Introduction

Patrick: [00:00:49] My guest this week is Michael Duda, and the topic of our conversation is the role that brands play in business and investing. Michael has worked on and invested in a wide range of brands, including Birchbox, Casper, Harry's, Citibank, DirecTV, Google, TripAdvisor, Under Armour, and Vineyard Vines. His background in advertising made this a unique and interesting conversation. Please enjoy.

Michael: [00:01:10] So Bullish is an early stage consumer investment firm who really focuses on the consumer and the power of the brand to create superior returns, and probably the most telling thing, I could say, why we exist is we're a bunch of ad guys for the most part. I spent many years at Deutsch, and most people listening think Deutsch, nope Donny Deutsch and Deutsch Advertising. I just remember seeing a lot of Wall Street people and reading their reports, and you kept getting the sense that marketing is an expense. I was like, "Why is that? That's wrong, that's ridiculous." As I'm huffing and puffing about it, then I look at our business model, it's, "Wait, they're right." Agencies like law firms get paid for the time that it takes to create ads or outputs, but no correlations to the outcomes.

I said, "Why isn't there a more premium marketing company that believes in its recommendations and implementations that literally put its money behind where its marketing is?" So we created this because in a publicly traded company there wasn't that kind of appetite to do it, and we decided to start helping entrepreneurs who had a chip on their shoulder, and brand mattered, and putting in some money.

Patrick: [00:02:15] So how does that process work? You could pick a portfolio company or just talk about it in general terms. So you make an equity investment in a business, like a standard venture capital style investment, but I think it then comes with more. There's sort of a creative component to what you bring to the table? Maybe just talk about the typical relationship you have with a company.

Michael: [00:02:32] We invest at such early stages, seed, series A rounds, and now pre-seed, which has become a thing, but as I often say, money's the least valuable thing we bring to the table. We bring a school of really accomplished marketers and strategists, and... To tell you about the make up of our team, we know how to build brands. We could do marketing campaigns, we can do strategies, so it's not just the cute ads you might see on TV or on Instagram, but it's also the strategic rationale in terms of why you're targeting that person at that moment with that message. That's what we do.

Patrick: [00:03:00] Very cool. Let's get into this. I'd like to spend as long as we can, almost teaching a masterclass here on building a brand. So the best way to do that would be to define what the hell that word means to begin with, your take on it, and then ideally we can use as many real brands that people might know of or be aware of or can go look up as examples of the points that you'll make. But let's start at the high level, what does that even mean?

Michael: [00:03:20] In the most simplest terms, the way we look at is brand is the net result of what a brand does and what the hell people feel, and so case in point, take a Coca Cola, their 45 billion, 46 billion revenue. Their market cap's 170, 180 billion, I don't know what it is, something like that. What's the difference of that? What's the value of that Coca Cola recipe versus the actual Coca Cola sales? One of the things we used in our decks is there's a quote from the chairman of Quaker Oats in 1900, saying that, "If you gave me the brand, and I gave you the bricks and mortar, I will fare much better than you." It's just the power of what the Coca Cola label says, and it's a hard thing for a lot of people to truly get, because in a world of Excel sheets you want very rational answers. It's a logo, it's a this, but it's more than that.

I'd be curious, since you represent the quant people listening, what is your definition of brand?

Elements of a Great Brand

Patrick: [00:04:08] I always come back to, I think it was a Buffet quote, something like, "One of the best businesses in the world is to buy commodities and sell a brand." So you've described it with Coke, where they're buying cheap inputs and putting a label on top of it and selling it at a premium. I think an enduring brand is what's interesting, a brand that allows a company to continually earn high returns on its capital through time. That could be a sign of a brand. I don't think that there's really an interesting way... We were talking before we started recording about the episode I just did with Ryan Caldbeck, where maybe there are ways to quantify the strength of a brand, and maybe it's the visual, literally the visual thing itself. I think it's really difficult, and I think we can only pick up on it through residual stuff like operating performance of the business that seems like it shouldn't exist.

If Coke's formula can be really roughly approximated, and you know all the studies, like the blind taste? No one can tell the difference between this stuff. The same thing in wine, the same thing in a lot of these things. If you can't actually tell the difference without seeing the label, that means that's valuable, and that is reflected as high returns on invested capital or something like that. But that's the best I can do.

Michael: [00:05:09] That's pretty good. I thought you were going to say the colors, the logo. No, those are elements of a brand identity, but great brands have a soul. Great brands are polarizing. Use sports as an example, the New York Yankees are the most loved, and most hated team in baseball. The Dallas Cowboys, most loved, hated team in football. Politics get into that. Then you get into something like wine. Why do people choose what wine? They'll go to the store, "Okay, that's a cool label, the price is all right, but there's just a lot of unknowns to it." So great brands are polarizing, and they have their fans and their advocates, which done well those advocates can be the best marketing done, and then you have your detractors, which in a way it can help brands too. It's squishy, but we practice both the strategic and the ethos side, and then we put into practice.

Patrick: [00:05:51] So back to the two part framework you said, so it's how it makes you feel and what they do. Talk a little bit about both sides of the equation there. So maybe start with how it makes you feel, so emotion being a key part of a brand. What emotions, what does that mean, how should a good brand make you feel? Those sorts of things.

Michael: [00:06:07] And it depends, I think Goldman Sachs and there's 553 consumer categories out there, so I don't know if people are going to love their toilet paper versus a Nike versus Under Armour. I'll describe two people only by brands. Heineken, Mercedes, American Express, and then another person, Sam Adams beer, Visa, Volvo, L.L. Bean. In your head you probably got two different looking people altogether. You pictured maybe for the first one a suburban New Jersey dude, and then for the second one someone in Vermont or something in plaid at a bar. I didn't describe any people.

When I've given this topic speeches before and there's someone in the audience that's like, "Well the best brand is the best product." It's like, "Really? You think Microsoft was that much worse of a product than Apple when Apple started catching gear, or when a Sony PlayStation jumped LeapFrog and Nintendo, or a Coke versus Pepsi?" And we laugh about it, attributes are one thing in this world where the democratization of information, there's more information now that there was 20 years ago, we've quintupled in the past six or seven years by what the data says. Something has to be better, faster, cheaper, longer, smarter on that side of it.

The phone wars back in the day. "All the minutes you can eat, $19.99, go $9.99." So there's always going to be rational elements to go away, but a great brand endures because what it means to someone, and it's a sign of trust. Whether it's Johnson's baby oil to Dreft, which if any of you listening have had kids, you wash all your stuff in Dreft and it just works on your kid, versus private label on that side. So different people put different emphasis on brand and what that might mean, but it's a fun topic for us, but something that leaves a lot of people, especially quant people I imagine, like, "What am I talking about?"

