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What happens when you bring the fast moving world of tech to the world of consumer goods?
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Companies that can thrive in that sweet spot are what Coefficient Capital wants to invest in.
I chatted with Coefficient Capital’s founding partners Andrew Goletka and Franklin Isacson to learn more about the firm’s first fund, their investment strategy, and what they’re advising companies facing challenges because of the COVID-19 Pandemic.
Coefficient Capital Fund I
The fund was formally closed at the beginning of March, at $170 million (the target was $150 million).
“The genesis of the fund is really the coming together of two distinct worlds that Franklin and I realized are very complementary,” Goletka said.
Goletka comes from a tech/media background. With Ore Ventures, he made investments in companies like The Athletic, and saw the shift of publishers using content to sell a product. Isacson’s background was more that of a traditional consumer packaged goods (CPG) investor. As a CPG investor, Isacson saw that many CPG funds were slow in changing, while tech funds were moving more quickly.
He noted that he himself was a bit caught off guard when his portfolio companies were asking what they should do with social media platforms like TikTok and Snapchat. He turned to Goletka for advice, and the two realized there should be an omni-channel fund.
Coefficient Capital focuses on investing in Series A and Series B stage companies, with a team that comes from both tech and consumer backgrounds.
It focuses on companies that make products that could be sold in grocery stores or shops like Sephora (think food, beverage, vitamin supplements, personal or skin care, etc). Those kinds of products are where the firm spends “80 to 90 percent” of its time, Isacson said. The firm led the January 2020 Series B round for Just Spices, for example, a spice-mix and meal prep company.
“We look for companies that support longer-term trends,” Isacson said. “We have our convictions about consumers becoming more omni-channel. … we definitely look for those bigger trends that are irreversible.”
The firm looks to invest in companies with strong unit economics–if they’re not profitable, they need to have a very clear path to profitability in the near-term, Isacson said. Coefficient Capital wants to invest in companies that could be good standalone businesses with great profitability, or a business that other companies would want to acquire.
Some emerging trends: Consumers want to buy products that are better for them and better for the environment, and a great emphasis on efficacy.
With the COVID-19 pandemic, the firm’s portfolio companies have been weathering things “fairly well,” Goletka said, as people aren’t leaving their homes–a win for direct-to-consumer companies.
But for other startups, especially those looking to raise money, Goletka advises turning to investors a founder already knows, rather than trying to form new relationships over Zoom.
“Build off those relationships you already have,” he said. “ If you are trying to close a round, close it sooner rather than later.”
Isacson said investors are going to be focused on how leadership has taken care of employees, how demand has been impacted, what companies have done to make sure their supply chain is secure, and what the unit economics of a company are (and if they can pivot to profitability sooner).
Illustration Credit: Li-Anne Dias