By Kirsten Green, Founder and Managing Partner, Forerunner Ventures
Determined founders and remarkable companies have the potential to bring new offerings to life that we didn’t know we wanted, to conceive extraordinary experiences around unmet needs, and to build such emotionally-resonant brands that they quickly permeate our culture.
These are the traits Forerunner Ventures has always been searching for as we aim to partner with teams looking to build category-defining companies. To continue investing in early-stage companies looking to rewrite the rules of culture, we are pleased to announce our newest $360M Fund IV.
In 2012, we saw money increasingly flowing into the VC ecosystem. Fund sizes increased as established firms were on the rise, fledgling firms were entering the mainstream, and new funding models were emerging with intense frequency. Simultaneously, business was evolving at an increasing pace, raising the bar for companies to remain nimble and drive results.
The trends that started six years ago have only accelerated, seeing annual inflows into venture firms reaching $42B in 2017, up 35% from 2012. All signs point to 2018 inflows exceeding 2017, with 5 $1B+ funds already closed year to date. Larger exit ambitions are being driven by more companies valued at $1B+, setting a new measurement of success as more money finds its way to companies, and larger funds require larger returns. All of this is to say, the startup environment is vexed by more competition than ever, with changing goal posts challenging these measurements.
As early participants in this wave of innovation in ventures, we came to market with conviction that in order for investors to be empowered and exceptional, they would need to leverage tangible expertise, help companies navigate an increasingly complex journey, and embody wholly original thinking. With these three intentions in mind, we sharpened our instincts and built a diverse team dedicated to understanding the evolving consumer, and we all became students of trends, preferences, lifestyles, and needs — specifically how they related to the $5.9 trillion U.S. spending economy.
We have always believed in the power of focus. Instead of expanding our efforts across a broad landscape, we aspired to know everyone that mattered across a targeted commerce-led one: every company at scale, every company challenging norms, every service provider offering advantages, and every strategic partner that stood to help unlock potential. The mosaic of related information provided a rich foundation to connect the dots, map changes over time, and push early ideas forward.
We acknowledge that venture capital continues to evolve, from the growing recognition of more humane and inclusive values, to how digital and physical ecosystems continue to develop. As we planned for our next fundraise, we considered the opportunities and challenges ahead given the competitive landscape in venture as well as the opportunity set in commerce broadly, and we decided to double down on our founding strategy revolving around the theory of Empowerment: Empowered consumers and evolving technology are at the nexus of change, prompting the need for new experiences, products and business models. Forerunner Fund IV emboldens our team to leverage category commitment and back founders who are game to tackle this complex and aggressive environment.
What We Invest In
Digitally empowered consumers are navigating an evolving path to purchase while setting a new bar for service, transparency, and authenticity. Access, products, and services are being brought to life as technology unlocks potential and reshapes the way business gets done. Many old guard commerce leaders are saddled by outdated value propositions and infrastructure. Amazon, — leader of the 1.0 e-commerce revolution, — is 20 years old. Much has changed since then. The consumer has evolved, and the way we do business has transformed. As we consider the potential of a values-driven culture ahead, we theorize every path to purchase and product experience must embody the ideas, principles, and attitudes that consumers hold dear.
We aim to partner with founders looking to bring new products and services to life, and address large audiences and unmet needs through innovative new models and distribution strategies. Most often we are looking for companies that are challenging norms within their categories, either taking on incumbents with superior offerings and models, or leveraging new technologies to meet emerging potential. We view these criteria as basics hallmarks of companies that stand to redefine the future and create substantial value.
What refines our point of view and investing lens, often leading us to investment choices that might strike others as unlikely, exists within the themes we see underpinning change and ultimately redefining our culture. To share a few:
Relationship retailing. It’s personal.
What once began as a barter exchange, retail is now ruled by an overwhelming amount of choice that too often leaves the consumer with option paralysis.
The original form of barter commerce ultimately expanded into local markets, where trades were negotiated, giving way for currency to play a vital role. Local shopkeepers emerged as retailers tailored their offerings for a known neighborhood audience. As chain stores were born, the corner store went regional and then national. Malls were a response to chain retail, which gave way to super stores and department stores. Selection became the draw, leaving curated offerings tailored to local audiences behind. Enabled by the Internet, Amazon emerged as the next generation answer to selection and convenience. In relatively short order, digital stores started offering products of all kinds sold in all kinds of manner. Choice had gone exponential.