Patrick: [00:07:54] I've heard this from venture capitalists, from others that, in the consumer world, let's say the non-luxury consumer world, I'm curious what you think about luxury brands, but in the non-luxury consumer brands that it matters less and less, because it used to be a trust and search cost thing. Yeah, Tide was a little more expensive, but you were aware that it was good probably, and big, and safe. There's a safety component related to that trust in that brand, and that with this information deluge, that's no longer as relevant. So I wonder, do you agree with that brand is maybe less important on the consumer side, and for what kinds of company is it more important than it used to be?

Michael: [00:08:27] With certain elements it maybe matters less. I'll say this, when I say, "When I google that," versus, "Oh, I'll go to Yahoo, or I'll go to Bing." Who does that? In the case of Tide, Tide's interesting. Tide only started losing market share really in the 2008 crash because of price, but who's come up from behind to steal share from them? Not really too many people. So if there's any entrepreneurs in the detergent business, we'd love to speak to you. We've looked at a few.

There's a certain point in time where you go, "I love Tide as a brand, but you know what? My paycheck's gone down a little bit so I have to make some sacrifices." Where do those sacrifices come in? Will it come into baby Tylenol, or will it come in my laundry detergent? Will it come into a Pepsi? That's the thing, when people look at trade offs, what will people absolutely not trade off?

I remember walking, dating myself, to 2010, walking the floor of a Dick's Sporting Goods in Jacksonville, Florida with Kevin Plank, the founder of Under Armour, and we watched this mother and her child looking at stuff in the Under Armour section and the Nike section. This kid went up to this red sweatshirt, "Mom, I really want this one," and she was looking at, sorry to name brands, Russell Athletic, which was half the price, and she's like, "Well, dear, how about this one?" "No, I really want this one." "Well, why do you want that one so much more?" And he literally said, "Mom, because in Under Armour I can do anything." So what do you do, tell your kid, "No, buy this one because it's the same cotton or whatever?" No, that's the power of the Under Armour brand to that kid, but to people in general. It's hard to say over here there's strong brands and how that's done, but to different people there's more meaningful ones, and it comes out based on the category, the use case, so many different dynamics come into play.

Patrick: [00:10:01] I'm curious to how you said you're good at building brands, so let's walk through that process. A company comes to you, they've got some product. Let's assume the product is good, but that's it's undifferentiated from a brand standpoint. What does that process look like? How do you start to tease something out? How do you actually build one?

Michael: [00:10:15] Folks with the early stages, we look at the outside class of upstarts looking to upset the strong brands, like a P&G of the world. A lot of the stuff starts with a founder. The great thing now, and especially CPG, legacy CPG, CPG companies, as great as they are have never had direct relationships with their consumers. Their customers are Walmart and Kroger and Wegmans and Amazon. We do direct to consumer companies, which isn't totally the question you asked, the soul of a brand can come through a lot more because you can have direct relationships, and often in young companies you have to look at the ethos of a founder.

For instance, we were meeting with Jeff Raider and Andy Katz-Mayfield of Harry's before Harry's was launched. We were assessing them, their smarts, they were both Wharton grads and in private equity, but also what did they want to accomplish, and they said they want to give people a more fair shave, because there wasn't one. The main competitor at the time is this Voltron-like character, 1980's, "Five blades, seven blades, the quattro," priced through the gills, and at the time Gillette was 9% of P&G's revenues, but 34% of their profit. The fact that you had to buy them behind the glass case was a little bit weird, and they didn't want to just, "We're going to do something cheaper and sell more stuff and take market share," they were building something soulful. "We want to give a guy a better shave, and be more empathetic to that." That was the big ethos behind the brands. The name of the company's called Harry's, and it's a shaving company. That says something. The mascot was a wooly mammoth.

Before they launched we helped them with this campaign that you had to figure stuff out, and we required 120,000 users before launch, and we just had a certain tone and attitude that was much more empathetic and endearing. At the end of the day, whether you look at politics or the brands we choose, whether it's a car, a gum, we all make irrational choices more than we'd like to think. One of the things that we look for is that in a founder, and then there's a full process that goes through that I'll certainly make more smart sounding than it might be out of passion.

Patrick: [00:12:12] Let's do that, I'm literally interested in someone sitting in your office, and you've got X amount of time with them, and the idea is at the beginning they don't know what it's going to look like, what are the elements of marketing a brand, and at the end you got a plan. What is that literal process, maybe step by step?

Michael: [00:12:26] Okay, the first process would be an immersion. The good Lord gave us two ears and one mouth for a reason, and it's funny as investors that we don't always use that correlation. We sometimes will rely on the computers and things, but we do a lot of listening and ask a lot of questions. Who's the target audience? What's the competitive set? What are other people doing? What are the objectives? So we ask a litany of questions, then we take a look at the category landscape and say what players are out there? What does it look like? How is it sold? Who are the consumers for this, and is there a different kind of consumer for, say, a Mercedes versus a Lexus, and unpack that. Really trying to dig into who we're for. It's not Millennials, it's not adults 18-34. I've never met an adult 18-34. We try and come up with a persona.

A great one is Trader Joe's. Trader Joe's has a great center of gravity in terms of what they do. Trader Joe's designs all their products and services around a substitute teacher who drives a late model Volvo, and that drives everything they do in terms of the products they make. That doesn't mean if we're in Greenwich, Connecticut, you don't go to Darien to buy the stuff, but that's the mentality of it in terms of value and being empathetic to what that customer goes through, and that's a very strong point.

Then you go through an explorer, how can we differentiate ourselves to the consumer audiences we're going after? Certainly there's a graphic explorer, what does the logo look? What is the name of the company, or what's the name of the brand? What does it stand for? In today's world transparency's a big deal. You can't fake it. So if you're Xerox, and I'm not pointing Xerox out, and you make paper, but you're burning down the Brazilian tree forest, you're going to be toast to a lot of people that find out. We live in a voyeuristic where you can't hide, or can't hide for that long. People want to have more of a belief system in terms of the products they buy and the brands they support, which is more of Millennial thing, but it's spread much deeper than that.

It's a long iterative process that involves strategy in terms of who we're targeting, look and feel, what does the brand identity look like, color schemes. There's deep meanings behind every color, like yellow is a color for creativity, red, you see that in a lot of global brands because red is a powerful, especially in China, red is a very powerful, pretty neutral color in that side. So we go from strategy to picking colors in this stuff, but to do everything at a 360 level, from the values of the company to the mission, to what the ads look like, to what partners you should have or you shouldn't. I can give examples and we can go back and forth in that about different ones, what brands mean and then pick across colors. It's more deeper than people think, it's certainly deeper than ads.

