New Year Letter

As a kid, I remember a pile of holiday “update” letters on our sideboard during the Holidays. People wrote in depth about their year, positive milestones for their family, and bumps in the road too. These notes were personal, genuine and from a bygone age – before smart phones, texts and even e-mail. Few write these letters now, favoring the short form Minted card with family shots, “Look! our kids are beautiful too.”

I had the pleasure of receiving only two Holiday letters this year – one from an HPVP team member and one from an HPVP investor who runs his own large private equity firm. Two things struck me when I read these notes. The first is how little I know about (ask about?) someone who sits 20 feet from me 8 hours a day. The other is the timeless value of prose in expressing complex experiences and ideas. So, I thought I’d sit down and write a New Year’s letter sharing what is important in my life, and what I’m thinking about.  For simplicity, I’ll talk about Family, Profession and Context. Context is the world we live in: economy, politics, city, environment, arts, etc. This last section is probably the most interesting to most, so feel free to jump there. Spoiler alert: this year is dominated by politics and economy.

Family – the people we live with:

Lest you thought I would write this without a family picture because of my earlier swipe, ha! Here it is:

Family-e1546286491553.jpg

Hawaii sounded great for Christmas, but I’m cheap. So instead we went to Florida and bought matching Hawaiian outfits on sale. Try it sometime. It’s super fun, and, no, I don’t get an affiliate fee.

We’ve entered a new epoch with our daughter, Skye (6), and our son, Winter (5), in the last year. They are increasingly independent and speedily maturing, especially as thinkers and questioners. This has largely shifted the challenges of parenting from meeting banal needs like sleep, feeding and potty to making hard decisions about how we positively influence their character formation and self-management. One experience in 2018 highlighted this for us. One of our children “experimented” (ahem) with taking a toy from their very close friend and then lying about where they got it. In the middle of a Tuesday I received a call from the concerned mom of the friend. I was first annoyed by a call about “XYZ-Branded-Toy-Of-The-Seasons” that I was sure had simply gone missing. But I opened my ears a bit and promised to follow-up with my child. The mom was right, and we the parents of a budding bandit. While this episode is fairly mundane for a developing child, this was the first time Ashley and I really took pause to ask “what type of character and values are we instilling in our children?” The experience was also notable in the tremendous grace and forgiveness we received from the other parents and wronged child – who still remains very close with ours. The child and parents could have gotten upset and gone to the teacher; instead they approached us directly. You can’t ask for a better learning experience, and it highlights that openness to making mistakes and likewise rendering forgiveness are a key part of learning at all ages. It also highlights that child rearing is best done in community.

Notwithstanding the above, Ashley and I couldn’t be more proud of our kids who are truly good people and completely embracing of life and school. Skye has taken to swimming for sport, and Winter has taken to Legos. He also succumbed to peer pressure from Skye to learn how to swim and has become an equivalent waterbug after four years of screaming bloody murder whenever within sight of a pool!

I remain extremely proud and bedazzled by Ashley, our teacher-athlete-mother-wife who did the Chicago Marathon this year (her 14th) at less than 3:15. Wow. Ashley is the best life partner I could have – businesslike when it comes to running a common family and household; loving and thoughtful as a spouse. I also decided this year that the running group Ashley leads was filling up with too many strapping-young-single-20-something-boys vying for her attention, so I ran my first marathon this year to keep up at 3:42.

Profession – the people we work with:

Hyde Park Venture Partners had a tremendous year – which in venture capital is to say that the dollar weighted balance of good and bad tipped heavily to good. We had a number of companies (G2 Crowd, FourKites, Shipbob and others) raise large financings from premier later stage VCs (IVP, Emergence, August, Menlo, Bain and others) at significant markups. But these financings are only smoke from the fire of momentum our partner entrepreneurs are creating in our portfolio. We are truly in awe. These three companies, for example, will each double or triple revenue in 2019 again and likely hire 400 people, just in Chicago. It is a great pleasure for our firm to play a small part in this, and I proudly acknowledge the leadership of two of my partners, Ira and Tim, in the role they play with these three companies in particular. We also had liquidity in both funds, something that feels good for our entrepreneurs, investors and selves alike.

