Science Ventures III Investment Themes

At Science, we build and invest in companies shaping the future. Our decades of operational experience and entrepreneurial instincts allow us to spot emerging trends, inflection points, and societal shifts that lay the groundwork for our investment themes. In this case, they are:

• Direct-to-Consumer Brands (the switch from Authority to Authenticity)
• Direct-to-Consumer Services & Marketplaces (talent and skill marketplaces will continue to rise)
• Mobile Entertainment & Social (genuine connections between like-minded individuals)

We often see these themes before anyone else. We built the first ever direct-to-consumer brand to exit for more than $1 billion, we started experimenting with mobile entertainment nearly a decade before Quibi launched, and in 2011 we architected one of the first ever influencer networks, which went on to be acquired by The New York Times. In 2018, we were so early to esports that we were able to preempt the entire competitive high school market out of the gate.

In founding Science, we developed the following theories which continue to guide our investments:

• Large corporates would have increasing challenges in developing new products and services to serve the digital-first consumer.
• As large corporate entities gained market share, they would consolidate the middle market, leaving giant companies that continued to acquire and grow on one end of the spectrum and digital-first startups on the other.
• As the big companies got bigger, it would be increasingly hard for them to innovate new products, and as they had to maintain large growth in their giant top lines, their appetite for the small, the new, and the innovative would fade. Corporate R&D would give way to Corporate Venture Funds, which would actually serve as deal R&D for future M&A.

Over the past nine years of operating Science, and the past 14 years of angel investing, we have witnessed massive inflection points that have supported our theory:

• Local to Global Consumer Reach — The Web: 1991 was the introduction of the web, and 1994 was the introduction of online payments allowing any consumer to connect to global businesses easily. This was the beginning of the demise of the non-urgent local business. Although these businesses did well during the 2017 economic collapse, with the current COVID pandemic, the value has moved from local small businesses to large global enterprises. This may never return to the way it was in the past.
• The Connected Citizen and Consumer — Social Graph: The late 90s and early 2000s was the beginning of Six Degrees, Friendster, and Myspace. The second wave of social networking companies, led by Twitter and Facebook, connected communities, allowing a global spread of information and opinion. This drastically reduced the importance of controlled media and traditional non-personalized advertising and gave power to consumers to actively share and promote their favorite ideas, opinions, businesses, and services.
• Impulse Satiation — Mobile Devices: The mass adoption of mobile phones in 2007 with the original iPhone launch changed impulse control. Suddenly the mobile consumer could satiate any need with a phone. The growth of this platform, primarily through the App Store, gave rise to everything from cars on-demand, to information retrieved within seconds, to ordering practically anything from the global marketplace.

This leaves us with a business infrastructure that allows anyone with a connected mobile device to order anything they want, within seconds, from global providers, with supporting data from their friends and family.

The list of companies and industries this disrupts is too long to list here but in broad categories:

• Local goods and services that are centrally controlled, price-controlled, inventory restricted, overpriced, and/or providing poor customer service. This could be illustrated by understaffed coffee shops forcing their customers to wait, a home service vendor that never shows up on time or overprices its services, table-limited restaurants turning away customers, or a cable service that is the sole vendor to a neighborhood and restricts their customers’ usage and treats them poorly.
• Knowledge silos that create barriers through price, exclusivity, or scarcity.
• Service businesses whose only defensibility is traditional marketing and providing a premium on top of labor.

As we know in venture capital, team, idea, and execution are critical, but timing and luck also play a great role. Although it’s hard to quantify luck, we can think about timing today and how that impacts our investment choices:

• It is faster than ever to launch a global brand utilizing connected consumers, serving sales through the web and mobile devices.
• The mobile device is a sea-change for entertainment, and its all-consuming appetite for consumers’ time is growing.
• Digital culture is growing, and esports has overtaken all athletics as the sport with the highest participation globally.
• Connected consumer marketplaces, paired with the changing nature of work, will continue to be a growing and important part of our economy.
• The connected consumer is more unhappy than happy, a spyglass into the lives of global consumers has highlighted the discrepancy in all aspects of our life, and this has resulted in a “pulling back of the veil” — this will potentially activate a social rising to normalize these polarized levels.