Patrick: [00:14:53] What has changed the most in terms of its relative importance when building one of these plans? What would pop to mind for me would be the role of social, like Instagram, all these things everyone talks about are key channels to distribute a marketing message, but I don't want to assume that's the answer. If it is the answer I'd just love to hear more about how you think about that. So what has changed the most?

Michael: [00:15:14] The rapid ascent of what can be successful, and equally the decline. We did something in our last investor letter where we found the data point that from 1923 to 1983, in the top 25 CPG categories, 20 maintained number one share the entire time. From that point on, only four have market share leadership, and most have lost that since 2003. The one area, Golden Medal Flour has just owned that market, it's amazing, and part of that is modes of distributions have changed, the internet, choice. Whole Foods wasn't really a big deal, Costco is, so where we get our food isn't just the one place in the store corner, there's so many different places. We think on some level, and food specifically, just immigration, between the Hispanic populations, Asian populations, if you go down to grocery stores now versus 10 years ago, there's a lot more spicy and flavor and almost, dare I say, exotic stuff when you go through the salsa aisle, or different elements there. It's just really interesting.

So people's tastes have changed, and they've widened out. Even private label has become cool. Instead of just something that's black and white and whatever, private label has become a brand. If you live in upstate New York, WPOP, the Wegmans brand is something. 365 by Whole Foods, 365 is a separate brand and something that they use. So it's really interesting, the points of distribution, the internet, and on top of that with the internet, Instagram, we get sick and tired of things quicker, and this goes into the consumer side too, which is weird, but we're noticing on the consumer side we're seeing with iPhones and smartphones, we're seeing people have mid-life crises at 28 or 29. It sounds silly, and I'm old school and all that, but literally the amount of talent that we've seen that graduated school, worked for six or seven years, said, "You know what? I got to take a year off and just do that."

The reason why, we are in an always on culture. Back in the day it was FedEx, the fax machine, and FedEx and these things, now if you don't respond to a text message in five minutes, it's like, "Where are you?" It's crazy. It's not cool to put an out of the office message thing on, so as consumers that's going on, and our relationship with brands and what serves. Trends are going bonkers, we see stuff go up and down, fashion especially. We're in an era of fast fashion, and companies like Zara and TJ Maxx are killing it. Why? Well Zara, women in 2010, we did this massive study how women shop for a brand, 2010 women were still buying $2,000 dresses. Now they're buying $200 dresses, and a big reason why, no one wants to be caught on Instagram twice wearing the same thing, and it's a crazy thing. Even men's suits, men's clothes, there's something about going, if you live in Greenwich it's Richards, or just getting that $5000 suit and you feel good for the custom tailor that might have come to a hotel because you saw his ad in the Wall Street Journal. Now there's companies like Knot Standard that you can get a custom made suit for six or $700, and it fits real well for a suit supply.

So it's part of the reason brands have gone to town is pricing pressure. People are able to make stuff cheaper and faster along those things, so there's still great brands like Lexus or Mercedes, if you will, but there's a reason why Lexus has a $30,000 car and not just the $90,000. That said, you can't launch with a $30,000 and go to 90, it's the other way around. To stay relevant in the consumers' mind is more and more challenging for everybody, and that's an opportunity and it's also why a lot of active hedge funds are involved with the consumer right now.

NPS Deficiencies

Patrick: [00:18:34] How do you square that with your investing strategy? So you're investing in the upstarts trying to basically take share from these big, long-established brands, the VC investment cycle is long, it's tenure funds or whatever, it takes time to do this disrupting, and tastes are changing fast. So how the hell do you underwrite a seed stage business with probably no revenues or low revenues, that you basically got a founder and an idea, how do you underwrite that in a world that's changing that fast, and why is that an exciting investment prospect to you?

Michael: [00:19:03] It's amazingly human, and as smart as I'm going to say all these things we do in diligence just so our LPs feel good, which I hope they do, it's we don't have these computers running these quant things left and right and everything, and we probably should as some point, but quite frankly the things we look for are NPS deficiencies. So where is there just not a lot of love in the category? You look back at KIND Bar, KIND Bar, I'm dating myself, three years ago had an NPS, which is a Net Promoter Score, which is basically what is the likelihood that you would recommend or be an advocate for a brand to someone else-

Patrick: [00:19:32] So they survey people?

Michael: [00:19:33] Exactly, and KIND Bar had a 51 NPS. Everyone else in the category is was 14 or at negative, so a utility company, like a Con Ed is negative, and Apple is at 95, so what we look for is where there are low NPS categories where there's opportunities. Some of our best performers of early stage brands over the past seven years have an NPS score north of 80, so that's one of the things that we look at depending what we're investing. Where's their journey in efficiency? How hard is it to get X or Y or Z?

Patrick: [00:20:02] What's the journey, what was that called?

Michael: [00:20:04] If you're a consumer it's how easy or not as easy for me to purchase a product or do a certain service, so bringing back the Gillette example. "Wow, that's really expensive, there's got to be a different way." We don't know any better, then here comes Dollar Shave Club or Harry's. Warby Parker, LensCrafters and basically Luxottica had a monopoly over the market. Luxottica of Italy owns LensCrafters, but they also bought Ray Ban and Oakley, and if you're wearing Tom Ford glasses, guess who made it? So here comes Warby Parker along, and it's this high margin category, and they said, "You know what? We'll take a little less margin and just offer much better service. Try five pairs on at your house and we'll ship them to them for free." That was something that could be ripped off, it took, I think, LensCrafters five years to do it, but that's inside the mindset, the fact that they led with that mean there's more innovative thinking going on.

So where there's companies not doing innovation, those shows up in the NPS scores and the journey inefficiencies. Where's an opportunity to service the consumer better, whether it's physical or online? Is there a branding opportunity? "Oh my God, this is a billion dollar category that has just always been that way. Why is that?" So, again, we don't have computers going X, Y, Z, "Oh, it's these four or five categories," the X factor, literally the exponential factor on top is the entrepreneur. Who is the jockey is much of that stuff, because we could find businesses with that and find some with a great pedigree with all this great education, but is this entrepreneur have the leadership capability, the drive, the hustle to deal with crap when it goes bad? Because it always does, and do they have the ability to build a great team? Part of that is what have you done in the past, although we don't like doing serial entrepreneurs as much, we want someone uniquely dedicated to solving a problem in X market, and factor all those things together.

