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September 13, 2019 Comments Off on BlueRun Ventures’ Cheryl Cheng Q&A: Venture Capital’s View of DTC Views: 2110 Bay Area, California News

BlueRun Ventures’ Cheryl Cheng Q&A: Venture Capital’s View of DTC

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By Dennis Kaiser

Connect DTC is being held at Santana Row on Thursday, September 26, 2019. It brings together a confluence of influential brands, top venture capitalists, and the most innovative minds in retail. The hottest brands, the investors funding their retail expansion, and other industry visionaries will share insights about the growing trend of Direct-to-Consumer (DTC) retail. The event consists of panel discussions, keynote conversations, special presentations, and concludes with a networking cocktail reception.

Venture capital is a key aspect of DTC brands’ growth and maturation. Connect Media spoke with BlueRun Ventures’ Cheryl Cheng, a Menlo Park, CA-based VC firm that invests in early stage founders and companies, predominantly software companies both on the enterprise and consumer side. Before she started in Venture Capital, Cheng handled new products for Consumer-Packaged Goods (CPG’s) such as Clorox and Procter & Gamble and retailer Sharper Image when they had physical stores. We asked her what she looks for when backing DTC brands, and what her expectations are for DTC and retail. Check out her insights on the DTC sector in our latest CRE Q&A.

Q: What is your view of DTC, its role and value today in the marketplace?
I look at opportunities in consumer tech through a blend of  brand marketing from the CPG world and software and data. I like DTC because tech has enabled brands to reach consumers more efficiently through new media, and use data to refine the consumer experience from product development to customer service.

Before when we launched products at Clorox or P&G, the choke point was distribution. We needed space on store shelves to get in front of consumers. That’s no longer true with ecommerce being easier and marketing tech tools that efficiently reach consumers in a more personalized manner. You can build a consumer brand without going through traditional retail channels. DTC brands are more data-driven and the data comes directly from the consumer. That feedback loop is very important, especially at an early stage DTC.

A capital efficient way to market a product, and gauge market fit, is to go directly to the consumer. DTC works to easily start a conversation with consumers, and that’s something that can’t be found on a store shelf. Still, we live in an analog world. Retail will always exist, and when a DTC brand gets to a certain size they have to get in front of consumers en masse.

Q: What do you look for when backing a DTC brand?
First, I look for product market fit. Knowing that consumers will open their wallet is very important. Unprofitably acquiring customers is not good for the business long-term, because you can’t just give away product in hopes of making money later.

Second, I look at market size to understand the depth and scope as it relates to a specific DTC brand product. There can be great niche DTC brands but that does not make them venture return businesses.

I also care about some key commerce metrics: purchase frequency, the average basket size, and the lifetime value of a customer. Since initial dollars invested will be used for customer acquisition, those metrics need to be factored into the mix.

I care about the founder, too, since we’ll be professionally married for up to 10 years. I spend time getting to know them and make sure they are people I want to work with long-term.

Q: What do you see ahead for the retail sector and DTC?
: Today’s tech companies have done well using software to deliver services or products in scalable and efficient way. Uber is considered a tech company, but Uber’s product to consumers is a ride that’s delivered by a human in a physical device (vehicle). Tech makes it happen: GPS, location, payment, etc. are all tech rails that enable services like Uber to exist.

Retail is going through a lot of transformation. It’s not just real estate in a choice location that will win. Retail needs to adopt some digital elements and offer experiences that are multi-channel.

I sometimes question how mall owners decide their merchant mix because many stores are not a profitable use of space. People often just hang out and are not buying necessarily. It would be interesting to see how mall operators can get creative and diversify revenue beyond tenant leasing, and move into monetizing from mall visitors through technology-enabled services. An example might be a concert series that a local community could buy tickets to hear music at property that is there already.

Consumers will likely pay money if they know that on the weekend, they can get an experience with their family by going to the mall rather than other places. But the question is: Who do I pay for that, the landlord, or retailers? You’ve already seen some retailers doing that like Lululemon, which does classes in-store. That helps expand the share of wallet and mind for retailers.

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For comments, questions or concerns, please contact Dennis Kaiser

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