Direct-to-Consumer Brands

As we continue our nine-year history of investment into direct to consumer brands — we believe that the switch from Authority to Authenticity in consumer product choices cannot be understated. Authoritative brands that rely on their legacy brand value and history do not resonate with today’s consumers. Authentic brands that are engaging through social channels, developing a community, and expressing themselves through content are much more likely to receive consumer attention and are the companies of the future. Our Science Ventures I portfolio of Dollar Shave Club, MeUndies, and Urban Remedy unearthed this emerging theme. In Science Ventures Fund II we added Liquid Death, Grove Collaborative, Kyoku, The Good Patch, and Lambs to that portfolio, and Science Ventures Fund III has announced its first investment in OffLimits — a new direct to consumer cereal brand that combines content, characters, and a low sugar healthy cereal that we believe exemplifies the move to Authentic consumer brands.

We see companies in this theme typically acquired by conglomerates that are often unable to innovate and launch new brands themselves and need healthy Authentic brands that attract today’s younger consumers. We believe these companies have value when they pass the $50M annual revenue mark, are highly attractive at the $100M mark, and are an industry disruptor when they can capture over 8% of any given market or achieve over $250M in annual sales, depending on the sector. We focus on businesses with high retentive consumer models — either through brand loyalty, auto-replenishment, or membership-based sales.

Direct-to-Consumer Services & Marketplaces

Talent and skill marketplaces continue to be on the rise, fueling the gig economy, and allowing tens of millions of Americans to supplement their primary income by providing services on their own schedule and as their own boss. Often referred to as Marketplaces — we see this as the rise of direct from consumer services; a sector that allows individuals to provide a service (cooking, driving, cleaning, dog watching, sharing) with their community members through a centralized platform. Fiverr, the online marketplace for freelance services, and its stock market price is a relevant indicator of the sector’s overall success.

Pre-COVID, we began our exploration into homeschooling services driven by the consistent poor performance of much of America’s public educational system. Post-COVID we believe, with strong conviction, that supplemental at-home educational platforms will become critical for many American families. We anticipate that mental health, in-school psychology, and social-emotional learning will be the next elements to be outsourced for the American student or are at risk of being completely removed from public education. Additionally, we believe that online courses that can supplement or replace traditional social-emotional education are a good place for us to start.

With this in mind, we currently have two companies in the Science Ventures III portfolio addressing student mental health, both independently and in partnership with public and private schools, and an on-demand service for students. We believe this initial foothold will be the first as we enter the at-home educational market.

Marketplaces aren’t restricted to just skills. We’ve seen this with our portfolio company PlayVS, the nation’s largest scholastic-focused esports platform. Esports has been on the rise globally for some time, and although previously considered a fringe sport, it now boasts over 600M global viewers. With the rise in awareness of long-term physical damage (which may also be cognitive and emotional through repetitive brain injury) from traditional sports, coupled with the current restriction on group activities, we believe esports will have its largest growth year in 2021. The popularity of PlayVS and the growing desire from the publishers to formalize infrastructure around their games means we could see numerous billion-dollar companies rise within the esports sector.

Mobile Entertainment & Social

Emarketer states that the average time in the US spent on mobile devices will expand to 3:54 minutes by 2021; we think that number is vastly understated. We have little doubt that “connected time” will continue to expand and consume most of people’s days. With this in mind, we continue to invest and develop companies that fit the following needs within the mobile social entertainment segment:

• Micro-community and social platforms that allow more genuine connections between like-minded individuals. We see these kinds of connections in our portfolio company Pray.
• Entertainment and content experiences that grab minutes instead of hours. Products that can satiate micro-entertainment need with satisfying content and new formats. We’ve seen this with our holding, Mammoth Media.
• Premium services aggregating segmented content for specific audiences.
• Platforms that utilize the mobile phone to increase user happiness and social connection.

Our ability to forecast what our world will look like tomorrow and 10 years from now has informed our investment theses. By focusing on early-stage venture capital through this investment lens, we’re able to build resiliency and navigate changing social, cultural, and economic structures, providing our strategic partners and founders substantial value. We’re continuously building our expertise in key growth areas and anticipating what’s around the corner. We’re game for what comes next.

For more information, or just to chat, reach out to us at investors@science-inc.com.