Patrick: [00:21:47] What would be the largest things that you have a deviant or different opinion on, like if I had the 10 closest guys or girls to you in the room here, where would you differ the most in terms of your opinion on some of this stuff?

Michael: [00:22:00] It would almost be on a case by case basis, but looking at what some other firms do, and I'm not saying we're the smartest firm, but we don't look at things as intently as CAC, or we don't put as much word on cost for acquisition and some of the rational things, we go out and we do surveys. We talk to consumers, so where we differ is we actually look at the consumers' NLP in our fund. 38% of our entrepreneurs are female founders, which is above the status quo, and I'm not just saying that to champion ourselves, but guess what? Women make 83% of the consumer purchases in this country, so they're a much better consumer than you or I, so why wouldn't I want to know what they're feeling or whatever?

So when we see something that's interesting, whether it's a bra category or chocolate, and if it's a consumer audience that's female, we go find them in Enid, Oklahoma, Syracuse, New York, and Boise. Is a $12 juice going to sell in Boise? I don't think so on that side. So where we differ is... Birchbox was our first investment, and they were talking to a very significant Silicon Valley company for investment, and the partner said to her at the end, "Well we tested it and my wife would get bored of this after three or four months." I worked in Revlon in the advertising side of my career, which is weird for a guy maybe in the investment world, but we shot back, "The consumer doesn't have a seven car garage in Paolo Alto. She's a 27 year old mom of two in Cleveland that subscribes to New Yorker." That's the thing, we don't look at male, female, Millennial, adult 18-34, we actually try to get some of the human elements of it. I'm not anti-New York or San Francisco, but just sometimes as investors we can't unsee what we know.

Patrick: [00:23:33] The focus, obviously, of the fund and your background is in a very specific kind of company, right? Consumer companies, it's obvious what brand is. It's packaging, it's the ads, it's all these things, these are obvious. What about advice that you might give to companies outside of that industry, so trying to apply some of what you've learned, I'll be selfish, to our company here? We're about as unrelated to all the companies you've described as you could possibly be, but of course this idea still matters. So what advice do you think you can port out that's more universal than just CPG-type companies to just companies in general that you think people could put to good use?

Michael: [00:24:09] Listen, we do stuff beyond CPG. KKR brought us in to help GoDaddy, and we did a Super Bowl campaign out of the marketing side of our business in 2017, and to this day it was the number one revenue day they had after any Super Bowl campaign. They did 19, and they did an investor alert afterwards, so it's brand, but it's also marketing. We believe marketing should drive an ROI, and the fun we have with early stage companies, funny enough, is that if you get the brand right early on, you can spend less money in advertising and marketing because you can create a flywheel effect and build advocates and zealots to build remarkability in the things you do and say and the partners, in at least branded marketing a little bit.

So if I were going to look at O'Shaughnessy and everything, what does the brand stand for, part of it is, listen, it doesn't matter what we look like, we just have to post great returns and everything. Well, is it? What happens when you have a down market and everyone's indexes look the same, or what have you? What really differentiates in a world where there's so much private capital and so many options? This podcast for you is helpful, the fact that you've had a history of it and everything, and then you've taken this over and created some more modern elements of it too, it's getting the word out. Brands that convey how they think, how they feel, and funny enough, their generosity, the more generous the brand, the more potent it could be. Look at REI and Patagonia for that matter in terms of when a retailer says, "We're going to be closed on Black Friday so you can spend more time out there," well, guess what happened? Their online sales went up much greater than they had year over year, year before. Was it a PR move? Yep, but it was also a cattle call and a stake in the ground, "Here's what we stand for. We're for the great outdoors. Don't spend Black Friday shopping. Go with your family outside." That's a great step.

We could riff on your brand, I want to hear more about your brand and what do you think. This company stands for if you want to stay outside of it, but from a Goldman Sachs where I've done work for, or whatever, brand management, it's like a general practitioner, like a doctor. You might diagnose a flu, and then the next patient is a broken leg or whatever, but it's the diagnosing process, the brand, not just, "Oh, this only works on consumers on that." Sometimes it's tough for B2B side, Xerox was like, "We just have the best sales force." Well, if you have the best sales force, then that's part of the brand, you have the best sales force, so use that to recruit the best people, for instance.

Patrick: [00:26:18] Maybe talk a bit more about advertising and marketing, and maybe advertising specifically, how that's changed, and how you view that with social and everything else, whether or not it's still valuable, how you measure something like ROI in advertising. I have no clue how that works.

Michael: [00:26:31] That's been an ongoing battle. There are so many presentations. In 1980 there were four major networks, now there's channels on our cable or TV or YouTube TV streaming. We have the clown channel? I had no idea on that. So measuring advertising has been, through the years, a very inefficient science. Nielsen only polls a certain amount of homes, whatever. The great thing is now, no more excuses on that side of it. Between data in terms of attribution, we now, with a bunch of our companies, wherever we can... Another reason why I like DTC is you can control, based on what marketing messages were put out and what was the activity on our site and when did we sell. Something like a Hu chocolate bar might be very quick, because that's a relatively not costly purchase. Something like a mattress that might be $1000 is a little bit more, and you're not always looking for a mattress, so you're looking at certain funnels, at what messages at what time produce what results?

AB testing is a big deal. You can put things on Facebook relatively and test different messages to different cohorts and get live reads pretty quickly. Very cost effectively on that side, but a big part of this comes... We have to do data, because guess what? People don't trust advertising. Advertising people, I think, are right there with used car salesmen and politicians on the trust and respect meter, and so maybe that's why I came into finance, which had its own issues, but that's the truth. People don't trust advertising, but they trust what they find out about brands that you can't hide from that stuff, as I said earlier. So advertising still works from an awareness standpoint.

How that gets manifested now, there's so many different ways, but right now Instagram, they have to do more, especially as Facebook goes down a little bit. Instagram is a great proposition to sell stuff. If I were a CPG company, I'd take almost all my money out of Google for the most part, put it into Amazon. 63% of searches in the US are now taking place on Amazon for consumer goods. That's amazing. That's the equivalent of marketing the six feet around the store that your product might be. Depending on who the consumer is, if we're talking about a 20 year old, urban kid that devours one way versus a 47 year old suburban woman, there's different things, different motivations, advertising still works but you have to get smarter, more calculated, and market to the differences at the same time.

