to edit that input in an appropriate way, that could set you up for a good partnership.
Turner Novak:
So you're always synthesizing, in a sense?
Kirsten Green:
Yeah, I mean I think if you are in tune enough and you are interested in the business enough, you're interested in the problem, you're interested in the solution that they're offering, you're connected to the people, all things flow a lot easier from that. And I think that at least for me, the successes... And maybe this is also how I describe successes, but that I have are where a founder just texts you a quick question, like, "What should I do about this or that?" Or, "This just happened, this is a great win." It's just, I think the sign that they understand that you care in a way that they care, particularly at the early stage.
Turner Novak:
You need people like that around the table.
Kirsten Green:
You need people like that around.
Turner Novak:
Yeah, I describe it as founders is the shower test. I mean it doesn't have to be the shower, but just if nothing's going on or when your mind is wandering, would you like to think about what they're doing? And can you piece things together and just say like, "Hey, I had this idea."
Kirsten Green:
I have an edit for that these days too. I don't think I'm the right partner if I'm not losing sleep over the same things you're losing sleep over, naturally.
Turner Novak:
So if Forerunner does really well and you're investing in good things, you don't get any sleep.
Kirsten Green:
Yeah, I don't sleep very much.
Stream the full episode on Apple, Spotify, or YouTube.
Find transcripts of all other episodes here.