Increasingly, we recognize that good outcomes like those above are the result of well-worn ruts by a consistent team combined with a smidge of process. Ira and I have been working together for ten years, Tim and Greg with us for nearly six, and Jackie for nearly three. As an investing team, we find great joy in our work and each other… and there are sure things to laugh about. We recently implemented an “email of the quarter” designation for craziest e-mail received. It turns out that sleep e-mailing on Ambien is a real thing, and, man, the Ambien e-mail we received was a doozy! Keep ‘em coming, world.

Of course, it’s not all roses. Lots of thorns too – certainly in the portfolio – but sometimes with each other. Just as in a marriage, investing partnerships bring out both the best and worst in people, including myself. In my unadulterated form, I can be questioning and standoffish with those I don’t know or don’t like, charming and caring for those I like, and demanding and wielding of the sharp edge of whit with those I love, including my partners Ira, Tim, Greg and Jackie. We all have our imperfections, but we’ve also developed a safe zone for dissent and disagreement both in our formal investment process and our tacit culture. Indeed, when we first grew the team beyond Ira and me, we talked with a number of top VCs and found that a common feature of their funds’ best venture investments was original disagreement about those startups’ potential. We embrace this reality: in the fog of early stage investing, full agreement only means that everyone is missing something! So, here’s to more fun, success and disagreement in 2019!

Context – the world we live in:

To see the context of 2018 (and likely 2019 to come) as not dominated by politics and the economy seems impossible from where I sit. And yet, save for a short post after the 2016 election, I avoid talking about either much professionally. In short form (eg Twitter) the world doesn’t need one more fan on either side of the stadium shouting, and I am generally losing interest in Twitter as a means of communication other than for simple brand advertising for HPVP and me. In long form (eg blog) I’ve often viewed the line between business and politics a distasteful one to cross. Call me simplistic, but I’m happy to do business with anyone regardless of their politics, as long as we share similar values. It is because of this belief, however, that now is an important time to speak about politics in some depth, even to a broad audience of my business network.

The basic job of leaders is to enable their team members and constituents. For 90% of the time at a large company (not a startup), this means maintaining a consistent set of principles (values!), policies and procedures so that individual employees can do their jobs and keep customers happy. 10% of the time it means making really hard decisions to change the direction of a company to iterate a business model or otherwise stay ahead of the competition. This rubric for leadership applies well to government also, and maybe even more in the extreme. In the US, it is supposed to be very hard to change policies and laws so that a consistent political and regulatory environment is maintained to allow a relatively free economy and capitalism to thrive. Then, 10% of the time, strong leadership in the Presidency, House and Senate is needed to, say, elevate our society with respect to civil rights, recast an outdated tax code every 30-50 years, protect an ally in duress, or restructure our laws and policies to reflect a changing national culture and business model (eg, agrarian –> industrial, analog –> digital, etc). Generally, stability in politics matters and is good, creating a healthy environment for business. Just recently, we’ve seen how political instability is starting to undermine our business environment.

There is no one who understands base human instinct more than Trump. He swept into power on the long wavelength rumblings of a quake of discontent that others couldn’t hear. Unfortunately, no one understands the role of government, domestically or internationally, less than Trump. The interview simply doesn’t match the job.

Moreover, politics and government are much like venture capital in that 9 out of 10 times, your greatest worries will come true. Bad things simply happen all the time; so a good President and presidential team has thoughtful principles, policies and procedures in place to make sure the little things and the big things don’t throw the country off track. Over the past six months, we’ve seen any vestige or attempt of such a structure around Trump crumble. With accelerating staff departures and myriad new troubles rising every week, the frenetic spring that is Trump is simply unfettered to bounce around in different directions, introducing shocks and vibrations into both our political and business environment. There is no stability.

Much has been written about Trump’s lack of values… or adherence to the single value of I. It is not without purpose that I use the word “principles” in the framework for leadership and government above, or why the theme of values has been woven so completely through this letter. Without shared values, every interaction is a transaction, not a step in the natural ebb and flow of a continuing and maturing relationship. Faith to a common set of principles is what business and government leaders need to maintain consistency 90% of the time and then garner support to make big leaps 10% of the time. Instead, Trump’s lack of values and self-embracing volatility leave domestic and international institutions confused and reeling.

Sounds awful and scary, right?

