Sunday, June 19, 2022
Ben Zises - Investing $10M & eCommerce Investing Best Practices
From raising $2M for his real estate startup, to being the first investor in Quip - an oral care business that has raised $162M, to getting a 2.5X Return Multiple on $10M invested into startups - this is Ben Zises.
Hi Friend 👋 ,
I want you to meet Ben Zises, the General Partner at SuperAngel.vc. He’s a go-to investor in the NYC tech ecosystem and has invested $10M into startups via his fund. His portfolio is worth $25M (A 2.5X).
Let's dig in!
In Today's Expert Session:
- Meet Ben Zises: From raising $2M for his real estate startup, to being the first investor in Quip - an oral care business that has raised $162M, to getting a 2.5X Return Multiple on $10M invested into startups - this is Ben Zises.
- Collaborate: Invest alongside Ben either via his investment Syndicate or Rolling Fund.
- Investor Toolkit: Best practices for eCommerce operating and investing.
- Personal Capital: Why does Ben invest 40% of his capital into startups and is it working?
- New Markets: One of the fastest-growing segments of consumer products - Sustainable eCommerce.
- Business Idea of The Week: This is a new investment vehicle - we'll call it Follow On Capital.
Guest: Ben Zises, General Partner at SuperAngel.vc (Twitter: @bzises)
Video Length: 30 minutes
History & Facts:
2005 - BensWater.com: Ben’s entrepreneurial career started early. While attending college at Boston University, he created a water cooler delivery service for students that lived in off-campus housing.
He thought long and hard about a name until a stroke of genius struck him…"BensWater.com” he thought. He still holds on to this domain name today, hoping he can eventually sell it for a cool $100M…he’s still waiting.
I got a real picture of Ben and his delivery truck from way back in 2005…it looks like technology has come a long way.
2008 to 2012 - New York City Real Estate: After college, Ben moved to New York City and entered the real estate industry at the height of The Great Recession.
He focused on filling vacant commercial retail spaces across New York City.
2012 to 2015 - Rollerblading His Way To An Idea: If you think rollerblading is cool today, it was even cooler in 2010!
See, Ben came up with a fantastic hack for seeing all the vacant real estate space across the city - he’d throw on a pair of rollerblades and cruise the streets looking for vacant retail space.
One day, he had an epiphany: real estate technology platforms like Zillow and StreetEasy made it simple for people to find homes. But there wasn’t anything similar for vacant retail space…data gathering was done manually. So, Ben decided to build it.
Being a roller baby myself, I couldn’t pass up the chance to race Ben on his turf through the wild streets of NYC. I won't say the outcome, but I think we can all guess who won by this genuine photo below.
2012 to 2015 - Building The #1 Marketplace for Retail Space: Ben's idea was to aggregate vacant retail space across the city and provide retail real estate professionals, including landlords, brokers, and tenants, immediate access to the information needed to get to negotiations and close deals.
He raised $2M for the company and quickly grew it to tens of thousands of visitors.
But there was one huge problem…the business model didn’t work.
Despite successfully raising capital, building the platform, and generating tons of demand, Ben couldn’t get the business to be self-sufficient on its cash flows.
After doing everything he could to try and keep the business afloat, at the end of 2015, he decided to shut it down.
2015 - Finding Opportunity In Miami: Ben was on a last-minute trip to Miami in hopes of selling some of the business' assets (e.g., tech & domain name) to get capital back to investors.
While nobody purchased the domain name, he did have an experience that would come to shape the rest of his career.
At an event in Miami, Ben overheard a few founders talking about building a toothbrush subscription company.
The timing was great. Ben had recently learned about Dollar Shave Club, the shaving company that sold to consumer products giant Unilever for $1B.
He thought that a similar model for toothbrushes could make sense. The vision clicked, and Ben invited the two founders back to his office in New York.
He met the team at his office in NYC, reviewed product designs, and discussed fundraising and future growth strategies…he was hooked.
He helped the team with their pitch deck, rolled up his sleeves, and said:
“I’m going to help - I’ll write the first check myself. We’ll raise $1 million and make this bigger than Dollar Shave Club.”
This $10,000 check was Ben’s first angel investment and the first outside check into the company. This business ultimately became Quip, an oral care business that has gone on to raise $162M.