In part because of this variety, websites have become cluttered with menus, words, and reviews; a simple search lands us with more options than we anticipate are available.
Increasingly sophisticated technology is enabling an about-face; technology stands to move experiences, connections, services, and values back into center stage. We see a future for one-on-one commerce again, but this time delivered in a scalable way. There are elements of this, mostly in pieces versus holistically, being delivered across the landscape today. But there is much room to run.
The Information Age rules
We view information as the single biggest driver of consumer evolution, and consumers today have unprecedented access to it. Limitless knowledge has inspired research, discovery, trial, and accountability, leading to step-change shifts in preferences, behaviors, and expectations.
With information in their back-pocket, consumers are not only making more informed selections, but they are demanding more while taking greater responsibility and ownership of their purchases and who they choose to conduct business with. They are advocates for themselves and what they believe in, and in turn allocate dollars to reflect and embolden their values. Therefore, a brand’s mission counts; transparency is highly regarded; integrity is celebrated; and pledges are challenged. The purpose-driven impact of brands and business stands to underpin many changes to come.
When growing up, I remember my dad lamenting the need to network. Networking was never flaunted as a source of support or inspiration, but rather as a tool to gain access in the context of business.
How things have changed.
Preteens, along with the rest of us, are now proudly collecting networks online across multiple platforms. Networks are still tools, but they offer so much more than access. With them we seek connection, inspiration, information, opinion, entertainment, validation, and feedback. They are becoming the most significant source of discovery and are even driving us to act and purchase.
We are operating well beyond the time of highly produced, one-dimensional ad campaigns, into a world of real-time and multidimensional influences. This trend was born online across broad social networks, but we see it moving into more tailored circles, both on and offline. The implications here are far reaching; the consumer’s path to purchase and business model shifts continue to be inspired by these changes.
Brands become human
In a digital world, brands are able to reach well beyond the four walls of a store and jump off the pages of glossy magazines. Brands are able to build followings across social media like consumers make friends. They aspire to start conversations, even movements, as though they have deep passions and insights. Therefore, it’s not surprising that consumers expect that the information they share with brands is reflected back with understanding. In this world consumers expect brands to take feedback, to learn, to improve. For a company to be able to meet these expectations, it must have personality, and that personality must evolve much like people do. It is impossible for a company to exist in this manner, beyond a one hit product or a catchy campaign, if the brand is not genuine or if it does not have meaningful values. Really, no one wants to spend time with someone who is inauthentic or shallow; the same is increasingly true in business.
Design has gone mainstream
Good design for all. Tastemakers and current generation widely-adopted digital products have trained a generation of consumers to appreciate form alongside function. Look and feel matter. Simplicity and ease of use most often win the day. A name, a type font, the use of imagery, or the placement of a button, all contribute to define a brand, to create a vibe, and imprint with a user. A quality product with a clear value proposition is table-stakes today. Design is one of many efforts to help set companies apart and begin to forge deeper connections with consumers.
Upgrades and unlocks
As the roles of brands and retailers are renegotiated, business has begged for new systems, new tools, new platforms, and even fresh looks at new business models. This cycle is well underway, but nevertheless, innovation in practice falls behind need and demand.
Further, in line with consumer preferences, as well as environmental and economic considerations, we feel inspired by the potential to unlock new approaches to supply chain and manufacturing. There is a need to shorten design and manufacturing lead times and to prioritize sustainable methods, materials, and to limit waste. We also see great potential for inventory-light models as product-driven companies strive to meet growing consumer demand for personalization. We believe businesses supporting this movement operate in the path of opportunity.
Culture shapes empowerment
The world is changing. Commerce is shaped by culture. And culture is shaped by commerce. Whether driven by enlightenment or plagued by inactivity, we see consumers increasingly seeking wellness for both the body and the mind. Dollars are shifting from goods to experiences as Instagram has enabled consumers to productize their own lives. Luxury is no longer reserved for the jet-setting crowd, as consumers across all socioeconomic classes expect a higher level of quality, convenience or personalization. And, loyalty, while harder to achieve in today’s noisy world, is as powerful as ever. The consumer is empowered; she expects more.
We currently have 49 active portfolio companies, spanning consumer-facing offerings to the B2B services that support them. These companies, along with our future investments, aim to play into the movements that underpin consumer and business evolution; they strive to impact large audiences entering the market via a unique wedge, with goals to define new categories and open new channels.