Screening Potential Investments

Patrick: [00:28:35] I want to come back to some of the criteria you've got for screening for potential investments. You've got a healthy number of portfolio companies, it's not like it's five companies, so you're selective, but it's not insane. You're certainly seeing a lot of businesses. You mentioned some of the ideas, and sorry I can't help myself with this quantitative type stuff, the low-end NPS category is an interesting quantitative marker of something that might be worth considering. You mentioned the journey, a crappy journey, a buying journey that you go on might be opportunity for a new market. I'm always interested in the VC dynamic between thematic investing, where they develop a thesis around a theme and they look for a company to fill that theme, and I'll call that top-down, versus the bottom-up approach which is just, "No, no, we're not thinking about any of that. We're just letting founders come to us with ideas and then we're running them through these filters."

So back to the original question, which of those two camps do you think works better in your world, and any other filters, they can be qualitative, of course, they don't need to be quantitative like NPS, but what other filters do you return to as you evaluate these companies?

Michael: [00:29:32] There's so many, and I'll try and bucket them a little bit, but I mention these journey and efficiencies, why does it take me 12 weeks to get furniture? So Ikea went after it one way, Bob's Discount another way. Furniture, why can't we do it? Tough now because it's drop shipping, but one of the things we'll study is what is the cost of goods and all the financial metrics and what makes sense in this category, because it might be inefficient, but that's the way it is. From deal flow to assessment, it's funny. If you have a good friend, the reality is you might want to meet other friends of his you don't know because they might be good people too, same way with entrepreneurs.

Our best deal flow and your best assessments come from the Jeff Raiders of the world, the Katia Beauchamps of the world, the Craig Eberts of the world. Our founders, but also they're from the Wharton networks and HBS networks and that side, so the founder quotient is not unimportant to us at all. Start with the last thing I did the last time, but we're also doing a lot of survey. Every year we do something, a panel called The Why, and we take 1500 people across the US of various age, and it represents what the US population looks like, and we do a series of questions that just get into what their behaviors are. So it's not the Gallup Poll, or the Michigan Confidence Poll, but we do that, and we're correlating, and we just started doing this, is why people do. From that we've realized early adopters are great, but it's also the petulant, slow movers are actually the best consumers to have, because once you get them, you got them and they don't go to something else, whereas early adopters will move on real quick and that stuff.

So we look at different cohorts, so as we're looking at different businesses across that, we'll go, "What cohort is this best for?" We have 16 different cohorts of different minds, and again, we look for stuff that's going to sell in the US, is this something that could be in middle America?

Patrick: [00:31:07] What are the defining variables of the cohorts? If you got 16, what are the dimensions along which they're segmented?

Michael: [00:31:12] Along the same things that Myers-Briggs has done on that side of it, and the name of the study escapes me, but it's a personality types, and it's defined different personality types, so we started with demographic and geographical mix, and that's up, and then we try to pour those out. What we're getting from that is interesting data points. 60% of Americans in the past year have gone to church, 59% have looked at porn, and things like that, so what are you going to do with that stuff? Researching things, it's interesting when we looked at Facebook and Google. If you look at the top Google, Facebook things about the husband, it's like, "My husband is great, my husband is loyal, my husband is wonderful," and then on Google, those same people are googling, "My husband is a jerk, my husband is a liar, is my husband gay?"

So it's one of those things, we just don't do polls and things like that, it's The Why, and consumers are wonderful liars. I don't have to remind people of the 2016 presidential election happened. We were doing consumer surveys then for the women's shopping, and it was amazing that time we found by accident, we interviewed hundreds of women in Teaneck, New Jersey, Atlanta, and Los Angeles about the women's shopping habits, and then even what some of their beliefs were. A few times we're getting, "I don't want other women to tell me what to do," and other things, or people that were very closeted about saying who they might vote for in a very polarizing election. People don't speak the truth, so that's why we're trying to dig deeper into the why and into the motivations, the values, and what does that mean. We're still in the process, we don't have it all figured out, and we're correlating that against the actions of our different portfolio companies. Things like the cost to acquire customers in a month to month basis, but it's really interesting stuff because if you look at this on paper, the pornography business and the sex toy business are great businesses, but do you want to invest in them? Because what's your exit going to be and what will your LPs think? That's a very real thing.

That said, one of the most explosive categories found right now is actually there's companies like Hims and Keeps and Roman, erectile disfunction, like a key propecia patent went off label in December of last year, so a few companies came in, saw that, and basically marketing at someone's expense, have gone after showing ED as something that can arrive at your door. So taking something, and we're seeing a lot of consumer advertising for this. Some of the most unspeakable things that you don't want to talk about, well that's a great thing for the internet to do. So we're seeing companies on that and we're investing in them. What could be good, but also what could be the financial outcome of that too.

Patrick: [00:33:34] What are some other examples there? You've mentioned some of the obvious.

Michael: [00:33:37] Hearing aids. Think about hearing aids, there's not an Apple for hearing aids. There's a dominant area where the average hearing aid costs $4500 to $5000, and we saw a company attack it like, "We think we could do this for less, and it's using those same plants." All they're doing is the same manufacturing around the world, because there's only six places around the world that manufacture hearing aids, that's interesting. Plus size clothes for women has become en vogue, and I don't mean to take a shot at companies, but when the number one category leader is called Dress Barn, if you're a women, it doesn't matter if you're a size 14 or 16, you're a woman, you want to look good, and yet the solutions we've given her are things like Dress Barn. Then we saw things like DNCO come out, and a great cultural thing, Ashley Graham, the cover of Sports Illustrated, is a size 16. For years women who were size 14 plus have been shamed in the shopping experience. Well, direct to consumer is a great place to do it, because you can do online, you can do that, and also, who's also wisened up to it? Kohl's. Kohl's is now shooting up the charts in plus size because they're going to do... Amazon is the number one retailer for women's clothes right now, believe it or not.

So there's a lot of different things that are almost passé categories that people don't want to talk about that their online world they can go in and do, and then you get those brown boxes shipped to them very discreetly. But that said, not all of them make great investment propositions, but part of those do have, check the boxes, inefficient journey, or there's a shame to them, the Dress Barn example, and then some cases price. Instead of getting an expensive thing for propecia, now people can do that for $20 or $30. So one of the things we do look what's going on with patents soon, but those tend to be big marketing plays, so we're intrigued by those categories, but it is an arms race of marketing capital.

Patrick: [00:35:14] I'm trying to be disciplined in these conversations to always ask people about how they think about valuation, because you could find all the best companies in the world, and at the wrong price it's a crappy investment. So, what impacts price in this world? How do you think about it? Do you have a specific discipline around it, or is it a case by case basis?