2015 to Today - Building SuperAngel.VC: Ben realized that startup investing is where he needed to be. By day he worked as COO of a Real Estate investment and management company. On weekends, he’d invest in new companies and support his portfolio.
In January 2021, Ben launched his fund, SuperAngel.VC. He’s raised $10M for his fund and deployed capital in over 50 companies.
Collaborate With Ben:
You can invest alongside Ben via his investment syndicate and rolling fund. SuperAngel Fund is an investment fund focused on 3 key sectors:
- Consumer: eCommerce as well as consumer-facing tech.
- PropTech: Technology that innovates in the real estate market.
- Future of Work: Infrastructure investments that power how work will get done over the next decade, influenced by technological, generational, and social shifts.
The fund has performed well by investing in these sectors, producing a 70%Internal rate of return (IRR). IRR is the industry-standard metric used by venture capitalists and LPs to measure the fund performance and it communicates how much money a fund returns across its lifetime by computing the annual return rates for each year of the fund.
Investment Deep Dive: A notable fund investment is Quip. Ben met the team pre-launch back in 2015, where he originally invested $10,000. Since that original investment, Ben has invested a total of $1.785M via his syndicate and fund.
Quip officially launched in November 2015. By the end of 2016, it had sold 100,000 toothbrushes. In 2018 they sold to over 1M customers. As of today, the company has sold to over 7.5M customers.
In 2021, the company raised a $100M funding round, enabling the company to scale its personal care platform and connect its 7.5M customers with a network of more than 50,000 dental professionals.
It will also launch new verticals and expand its global footprint and roll out new features to its oral care companion mobile app. Quip expects to reach over 1 million app users in 2022.
Along the way, he’s developed best practices for generalist and specialist investing across eCommerce, consumer, and the future of work.
Let’s start with generalist investing - Ben calls this his Key Selection Criteria:
If you’re a specialist investor looking at an eCommerce investment, these are some best practices from Ben:
1. The company's hero product (primary product) must be profitable from the first purchase. This means there should still be profit from the sale after subtracting the cost of goods and customer acquisition costs. Without this, it will be incredibly capital intensive to scale.
2. Omnichannel from the Start: This can mean many things, but true omnichannel commerce is complex. 78% of retailers say they don't yet provide a truly unified experience for customers. Some critical factors may include:
- The ability to sell online and offline via multiple portals (e.g. Amazon, Direct)
- Fulfillment and shipping options that include home delivery and in-store
- Customer experiences that extend across multiple touchpoints, including brick and mortar, marketplaces, web, mobile and social
3. Large Market with Expansion Opportunities: When investing in an eCommerce business, you need to give yourself an opportunity to get rich. 1 SKU (product) alone can rarely create a $1B company. What is more likely, though, is that your hero product generates enough initial market penetration to create opportunities to sell these customers different products within your ecosystem.
For example, Quip started as a toothbrush company. But, over time, they expanded to other products such as dental floss, toothpaste, mouthwash, and gum. They’ve even launched an app with over 1M users and a network of 50,000 dentists that provide oral care to the Quip community.
Ben has extremely ambitious financial goals and, because of this, has a portfolio focused on startup investing.
- Super Angel Fund: This is Ben's fund. He raised about $10M through this vehicle. Investors commit to a minimum of $25,000 quarterly investments for a subscription period of 4-8 quarters. Ben takes a management fee of 2% each year on dollars raised and a 20% carry fee, essentially a percentage of any profits he generates.
- SuperAngel Syndicate: While Ben's primary investment vehicle is his fund, he will occasionally invest in follow-on opportunities via his syndicate. His syndicate charges a 20% carry fee.
- Startups / Funds (40%): Ben is hyper-focused on startup investing and has developed a strong network of founders and investors in New York. If he has excess capital, he invests it back into his fund to increase his ownership percentage and maintain exposure to the asset class. Ben is taking a long-term bet (5-7 years) that his portfolio will be a huge success.
- Cash (40%): Startups are a very illiquid asset class, so Ben maintains a nest egg to fall back on. While he understands that keeping 40% of his investible capital in cash will result in missed opportunities, the peace of mind knowing that he can afford his lifestyle is more important to him.
- Real Estate + Other (20%): Ben keeps a relatively low amount of capital in the public markets and real estate. Again, he is playing a hyper-focused game tailored to startup investing.