Yet, when I look at my kids, I am not discouraged. As much as we and they are learning from mistakes year-by-year to become of stronger character and values, I can feel the country learning from our Trump mistake as well. Our nation is beginning to reject Trump like the body’s protective sack around a splinter, pushed back through the skin. That doesn’t guarantee new leadership in 2020; a lot can happen in two years. At a minimum, however, mean reversion will bring a more competent and stable leader by the time this Presidency can be formational to how my kids see the world and our country. Trump will be history and a footnote for them… and ultimately for all of us. Good riddance. (Aside: Many of you may note that Trump’s impact has a long half-life because of his SCOTUS appointments. Perhaps, but his two choices could easily have been appointed by any Republican president. One’s preference for that or not is within the normal envelope of political discourse. My point here is that Trump, himself, is not.)

The holiday letter from our investor was marked in its ability to tie the current political climate to business. It greatly informed my thinking here and convinced me that business leaders need to speak up when political leadership is in crisis. Except, we reach a slightly different conclusion. For our investor who runs a multi $ billion “distressed” private equity fund, he sees the volatility and impact on asset values as a buying opportunity. I can’t disagree in the short run.

But in the medium and long term – what matters for my kids and our investors in a 10 year venture fund – I am incredibly bullish. On a recent visit with another of our investors to provide an update on HPVP, we sat over coffee at his kitchen table. I looked at his living room to see piles and piles of sweatshirts, the inventory for his high school senior’s e-commerce business! (Of course, I told them they should use Shipbob to manage their inventory.) When I was the age of this budding entrepreneur, 20 years ago, there was neither an easy supply source nor scalable marketing channel for that same business. It would have required far more startup money, more time, and by definition had a much smaller audience. Now on the brink of the 2020s, there has simply never been a better and easier time to build something new. The rabbit is out of the hat, and there is no going back.

Why Tesla will never be Apple

I regularly argue with my partners about how amazing Tesla is or isn’t. We all agree Tesla’s technology and product are a leap forward, but the question is whether the company will become a significant or even dominant worldwide auto player (and justify its orbital valuation).  Despite its buzz, Tesla has only a bit more than 1% of the US auto market, though ~40% of the US electric car market. It is easy to analogize Tesla to Apple with the latter’s incredible iPhone tech and product, which consistently holds a 30% to 40% market share after initially creating the smart phone market (and killing the feature phone market).  To perfect the analog, the story would play out like this: most of the 98% of the US market that is now gas or hybrid will become electric in 10 years, and Tesla will continue to be a dominant player. Suddenly Tesla’s 51B market cap looks like a pittance!

Both Tesla and Apple have a superior technology, better products, better user experience and better buying experiences. So how could this not be a “fait accompli”?

Before I answer that, some background: I’ve recently been reading about genetics and its effects on human physical and social evolution. Why? Because I didn’t know crap about genetics, and it seemed a rather gaping hole in my collection of the lots of things I know just a tiny bit about (life of a VC).  If you are interested, read Violinist Thumb and Before the Dawn, in either order.

There is a lot of similarity between genetic evolution and technology evolution – perhaps not a surprise, as genetics is in the broadest sense the most natural of all technologies. So here are a few definitions in lay terms and their analog to technology evolution. Then we’ll get back to Tesla.

Natural selection: Some genes help people live longer or increase fertility, thereby increasing the chance that said gene gets passed on through carriers yielding more offspring than non-carriers.

Sexual selection: A certain type of natural selection where a gene creates a physical (phenotype) or social characteristic in the host making them more attractive to mates, leading to more offspring than for non-carriers.

Genetic drift: The natural fluctuation of versions of a gene in a population through generations when no version (called an allele) provides significant natural or sexual selection benefit over the other. It turns out that with time, genes within a small population and with a set of initial gene variations will tend to converge through generations to a single version because of the effect of early deaths and non-procreation. For finance geeks, the analog in finance is the “random walk”.

Genetic sweep: The rapid dominance of a gene version across a population over just a few generations because of very strong positive natural or sexual selection.