Michael: [00:35:32] In general what everyone's saying across any asset class is, "Everything's expensive." Everyone is saying it. We're saying it in our asset class, we'll be the first money into a new company, to the $18 billion buy out funds. We're hearing that across the board. The way we look at it is, what's the likely outcome? Is it going to be an IPO? More and more we're thinking that it's probably not. Most of our entrepreneurs do not want to go through the compliance issues that go around, but they just don't want to go through it because you just get crushed. You can celebrate until you get crushed. VCs, we do a pretty good job about celebrating entrepreneurs, and then Wall Street says, "Okay, when are you making money on that?" When you get ninth place trophies, it breeds that to maybe an entrepreneur or something like that, but valuations at our asset class are high, but they're reasonable.

What we're seeing is people taking in less money early on, it's something reasonable, it might be even a convertible note, and then showing some proof of concept, and then raising bigger rounds. If you try in any rational metrics that a PE firm or a public equity would, things aren't going for two to three times earnings, it's going much more on the potential, and the things that factor in at the very early stage are how much do you bet on the proposition of the founder, what's the path to profitability? We focus on that, I don't think that's focused as much on companies in the first six to 12 months as we focus it on, because if you don't make money, the music stops and the musical chair, there will be a chair standing. If 2000 didn't teach everyone that, we're going to learn again soon.

We're also seeing big, like I said before, 18 billion plus investors, assets and management, coming to meet us now because they want to see companies earlier. So private equity funds that maybe have invested in stuff that were at a 50 to 100 million EBDA, they're trying to take that expertise and go to 25 to 50 because of that. So a lot bigger players are coming in earlier, and then you have the SoftBank phenomenon where all of a sudden you have a 12 digit fund, you have $100 billion fund coming out of nowhere, which is raising all the stakes. But listen, we have a lot of capital out there, all the investors are complaining about the valuations, who are also the same ones increasing the valuations because we don't want to lose that deal.

Unusual Traits in Founders

Patrick: [00:37:30] What are some non-obvious, or even unusual traits that you've liked in founders?

Michael: [00:37:36] Everything. They come from liberal arts schools to in interviews where they talk more about the team than the product. We don't fund great products, we fund great businesses, that's the goal, and anything could have a one-off product, like Angry Birds was a great thing, I don't know what we've heard from that company since. Now you have Fortnite, and now Fortnite's company is worth 15 billion post-Kleiner Perkins in that side of it. So we look for is this person capable of repeatable success. I played point guard poorly in college, or I tried to. I was a non-scoring point guard, but my job was to make the other four players on the court better. We want to see that from founders, the leadership front of it, a chip on the shoulder. Someone who's like, "This is wrong the way so and so is doing it, I'm going to right it."

We invest in a company called Function of Beauty, and it's a shampoo company and conditioner company, they literally have 29 trillion different combinations of shampoo and conditioner. It was founded here in Stamford, Connecticut. At the end of the assessment process, I said, "What's the win for you? Is an IPO is this?" He's like, "I want to see Unilever and P&G burn." And I was like, "Yeah. I want to see that." That's a different thing versus, "I want to sell for a 10X multiple." If someone says they want to sell for a 10X multiple, you're doing it for a financial thing, we're shooting for a higher ceiling. If you run a great business, the finances will come on that side of it, but it's just that edge.

It's not an SAT score, it's not a GPA, certainly going to a very good school is a mark, but the best businesses we fund, I point to Warby Parker, I point to Peloton, I point to Harry's, I point to Casper, I point to care/of, they are relentlessly, insatiably focused on customer service and serving the consumer to the point where a founder will email or take calls, like, "I'm sorry for that happening." They tend to have higher NPS scores, because when something goes bad, people will tell 11 friends and now the internet about it, but if a brand does something like, "We are sorry," and do something, they'll evangelize for it. It's amazing by the power of the apology. As humans we make mistakes, but when brands make them it's just like, "Oh, you're the big faceless corporation." When those upstarts actually humanize, like, "We're wrong, we'll give your money back," that's amazing.

There's a famous brand case, J&J had Tylenol, and there was a cyanide poisoning back in the early '80s. It was awful, it killed people, and they weren't necessarily at fault. They went above and beyond what the government requested to do, doing their child-proof cap, and things that added one cent per bottle that they didn't charge to their customers, and they abided by the credo. After that incident, while they certainly had a dip in sales in that, they actually skyrocketed to marketplace performance after that. It seems stupid in the short run, but gaining trust takes forever, losing it's very quick.

Patrick: [00:40:12] What do you think of the categories today that are the most ripe for young companies to come take share from them? Not necessarily individual companies, it could be anything. It could be individual companies, could be industries, anything.

Michael: [00:40:26] We're seeing in the media to some degree, the destruction of whatever the cable business is called these days because of Netflix. Netflix is now the operating system for our televisions, and yet television is enjoying a bit of a renaissance. There's still nothing as impactful to all five senses than a great television commercial, because you feel it, you hear it. It sounds weird, and that's the power of video, but that's become ubiquitous, so the media business is going through a reset on that side of it.

Patrick: [00:40:52] Have you invested in any media businesses?

Michael: [00:40:53] It's not to our thesis, our core. We want paying consumers, and that's advertising based. Although we're seeing journalism... We used to get newspapers for cheap because it was subsidized by advertising, now these things called pay walls exist and we hate them. Guess why? That's how they're going to make money. I bang this one to death, but the amount of sell ratings we see on CPG companies is for a reason. All these companies have the wrong food and they don't have direct access to the consumer, and it's painful, and when you're at the mercy, as the public traded companies are... I was just at a Citibank, a Citigroup disrupters event, and they had five publicly traded companies out there talking about the shareholder is king, and then there was the founders of Daily Harvest, Casper, and all those, and they were saying, "The consumer is queen." You've better suited the consumer, now are private companies under the same constraints? Nope, not publicly traded, we might have a lot of that VC money, but they're building powerful businesses that are taking share away from the big companies. So CPG related things. There's obviously things in cross-category, like esports. Esports is not the future, it's the now. There's an 18,000 person stadium being built in Dallas, Texas dedicated to esports.

Patrick: [00:41:57] Have you invested in that category?

Michael: [00:41:58] We're looking. There's one that we really like, but there's a lot of noise out there, and I think some of the players now that are number one won't be. First mover doesn't always make the best mover. Very long on esports, and related to that, in a separate, is with all 50 states now go nuts on gambling, what that's going to mean. So it's given new life to the DraftKings of the world, but how does esports come to play into that? That's something we're looking in. Then even to something like bras, the bra market is still massively underserved in terms of Victoria's Secret. The Millennial, the younger doesn't resonate with Victoria's Secret and that style, and Victoria's Secret's a market leader at 30% market share, but we saw a bunch of business plans 2014 or '15, but we had a lot of entrepreneurs that didn't understand the supply chain. Now we're seeing actually a few more that are getting it and doing better designs to it. We just invested in one recently that's taken on Spanx, and they were profitable in their first three weeks, which was amazing.