Is this system working? Ben’s primary focus is driving value from startup investments. As of January 2022, Ben has deployed $10M+ into startups. While he has yet to have a significant exit, there is signal that it seems to be working. His portfolio is valued at $25M (Up 2.5x) with a 70% IRR during that time.
The Market: 86% of consumers under 45 are willing to pay more for sustainable products.
Sustainability refers to meeting our own needs without compromising the ability of future generations to meet their own. In eCommerce, this concept of sustainability can range from business models to products and their packaging.
Why Does It Matter? eCommerce is a consumer-led industry where brands follow the trends set by customers. Today, consumers are supporting brands that are aligning themselves with sustainable practices.
68% of the buyers in Europe, North and South Americas have purchased a product in the last six months based on its sustainability credentials.
Trends we’re seeing now:
- New demographics bring new demands: There is a transfer of purchasing power from Boomers to Millennials ($600B in spending power) and Gen Z ($140B), and these buyers are developing their buying habits. 80% of millennials feel that sustainability is “important” or “very important” when shopping online.
- Startups make corporate giants “greener”: It’s no secret that multinational corporations like P&G or PepsiCo are not environmentally sustainable. To gradually address this, the giants typically acquire other companies in order to innovate.
How To Capitalize On The Trend: As they say, “rising tides lift all boats”, meaning the sustainable-first megatrend is lifting demand across the category — Ben's fund SuperAngel.Fund has made Sustainable eCommerce a core thesis of the fund. Here are a few companies that Ben has invested in:
- Quip: With its reusable and refillable products and quarterly subscription services, Quip pioneered a sustainable eCommerce in oral health.
The company estimates that over 100 million single-use plastic components have been diverted from landfills through its recycling program's paper packaging and refillable products. It aims to reach over 1 million pounds of plastic reduction or diversion in the next 12 months.
The company was founded by Simon Enever and has raised a total of $162M.
- Arber: Founded in 2020 by Vanessa Dawson, it is the first of its kind plant wellness company with a sustainable product and business model. Its premiere line of biologicals consisting of bacteria, microbes, and plant extracts prevent plant diseases, control unwanted pests, and promote unparalleled growth and abundance while promoting micro and macro-gardening.
- Caraway Home: Made with naturally smooth ceramic and intelligent design, Caraway was founded in 2018 by Jordan Nathan. The company offers a wide range of cookware, bakeware, and accessories and has already a name for itself in a highly competitive market.
Like the previous two startups, Ben was also the first angel to invest in Caraway.
The Context: Startup investing is inherently risky. They don’t call it the “wild west of investing” for nothing. Even still, many investors want access to the early-stage investment ecosystem but prefer to invest in proven concepts with product-market fit and revenue.
The Problem: Right now, if someone wanted to invest in top-tier companies that have reached a breakout stage (like startup #3 above), they would have to become an LP in a fund that focuses explicitly on growth-stage companies. Becoming an LP in these funds is typically a $1M minimum investment. Or they could look through all the syndicates available to them and cherry-pick only the investments that meet these criteria, which would be a lot of work for a busy professional.
The Idea: An investment syndicate that only invests in the top-performing companies of early-stage funds that have reached the “breakout stage”. We could define this in many ways, but let's say each company must be doing a minimum of $3M in revenue growing at 10% month-over-month. We’ll call the company Follow-On Capital (FOC). We
The business model would be similar to current syndicate models: a 1% fee on dollars invested + a 20% carry fee. Carry, short for "carried interest," represents the percentage of profits paid to the syndicate lead.
Let’s model this out:
- FOC is charging 20% carry and 1% on dollars invested.
- FOC invests $50M in 20 companies on behalf of investors.
- A few companies exit successfully, and the distribution is worth $150M (a good fund return is ~3x with more upside potential)
As the deal lead, Follow On Capital will receive 1% of dollars invested ($500k) and 20% of the amount the investor earned ($150M-$50M), which is 20% of $100M or $20M.
Investors in FOC will receive their initial investment back ($50M) plus the remainder of the earnings, $80M, which nets out to $130M.
You may think these fundraising amounts are enormous, but it's possible. Several people invest $300-$900M per year via syndicates, and many invest $20M-50M. We’ll be hosting a few here at EPO very soon.