The analog: Technology evolution is like genetic evolution in that customers/consumers make choices between technologies and companies in moments of truth akin to sexual selection. Meanwhile certain technologies and accompanying business models may be more likely to survive longer (less capital intensive, stickier network effects, etc), a natural selection that allows longer survival to then be selected by more customers – a harmonious cycle. When technologies and business models are truly superior, they can literally “sweep” through a population of users, like the iPhone. This is increasingly likely when there are network effects, as the iPhone had with its app store, and virality, which the iPhone had as a fashion and status accessory (admit it).

In this analog, however, we must also account for the role of chance. Even when there isn’t a particularly better functioning or serving technology, certain conditions (last mover advantage, first mover advantage, influential customer, etc) and path dependency can lead to dominance of one technology from a small set of technology choices, a la genetic drift or a random walk.

The big difference between genetic and technology evolution is the time scale. Genetic changes are measured over millennia and across thousands of generations, whereas technology evolution is measured in years or decades. While gene variations can wait for eons to dominate, companies and especially startups don’t have that luxury. A consumer might make a choice about a new phone every two years, a business about an ERP every ten years, and a human being about a mate once in a generation (or so). Modern technology moves much faster than genetics, or at least natural genetics.

The key insight with regard to Apple and Tesla is that the longer decision cycles and product life cycles are, the more time competition has to compete and catch up between consumer decisions. When Apple introduced the smartphone, it was so superior to feature phones that smartphones in the form of the iPhone “swept” through the US phone market in only a few years and ultimately maintained a large 30 to 40% share for Apple itself. I’m an Android guy, but even I can admit that Apple kept a technology lead for almost 10 years – 6 or 7 “generations” of one to two year phone decision cycles. The speed of the market allowed Apple’s initial technology advantage to buoy it in the lead through a number of generations because it was too hard for competition to catch up quickly both with its technology and viral and network-based business model.

The auto market is different. I drive a fourteen year old Subaru, but I’ve purchased at least six phones in that same period. Granted, that is a long hold for a car, but even assuming the national 6.5 year average, that is simply a long time for competitors to have between consumer decisions to catch up. This is true both for consumer decisions between gas/hybrid/electric and for consumer decisions on brand within electric.

Gas and hybrid technologies continue to improve, and even if total cost of ownership for electric is reaching or surpassing parity, most of these calculations don’t account for unnaturally high human discount rates in decision making when considering electric’s higher upfront cost. This effectively slows the growth of Tesla’s electric market sandbox within the overall auto category, giving yet more time for competitors to catch up. By the time electric is a significant portion of the auto market, Tesla may well find itself in a state of “genetic drift” doing the same random walk for a few points of market share here and there – much as Ford, Chrysler and GM did for decades – and likely against those same brands.

What could change this? As far as I can tell, while there is some virality in Tesla’s business model as a fashion and status accessory (admit it), the network effects are more nuanced. So far, your Tesla does not make my Tesla or Tesla experience that much better. While it’s true that the more Teslas on the road, the better self driving features get with additional driving data, but I don’t think Tesla’s current autopilot features are the main buying reasons versus 100% electric, awesome design, status, etc. Tesla’s charging network is its strongest claim on network effects so far, but I would expect this to be fleeting as gas stations, c-stores and QSRs implement their own open networks in the coming decades given the clear opportunity to sell sugar and salt to waiting consumers. Major market share is still possible for Tesla, however, if it truly delivers on the promise of driverless autonomy and establishes a proprietary self-driving network that drives “sweeping” adoption through network effects. We haven’t heard as much talk of this lately.

Moving a startup from bottom third to top third (it’s the people, silly)

The common wisdom of venture is that you lose all your money in the bottom third of your companies, score singles to triples in the middle third, and drive the vast majority of value in your top third. A “Midas Lister” we know astutely refines this saying, “It’s actually the top third of the top third where you make all your money”. This seems to resonate with another startup rule of thumb that 1 in 10 investments is a home run.

The problem with these rules of thumb is that a few years into a fund when you are making new investments, following on in existing ones and looking for patterns to determine where to invest time and money before winners are obvious, after-game learnings don’t help you see the future.

It turns out there is a pattern of early warnings we’ve seen in the fifty companies we’ve worked with. The roadsigns to understanding how the thirds **may** break down can be summarized as follows:

  • Top third: Top third companies are the ones where everyone is in the same room together (founders/mangement, board, investors), talking about how well sales are going and figuring out how to pour more money on.
  • Middle third: Middle third companies are the ones where sales are not going swimmingly, but everyone is still in the same room together discussing how to make them better, either through product, go-to-market or team adjustments.
  • Bottom third: Bottom third companies are ones where sales are not going swimmingly, and everyone is in different rooms (calls, coffees) talking about everything except sales.