Cannabis. Cannabis worries me just because of the legal issues and that, but it is a thing. CBD is a thing, it is probably the most prevalent thing we see right now from so many different sides.

Patrick: [00:43:03] That's all brand, right? It's a commodity product

Michael: [00:43:05] And there isn't' a Pepsi and Coca Cola for that right now, and there's a lot of money in it.

Patrick: [00:43:09] Unless it's going to be Pepsi.

Michael: [00:43:10] Exactly, or Constellation wines. But funny, I had a recent earnings call, Coca Cola got lauded because they're doing something in CBD and cannabis, and then Pepsi didn't, and there was a couple headlines, price goes down because Pepsi doesn't have a plan for that. It's just... wow. These are the same people that are feeding the quant based stuff in the metric, every decision's emotional, irrational why certain companies have a higher PE ratio than others, but my non-linear thinking side... Cannabis and CBD is a thing, and our friends north of the border in Canada are doing it and there's some stuff, and there's a lot of money going into it. We're seeing the power of the states too, so it'll almost be like a March Madness bracket. "Okay, if we could become the one dispenser in Connecticut, then we can take all of New England with capital."

There's a lot of private capital, there's also some reticence. The reason that you're seeing some higher evaluations to your earlier question is some people are like, "Let me wait another round to see how this goes, and I'll just pay up, because I don't want to be wrong."

Marketing Channels for D2C Businesses

Patrick: [00:44:03] You mentioned Instagram earlier as the ideal way to sell CPG, what is the most interesting off the radar marketing channel that you think is worth considering for direct to consumer businesses?

Michael: [00:44:14] Wow, that's a great question, because direct to consumer, the power of activations and events, and that sounds weird because that may not be impactful.

Patrick: [00:44:20] What do you mean by activations?

Michael: [00:44:22] It could be something at Union Square in New York City that gets a lot of attention to it. It sounds so analog, so I apologize for that, but it's real life things that cause it, or Twitter. If you see what Wendy's, the burger company, is doing on Twitter is absolutely amazing. What bravery from a company that is a big company out of Columbus, Ohio, that has a sassy tone and it's winning over people, and it's correlated to sales. The most overrated stuff, to almost answer your question, is influencer. Stop. Influencers are the thing, but it's become such a predominant thing that people are getting like, "Oh, you got paid to do that," or whatever. So now there's micro influencer. So we-

Patrick: [00:44:59] What the hell does that mean?

Michael: [00:44:59] We did something recently for a Fortune 200 company, so instead of the Kardashian level or Kanye level, it's, "Well maybe there are people that are..." like for painting. This woman might be the most talked about person in painting, but she's only got 35,000 Instagram followers, that's a micro influencer. So it's versus that, and there's a lot of overrated things, like the influencer, like, "Oh, I need a celebrity to make this famous." That can help, but that's steroids or sugar high stuff thinking than anything tangible, but I think one of the things that we've unlearned over the past year is digital might be cheaper, but digital because of all the bots and we're not sure what Google and Facebook are doing, we're not getting true measures of what's going on there. So some of the thinking digital isn't as effective, and it's still very effective, that's why TV is gone. Maybe one of the most surprising things is satellite radio, performs extremely well, extremely well for early stage companies, and other areas that are still on tap, like podcasts. The phenomenon of podcasts is huge. The amount of airtime dedicated to ad dollars is small, so guess what's going to happen? We're going to have a brought to you by in the middle of this thing probably in a year from now because-

Patrick: [00:46:01] Not this one.

Michael: [00:46:02] Yeah, that's what makes this more premium. But people want to go to where the ears are, the eyes, and get in front of their target consumers. That's harder to do. The great thing from my old marketing and brand life, which is still my current life, is you're going to have to earn that consumer's attention and dollar, and to sustain that over time. So you just can't how we found you, the four pieces of marketing in the world, or awareness, it's got to be preference and trial. We're going to see more in many way marketing programs that are very targeted, but also there might be the big home run where you do a Super Bowl commercial of that stuff. We've had three early stage companies approach us about, "What do you think about doing the Super Bowl in 2019?" We said 0 for three on that stuff just because they didn't have the back end ready or any of those things, but it's an arms race.

Patrick: [00:46:43] So excluding anything that you've mentioned so far, what piece of marketing are you most proud of having created?

Michael: [00:46:50] Wow, having created individually? I would say there's some things coming up I'll be super proud of, but what I can't mention. I will say our most recent one is we did something for Nike, where Nike hired us, ironically, to sell sneakers in physical retail stores. Part of it is they've had such a huge dedication to DTC, as everyone has, but there's still the power of, "If everyone stops doing retail, a lot of businesses go down, and Nike's one of them." We did this campaign, and the target was a 19-20 year old who does not like media, and so all they do is Instagram, YouTube, maybe Twitter, and some other channels. YouTube is a huge... I said I as anti-Google earlier, credit YouTube is pretty effective. So we created this massive campaign that became the number one organic ad on Twitter, pulled in three and a half times stronger for product advertising on YouTube, and sold 22% more product than it was supposed to.

Patrick: [00:47:43] What was the campaign?

Michael: [00:47:44] If you go in, you'll never hear this, Fat Joe selling retro 90's inspired Nike shoes, and I'm just proud of that because it's a sign for a company that's dealing with early stage companies, bigger companies it's like, "We need a more modern approach," so they're coming to us. Same way the bigger investment firms, but otherwise the Harry's launch stands out quite a bit, and most recently Clare, which is a direct to consumer paint company from Nicole Gibbons, probably the best PR launch I've ever seen. In July she launched a new paint company, and there's been little innovation in paint. Benjamin Moore, Sherwin Williams, we were approached three years ago from a company that one of those companies bought, saying, "We're trying to do a new direct to consumer proposition. We can't do it ourselves, can you help us?" And we were putting it together, and then they got acquired by one of the companies I just mentioned earlier.

