I Bet on Blades and it Proved a Sharp Decision
or: the story of how Michael Dubin convinced me that his business was f***ing great!
I met Michael Dubin in the summer of 2013. I’d agreed to meet with him after Peter Pham at Science sent me a three sentence email that basically read:
Hey Rick, have you heard of Dollar Shave Club? They are going to do $20M this year in revenue. Interested in meeting?
I’d seen Dollar Shave Club’s (DSC) legendary launch video and while a clear example of creative genius, I was skeptical. Could a company selling a commodity product online, for a few dollars no less, really be an interesting investment opportunity? I have a ton of respect for the work that Peter and his partner Michael Jones do at Science though, so I asked for the introduction to Michael Dubin, CEO of DSC.
That introduction led to my joining the Dollar Shave Club family as the largest outside investor in the Series B round and the company’s board as an observer. I couldn’t have imagined the excitement that the next three years would bring.
Investors and journalists have thoroughly covered DSC’s recent sale to Unilever, which stands as one of the largest eCommerce exits since 2009.
[For more background see:
- Michael Jones’ (Science) view as the earliest investor, The Secret to Dollar Shave Club’s Success
- Ben Thompson’s (Stratechery) in-depth analysis, Dollar Shave Club and the Disruption of Everything ]
But people continue to ask me, “What was it that you saw in Dollar Shave Club that convinced you to invest in the company?”
Despite having Los Angeles roots, Dollar Shave Club was a relatively high profile company amongst Silicon Valley VC funds. The combination of multiple blue-chip seed investors and a viral launch video placed DSC on everyone’s radar.
Yet DSC faced skepticism from investors during their early financing rounds. Multiple funds passed on reviewing the opportunity without engaging, while others were hesitant to commit. A few of Dollar Shave’s major seed investors even decided not to follow-on and support subsequent financing rounds. I was aware of this skepticism, but could not reconcile it with the underlying business fundamentals and market opportunity. In this blog, I’ll cover some of the reasons why investors were reluctant to support DSC and then explain why I believed it was an attractive Series B opportunity. DSC was my first investment at Comcast Ventures — stick with me to the end of the story and I’ll take you behind the scenes on getting this deal through our investment process.
Setting the Stage
DSC exploded onto the scene in 2012 thanks to a brilliantly executed launch video. The creative is hilariously irreverent and the message explicitly clear:
You’re overpaying for something that is essentially a commodity product. You know it. Stop it. We have a simple and convenient solution. Join the club. BE SMART.
Within hours of launching the video DSC’s web servers crashed. Consumers clamoring to ‘Join the Club’ overloaded the website. The launch video went on to become a case study for brands (online and offline) of how an unknown company could leverage the immense power of social media. The video cost DSC ~$4,500 and delivered 12K members in two days. Having spent a lot of time with eCommerce companies, these were simply amazing results. Perhaps they were too good...
Aside from crashing servers and forcing the DSC team to scramble for additional inventory, the rapid success, somewhat ironically, raised concerns amongst potential investors:
- Was this a humorous, but ephemeral hit? Investors prefer consistent and repeatable growth vs. single event driven growth. Many thought, “Fantastic! You captured lightning in a bottle, but can you do it again…? Unlikely.”
- What would steady-state metrics look like? The video provided a wealth of earned media and organic growth. How attractive would the customer acquisition metrics look once the glow of the viral video faded and DSC relied on paid acquisition?
DSC needed an investor willing to accept these risks and lead their Series A. Fortunately, David Pakman at Venrock believed strongly in the direct-to-consumer model and recognized the potential of DSC’s emerging brand that he opted to lead the round. David covers his Series A thesis for DSC and provides some perspective on the surprising ‘lack of competition’ for the round in his recent post.
DSC grew significantly over the course of the next year— from $7M to $20M in revenue. While the business fundamentals were solid, investors remained skeptical of the company’s prospects. DSC was simply not a conventional Silicon Valley deal. DSC was a consumer products company, located outside of the valley, selling a commodity product. Semil Shah at Haystack wrote a provocative post highlighting how ‘conventional wisdom’ failed investors evaluating DSC.