Upon reading this, entrepreneurs and investors will immediately know where their compan(ies) stand. Don’t worry, I use the word “roadsign” intentionally. This trio of forewarnings allows time to course correct. So how do you do it?

Top third companies are incredibly rewarding for everyone (sometimes fun, sometimes challenging, sometimes stressful… but always rewarding). Revenue is beating plan, talent is flocking in and VCs keep calling. But you can still screw it up. The common modes of failure include: not hire experienced functional leaders to manage scale; not building market leadership, integration and distribution among other key market players; over-focusing on top-line to the detriment of other key metrics like churn and unit economics (eg, growth at all cost); and generally getting over-confident. Even if you avoid these potholes, ultimately landing in the top third of the top third is still highly dependent on market timing and often pursuit of a non-consensus thesis – not just perfect execution.

Middle third companies are really a fat middle, typically representing 50% of a portfolio. Most VCs have lots of these investments, and most entrepreneurs are running one. Things aren’t going perfectly, or sometimes they are going poorly, but everyone is working hard together to figure it out. Getting into the top third from the middle third is about executing well on product and go-to-market strategy in your current market or finding a riper adjacent market space. If these course corrections don’t work with some time, then the next step may be a change in functional or CEO leadership. The latter is traumatic, time consuming and capital consuming. It is a last resort, but in middle third companies when it is done, it is done smoothly with open dialogue between founders, other managers, investors and board members. You continue to row together.

Bottom third companies (actually often about 10-20% of a portfolio) look very similar to middle third companies –  ranging in growth profile from slightly downward or flat to moderate growth – with the additional challenge that some combination of people aren’t getting along. This creates significant distraction to solving the root growth issue.

And since the theme of this post is threes, there seem to be three modes of such people challenges:

  • Founder – founder: We’ve seen a number of companies handicapped by founder-founder problems, sometimes due to performance issues but more usually personality conflict. If they can’t be worked out, then board members or investors need to quickly help arbitrate – sometimes with the result that one founder moves on.
  • Investor/board – management: These scenarios typically result from company under-performance that leads to investors or the board “moving on” a CEO… or the CEO thinking they will. There are also more nuanced instances where performance is good, but there are disagreements over personnel, strategy or ethics. Because investor/CEO relationships can be accompanied by baggage from prior financing negotiations or fear of VCs “stealing my company,” we’ve found that independent board members are critical in helping a company through these times. Independents can play an objective referee and build consensus around a leadership decision, helping the company move to a new chapter whether with that CEO or a different one. Of note, many startups have independent seats on their board that are not filled. This is one reason among many that it is worth filling them ASAP.
  • Everyone – everyone: Call this a complicated love triangle without the love, where some investors don’t agree on a key issue with other investors, whom in turn don’t agree with management and independents, etc. Factions form. These are really tough situations (often related to leadership or financing) and require a strong CEO, independent director or Chairman to call bullshit, get everyone in a room together and hash it out. Such fractures generally arise from a difference in economic position or differences in perspectives on people or market – all valid business views. In the end, parties need to commit to eating a little crow and moving forward. The other solution is to sell the company – effectively a divorce – but this is easier said than done. Selling a company requires development of consensus on process and takeout price, no easy feat when people aren’t getting along.

Why are these situations so destructive? Time and emotion are the key factors. A complete set of 1:1 side conversations for a board of five people takes 10 times as much time as a single group conversation (see math below). These conversations are often emotional and exacting, reducing confidence in the company and belief in the opportunity for each individual and VC partnerships involved. Above all, they distract from the underlying issue the company has – usually growth. Growth can’t be fixed unless it has everyone’s focus and a mutually trusting team to pursue it.

As with so many ailments, diagnosis is the first step to recovery. If you and your team/board/investors can recognize a bottom third issue, then you can work to get back into the middle third and eventually to the top!