So we think there's an opportunity in the paint business. It takes 135 days from the time you decide to paint your living room to actually doing it. It is a painful process, it's a pain in the ass, from, "Do I want sky blue? Yellow purple blue? Yellow blue?" This is where the paradox of choice comes into play a bit, but there's no empathy to it, so we've backed a company called Clare that is a direct to consumer paint proposition that you get these big samples sent to your door to see if you like it, and we've limited to 55 colors, and we give you tips to do it. The magic is, we're going to do it cheaper, we think we can help you get that 135 days down earlier, so we're about 90 days into launch, we're getting data now. But Clare was all PR, and for Architectural Digest to say this is the Warby Parker of paint, and for Cosmopolitan to write up about it, that's the power of earned media at launch, and that validation is better than any marketing thing we could do.

Patrick: [00:49:24] Any other portfolio company examples that you think are good examples of a lot of these principles that we've talked about? What resonates with me, and this is way beyond just the consumer experiences, this idea of stuff that just hasn't changed in a while and where the experience is. If you really think about it, a lot of this stuff, I would never have identified paint. It is what it is. If you find yourself saying that phrase about it, maybe that's a marker of opportunity. Any other companies that you think are interesting to highlight just to make the point?

Michael: [00:49:49] I'll go macro again. When we see activist hedge fund people approach us, or we see it in the news, we think we're going to take a position because they're spending too much money in marketing, somewhere between 62 and 200 million. They don't know on that side of it that kills us. The funny thing is, the best companies early on realize if you do that proposition right again, you can spend less money in marketing and advertising. Warby Parker, I think, taught me that lesson, so when they were early on they did an ad campaign that was radio, it might have been Howard Stern, I can't remember what, and they got inundated and flooded with calls to the point that they were three months behind. So they shut down all marketing, and they were saying, "Sorry, sorry, sorry," to their consumers catching up.

What they did is they put that into customer service, and they realized it's actually a better acquisition and a better experience because people are talking about it by a strong customer service. So what again was a negative thing in the beginning, like we don't have enough glasses, are we going to tick people off, they invested in customer service and realized, "Wow, that's a lot better than doing advertising or marketing," and actually they started getting the talk value, like, "Wow, these are great glasses, $95, and they stand for something different." They felt like more of a Ralph Lauren than like a traditional retailer. Then to expand? I'm going to put this into marketing. They did their fist popup store, now a popup store, you hear that all the time, they did a popup store by the Standard Hotel in New York City, and it was great, it was up for three or four months. It also exposed the brand to a lot of people that were coming from Germany and from London to stay, they were like, "What's this Warby Parker?"

So they actually wound up doing, "Let's keep this open because if we look at it as marketing, we're getting a strong ROI in marketing, and people can actually pay us on the spot." So people have wondered, especially on the value, why would you do physical retail stores? Because it's marketing, and the average consumer, for them and for a bunch of others we have, their average customer is more profitable and stronger that goes in the store and does stuff online than just stuff online, just online' s a stronger margin. So you could say, "Well that's ops," we look at that as marketing.

When Harry's went into Target, Harry's can do all this stuff on digital, but there's something to the people in Overland Park, Kansas that going to Target, that's validation. If Target gives it it's seal of approval, that's good. So when Harry's went into Target, it was a sign of marketing, and we did end caps in a different way in a different proposition, and it brought some heat to an aisle. In the first four months they only had 25% of the shelf space, versus the Gillette's, they were getting 50% of the buys in their first four months. So Target's happy, it's like, "Great, we have some new noise now," but we chalked it up to marketing. Marketing in the form, it's not ads, it's not that, is being where your customer wants you to be or getting discovered and having the EQ and speed of a whatever sized company you are to say, "Wait a minute, we should do more of this stuff."

Patrick: [00:52:27] What have we missed in terms of your process, things you care about, areas of investing or marketing or anything that we've talked about that you feel you're... have something to offer a deep expert that I haven't asked you about, anything?

Michael: [00:52:38] You've probably figured this out, listeners too, I'm not ridiculously smart. We love EQ more than AI for that stuff. We dial that, even on the consumer level, so it's not just 2200 people in a survey, it's what are people really doing, and we study that quite a bit. Don't be fooled, we look at TAM, we look at total addressable market, we look at gross margins, and we look at those things, but I don't see greatness in an Excel sheet. I don't see it in wow, or that, we look at it in terms of so many other outlier things that are not going on here, because I don't think the best businesses are going to have to come from a Boston or New York any more. We invest in a company in Pittsburgh, Pennsylvania that launched in February, their October was bigger than the first six months combined. We're going to see great businesses come out of different areas. There's too many smart people in Cincinnati, Ohio that have worked for P&G, maybe they're going to do something new.

So we're seeing this regeneration on that side, but still the fundamentals come into play. Total addressable market, we want to make money in businesses, but we care about... some of the stuff people look at the front of the bus, we use a pressure test as to what not to do it, because if something is a great consumer experience but it's never going to make money, we're not going to invest.

Patrick: [00:53:41] So my closing question for everybody is for the kindest thing that anyone's ever done for you.

Michael: [00:53:45] It's funny, I've heard this, I knew that question was coming. I've heard other podcasts, and I go to different places because... It would be my wife for letting me do this. I was a pretty senior person in the firm, we were making great money, and I had to do this, because I didn't want to be that guy, and I was in my mid-30s and prime earning years and doing pretty well, but I was like, "What happens if I don't take that shot, if you will?" She allowed me to do it, as crazy as that was, and to quit the profession that others thought I had success in, by the way with a baby that's six and a half months into the equation, and to not going to pay myself for a year, we're going to do this to build it up. She had the bravery, maybe, more than kindness to allow me to do this, whether she believed in it or not, she believed in me.

Patrick: [00:54:32] That's deeply kind.

Michael: [00:54:33] It's deeply kind. Then more functionally on the business side so I don't get too teary eyed, it's a First Round Capital who for no motive other than their generosity as a firm spent a lot of time with me to get this right on that side, and then very recently Todd Benson is one of our investors, this guy is a baller. He was the former co-head of private equity at Citi, chairman of L2 with Scott Galloway which sold, and he saw something in us and to some degree me that said, "I'm investing, and you guys are going to be much bigger in the next fund in the next thing, I'm going to help you."

Patrick: [00:55:06] Was that based on returns?

Michael: [00:55:07] Yeah, I think so, but just it's when other people have bet on you and they don't have to, or spend time. So that's my triad of an answer.

Patrick: [00:55:16] Well, this has been a blast, I've learned a lot. That's an area that I'm fascinated by, and frustrated by, and you shed some light on it, so thank you.

Michael: [00:55:21] We're going to work on your brand. We got this. We're going to work on your brand.

Patrick: [00:55:24] Thanks Mike.

Michael: [00:55:24] Thanks Patrick.

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