“We mostly don’t know what we’re doing, so conventional wisdom is attractive — it is the institutional memory of lessons passed down so that we can make better choices or preserve order. But, conventions don’t necessarily last forever, and they certainly don’t apply to everyone.” — Semil Shah
When DSC came to market for their Series B in 2013, there were multiple reasons conventional logic could justify passing on the deal:
- Insufficient data. Silicon Valley thrives (rightfully so) on data and traction, especially at the Series B stage. DSC had a relatively small membership base and steady-state operating metrics were skewed by the ongoing success of the launch video.
- eCommerce = a death zone for venture. Consumer and eCommerce fall in and out of favor in the Valley. In late summer 2013, subscription commerce was borderline toxic. Investor sentiment stood at the the “not yet another monthly box company…” level and many agreed it had jumped the shark.
- Challenging competitive landscape. The launch video garnered both customers and copycats. Investors were asking whether there was any defensibility in the model, or was it simply a race to scale? “Compete with Amazon for subscription of a commodity good…? No thanks.”
- Gillette. The 800-pound gorilla in the room (more so than Amazon). Gillette generated nearly $12B in revenue in 2012 and spent ~$800M on advertising. This wasn’t David meets Goliath, it was Mosquito vs. Elephant. The conventional thinking was that if DSC gained any meaningful traction, Gillette would launch a copycat razor club (which they ultimately did) and it would be game over (which it ultimately wasn’t).
In venture, it’s easy to find reasons to kill a deal, the secret lies in finding the conviction to do the right one.
Finding Conviction
I believed. And the following signaled this was a bet worth taking:
The Business Model. Investors often talk about finding businesses that emulate the razor/razor blade model: lock-in the customer → then drive repeat purchases. DSC was literally that model. I couldn’t imagine a better product for subscription. Razors are expensive and inconvenient to purchase from existing channels. The thesis was straightforward: convert a customer, provide great service and they will be a customer for life. Additionally, I liked that DSC built a membership business vs. a subscription business. There is an important distinction. Customers joined the razor club in order to gain access to additional DSC products. Once a member, your scheduled razor shipment provided an excellent opportunity for impulse buying of these higher margin consumables: shave butter, butt wipes, moisturizer, etc. More convenience for the customer and more margin for DSC.
The Membership Base. DSC members are some of the most loyal customers I have ever seen. Membership was relatively small (~250K) but thanks to the unbelievably low customer churn (sub 5% monthly), the base grew quickly. Many consumer businesses (and investors) focus on scaling gross customer adds prematurely, it makes for a nice vanity metric. I’m interested in companies that are hyper focused on the customer experience and retention. Without a low churn rate, it’s difficult to scale a user base in a cost effective manner. I loved that DSC took a conscientious approach to member growth, by focusing first on customer retention.
The Beginnings of a Lifestyle Brand. DSC members are a passionate bunch. Don’t believe me? Search for: “Dollar Shave Club” Unboxing. You’ll find more than 11k results of guys (and gals) who’ve filmed and shared their DSC experience. During diligence, I watched a lot of these videos. Listen closely and you’ll hear:
“Best company ever” and “Should’ve switched months ago!” In addition to members — from Wall St. bankers to schoolteachers — parroting DSC marketing slogans, “Shave time. Shave money” and fondly referencing, “The Chairman.” Customers were speaking the language of Dollar Shave.
DSC wasn’t a commodity, customer voices signaled that it was quickly becoming a lifestyle brand.
The Team. The best product doesn’t always win. People matter, A LOT. I liked Michael Dubin from our very first meeting — which was actually a homecoming for him. Michael’s first job was working as a Page for NBC.
Michael has a deep understanding of branding, marketing and the web. On multiple occasions while scaling DSC, Michael demonstrated amazing instincts — especially for a first time CEO. Michael proved an almost innate ability to find success, which is in itself a powerful signal. I found Michael to be extremely self-aware, knowing his strengths and being humble enough to recruit others that augmented his weaknesses. This is exactly what I look for in a CEO.
Michael had assembled an exceptional team, from operations and marketing, to engineering, design, and customer support. Each of the managers had a distinguished track record and a clear understanding of the challenges facing DSC. They were an incredibly robust and capable team for such an early stage company. To paraphrase Michael-
Combine an awesome product with a stellar team (throw in some butt wipes) and magical things can happen.