Fun math on side conversations:

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Meet eTurns: Marshalls + eCommerce Returns

I am a Marshalls shopper. For most utility purchases ranging from socks to sheets to olive oil, Marshalls is my go-to. I am not alone. My regular visits see a line of 10-20 shoppers (often families) waiting to check out against a long row of 5-10 cashiers, all ringing up $X00 basket sizes. With TJX’s (Marhsalls and TJMaxx’s parent) stock up 35% in the last year, it’s clear their model works… an amazing feat in the face of amazon and amidst hundreds of waffling retailers.  The WSJ attributes TJX’s contrarian success to great prices, skillful merchandising and the temporal nature of an ever-changing inventory that drives consumers to buy on sight. The Journal also notes that off-price retailers are visited about twice as often per year as department stores, have a fifty percent higher purchase likelihood per visit and benefit from a short 25 day inventory hold versus the 100 day industry norm. TJX is truly the bright spot in the brick and mortar blight.

At the same time, given HPVP’s activity in the logistics space (FourKites, Shipbob, Roadsync), I’ve been mulling the ever-growing returns problem for e-commerce companies. Estimates are that up to 30 to 40% of e-commerce purchases are returned (versus 8% across all of retail), creating a cost structure that nearly matches the costs of bricks and mortar. Wow, that is what eCommerce companies were trying to avoid in the first place! “Free returns” can cost an online retailer as much as $15 per return in shipping and handling, and the returned merchandise itself is often liquidated for pennies or dimes on the dollar. This is the dark spot in eCommerce’s halo.

Dark spot, meet bright spot. If you put the two together, there is a great opportunity for a Marshalls-like retailer that deals only in eCommerce returns. I am calling it eTurns. Like any budding entrepreneur, I did Google research looking for competitors:

Marshalls/TJX: Certainly TJX could do this itself, but it would have to grow its sourcing to include e/retailers instead of just brands, where it currently sources most of its product directly. This may be a challenge for TJX as most other full-priced home goods and clothing retailers view TJX as an unwelcome discount substitute to their struggling sales.

Happy Returns: Happy Returns is one of a few leading startups addressing the returns issue. They partner with brick and mortar retailers to accept eCommerce returns in person for a variety of online brands and etailers, promising more foot traffic to the brick and mortar and lower returns shipping costs to online brands and etailers. After receiving returns through Happy Returns, etailers resell or disposition returned products as they normally do. I love Happy Returns’ marrying of online and offline retailer needs, but the approach still means an extra forward and reverse shipment for a returned item to reach ultimate sale. Meanwhile, time lost in Happy Returns’ supply chain increases the carrying costs and obsolescence risk of returns.

Optoro: Optoro is another startup making strides in this space. Optoro takes ownership of e/retailer reverse logistics, receiving returns to its own warehouses, assessing quality and remarketing at reduced prices on Amazon, Ebay, and its own site Blinq for ~20-70% off retail. Remnants are then sold in bulk at its own site Bulq for pennies or dimes on the dollar. Certainly this service helps e/retailers outsource the headache and distraction of reverse logistics while monetizing returned merchandise, but it still relies on multiple extra round trips and a longer obsolescing supply chain.

The missing link in these models is speed to (re)market to avoid obsolescence and forgoing additional shipping and handling. If these two problems are solved, more value can be captured from returned merchandise.

Meet eTurns! (no, not that eTurns)

eTurns is a brick and mortar retail concept carrying only merchandise from “local” eCommerce returns. Returns are collected from eTurns bins around a city or neighborhood, as well as at eTurns locations, for a timely refund from the original etailer. eTurns takes the merchandise on consignment and revenue shares the proceeds with the original seller. Like TJX, eTurns is a discount retailer of unique name-brand items with fast inventory turns, reducing obsolescence and increasing  consumers’ propensity to buy on sight.

With retail rents declining and billions of dollars in returned merchandise supply increasing with the market at more than 20% a year, the model could really have legs. It is also self-merchandising. An eTurns location would be a bit smaller than the average 28,000 square foot TJX, servicing concentrated urban neighborhoods where consumers are likely to order (and return) items that others in their neighborhood are also likely to want.  This increases the chance of finding a returned item’s “next best buyer” through common geography.

There are certainly holes to poke in this model – imagine the glut of inventory from Holiday returns – but it feels worth the try. If shipping round trips and time-in-supply-chain are minimized, the drag of returns on e-commerce could be greatly reduced. And who doesn’t love a good deal? Okay, so it doesn’t exist yet. If there is a tenured entrepreneur out there interested in giving this a run, let me know!

