Reasons not to think the worst over Juicero
For those who don’t know, Juicero is an IoT-linked-up juicer that costs c.$400. To date, it has raised c.$119m, including from GV and Kleiner Perkins. It has received negative press attention since it (allegedly) transpired that you can produce the same quality “squeeze” for the juice using your bare hands — without the costly machine.
There are loads of pieces focusing on what we can learn from Juicero. They range from using it to evidence that VCs are idiots, to claiming that it just reflects a lack of decent dealflow, or more seriously, that it signals over capacity in the funding market, and maybe that we’re reaching the end of a cycle (gulp). Juicero might never live up to its c.$500m valuation, but to my mind, this case shouldn’t be used to support any of these theories — because it’s quite easy to understand why VCs saw it as a good investment, (clue: it’s not because VCs are idiots, or due to lack of other good decent deals):
- It’s all about the upside. VCs are most often looking for the killer return that will return the whole fund value. Question is, was there a possibility that Juicero could been this for them? Given the ‘Nespresso of juice’ moniker, and the size of the juicing market, I’d say yes.
- A portfolio approach makes the investment understandable. A portfolio approach to investing means you’re not necessarily looking for 75% certainty of success. You can afford to take many smaller bets, at a lower % of winning, in order to find the winners. Was Juicero a dead cert for success? Probably not. Was there a slim, but not negligible, chance of a massive outcome? Probably.
- Great team. Juicero strikes me as the type of idea that, if pitched by a friend in the pub, might have been met with a chorus of laughs. But it wasn’t my friend — and one of the key things that seed investors are looking at is a team’s ability to deliver on their vision. So who was pitching the idea? Doug Evans, the founder, had already founded and exited Organic Avenue — a juice and health snack brand. With a team with a history of successfully building companies (specifically ones in this sector), as well as an indication that they have the network to build a vertically integrated supply chain (as planned), Juicero might be worth backing.
- Vision vs current product. What we know about Juicero is that there is an innovative hardware product into which a huge amount of investment was squeezed (sorry…). We don’t know what vision was sold to investors in terms of future product innovation — and this could well have justified the high valuation. Juicero have clearly shown an appetite to invest in product development, and I wouldn’t be surprised if the team gave at least an indication of development beyond their current product. It reminds me of the cliche that, for a long time, Uber has described itself as a technology company, and not a taxi company. I would bet that Juicero don’t simply describe themselves as a juicing company.
Of course, that’s not to say that Juicero will definitely be a huge success — but I don’t think we can justify a “VCs are dumb/ there’s no good dealflow/ there’s over supply of funding”, simply from Juicero’s current situation. From what we know about Juicero, and what we know about what VCs are after, I can well imagine that Juicero’s pitch did make the investment seem attractive.