The Vision. Five minutes with Michael and it was obvious he was building much more than a razor company. Razors provided a prime opportunity to acquire customers and by consistently delivering on quality and convenience, a means to earn their trust.
“I’m going to sell razors on the internet and its going to be great.”
— Michael Dubin
Michael believed if DSC nailed price and convenience, Brand Personality would be the x-factor driving loyalty.
DSC needed to create a consumer experience where the brand personality came through in every customer interaction. The goal was for customers to look forward to brand interactions with as much anticipation as they did receiving DSC product. I saw signs this was happening: from the unboxing videos and engagement on social media, to the strength of customer referrals and member retention. DSC’s audience was growing steadily and they trusted their Chairman.
This deal wasn’t a singular bet on blades, subscription commerce, or the strong leadership team with a vision to change a market. Investing into Dollar Shave Club was a bet on all of those things — taken together, wrapped up into a nice little box and headed your way for $3, $6, or $9 a month.
Michael’s vision (and passion) to change the face of the men’s grooming category, combined with the company’s strong operating metrics had me interested in investing. What ultimately gave me conviction was the realization that Dollar Shave Club members were buying into a lifestyle, not just a razor. Michael constantly points out that DSC customers are smart, they’re focused on saving time and money. At one of our final diligence meetings, Michael said to me, “Rick, do the right thing. Be smart. Invest in Dollar Shave.”
I’m certainly glad I listened.
Behind the Scenes
As a VC, I’m often asked what the investment committee process is like and how decisions are made. Here’s some color on how this particular deal moved through our investment process. I’d been in venture for almost ten years before joining Comcast Ventures but, as mentioned earlier, Dollar Shave Club was the first deal that I brought to the Comcast partnership. Like all deals, DSC came under intense scrutiny given the market and execution risks. On this point, I want to acknowledge Rich Grant at Touchdown Ventures. At the time, Rich was a Sr. Associate on our team and without his assistance it would not have been possible to work thru the copious amount of financial and market diligence we conducted.
We were well prepared for the investment presentation, but I recall that I didn’t sleep much the night before. I was confident in the analysis and conclusion, but I worried about how the partnership would react to this somewhat unconventional opportunity.
I was the newest investing partner at Comcast Ventures- a technology focused venture fund- and bringing my first deal to the partnership, Dollar Shave Club. A company selling razor blades over the internet that… (it gets better) had just launched a national ad campaign for their latest product… a moistened butt wipe for adult men…
I envisioned the partnership rolling their eyes thinking, “Who the heck is this guy that’s so enthusiastically pitching us on a company selling commodity products over the internet and…a butt wipe???”
Fortunately, nothing close to that happened. In fact, the group saw opportunity in the analysis presented and was equally moved by Michael Dubin’s passion. This is part of what I love about Comcast Ventures. Comcast has been in the venture business for 17 years. The culture is one of collaboration, with a willingness to listen to one another and to debate ideas. The group is not afraid to ask tough questions or to challenge one another. But it is done in the spirit of making everyone a better investor. Thank you all for believing in me and for helping to get this deal over the line. I’m proud and humbled to work with such a talented group.
Credits
It’s been quite an incredible journey working with the DSC Family these past three years! Thank you to my fellow Investors: Mike Jones at Science, Kirsten Green at Forerunner, David Pakman at Venrock, Woody Marshall at TCV, and Marc Stad at Dragoneer. Beyond being a pleasure, I’ve learned a tremendous amount working with you.
To my friends at DSC: Michael Dubin, Kevin Datoo, Dan Murray, Janet Song, Javier Hall, and Jennifer Longnion (and to all of your teams!)
CONGRATULATIONS!
Simply incredible work. By sticking to your convictions and out-executing a crowded field of competitors, at literally every turn, you have built an exceptional company. Together you’ve changed the face of an industry and in the process, kept hair off the faces of more than 3M members! What makes this even more exciting is that I know this is just the beginning. Here’s to you and to the bright future ahead.
Cheers!
-Rick Prostko
For your listening pleasure from the DSC launch video:
Artist: Kennedy
Song: Karate