Fixing things and building people – why we invested in Fixer

We recently announced our investment in Fixer, led by Founder Collective and including Chicago’s Impact Engine. Fixer is a service that fixes anything in your home reliably, on-time and at a fair price – founded by a contingent of Grubhub’s early employees, including Grubhub co-founder and long-time exec, Mike Evans. Fixer is also our first investment in a Public Benefit Corp (PBC).

For a fund that mostly invests in B2B SaaS and some marketplaces, this direct-to-consumer investment was a unique investment for HPVP. Past is prelude. I grew up in a home that had been pieced together over two centuries by industrious New Englanders. It turns out the first New Englander wasn’t expecting the last one (my dad) to build two new stories on the bespoke structure – too much for the original foundation posts. My Dad and I spent the next few years replacing the main structural posts in the crawl space. Re-leveling a home requires slow and periodic screw jack adjustments so walls don’t crack – like periodic visits to the orthodontics – except that this was in a 2 foot crawl space with centuries of dust, mouse droppings and a 50 ton house above. Naturally, I was the only one who fit… and now we know why parents have kids.

With many stories like this, I’ve long appreciated and enjoyed the handy things in life. But it turns out that many people don’t, creating an increasingly ripe market opportunity. There are two reasons for this. First, handiness and amateur craft skills are being mass-cultured away, while families simply have less time. Generations ago when family homes were passed from generation to generation, maintenance and repair of both home and the things in them (furniture, clothes, fixtures) was like cooking – everyone did it. Now, just as the crossover of consumer food spending from majority-in-home to majority-out-of-home portends the death of ubiquitous home cooking in favor of restaurants, my generation was the last to have shop class. We now seeks these skills in purchased services. Meanwhile other generational mega-trends – majority dual income families, constant digital tethers to work and overscheduled children – leave no time for fixing things ourselves.

Enter Fixer! But wait, how about Thumbtack, Handy, Angie’s list and all the others? That is exactly what I asked Mike when we first discussed Fixer last year. He pointed out a key insight to the Fixer model: when a consumer has a broken faucet, the problem they are trying to solve is “I need my faucet fixed”, not the intermediate problem of “I need to find a plumber”. Most existing platforms solve the latter before the former, and that’s an interim step that creates unnecessary time, frustration, cost and friction in the process. If you’ve ever used Thumbtack or Handy, you’ll find yourself with a bunch of leads for providers but still in the frustrating “yellow pages” vortex of contacting each one and judging for quality, timing and cost. No thanks.

Instead, fixer has built a scalable set of training, process and technology to repeatably deliver a quality experience and outcome, hitting the core consumer need head-on. As evidenced by Fixer’s Yelp and Thumbtack reviews, users love the service. My HPVP partners are regular users, and we’ve also used Fixer in our office, a sign of a B2B opportunity that could be big for Fixer.  Both accidental and intentional landlords spurred by the 2008 financial crisis and Airbnb’s arrival, respectively, have created a whole new economy of residential and commercial property owners and managers. Fixer is finding a widening vein in reliably solving their maintenance needs too.

Great service, but why a PBC?

When Mike and I were talking about financing late last year, he said “we’re going to be a PBC, which isn’t for everyone.” The main difference between C-corps and PBCs is that PBC boards of directors are obligated to account for the impact of decisions on all stakeholders, not just shareholders. This includes employees, customers and the broader community. With some thought, I realized I wouldn’t want to be involved in a company that didn’t consider all stakeholders. In fact, just as rewarding as the financial returns of being an investor is seeing companies create jobs, careers and happy customers. In this sense, venture capital investing has a near perfect alignment with PBCs. Indeed, the decline of trade skills presents a perfect storm to solve a consumer problem AND build a new generation of skilled handypeople who can learn and exercise a trade with strong pay and benefits. You need both to make the model work right.

Scaling a tech enabled service like Fixer won’t be easy, but we’ve got a lot going for us. With a massive market, the right generational macro trends and one of the best teams we’ve ever seen, we’re excited for the journey and the impact it can have for consumers and a new generation of Fixers. Give fixer a try!