Vanterra Capital’s Steven Himmel on growth vs. profitability: ‘At the end of the day, cash is king’

“The pandemic just pushed us to double down on our thesis,” said Steven Himmel, partner at Vanterra Capital, on the latest Glossy Podcast. “Everything that we were focused on before is even more relevant today.”

With its venture-specific fund, launched about two-and-a-half years ago, Vanterra invests in mission-driven consumer companies, which on the fashion side include Naadam. 

“A big focus for us is what we call the ESY [Investing]: [companies that are] better for the environment, better for society and better for you,” he said.

And those businesses are set to especially resonate in the post-pandemic world: “As the media cycle scales down the Covid conversation, we believe it’s going to scale up the conversations around better-for-the-environment initiatives … It will [create] more of a 360[-degree] awareness around: How are you living? That’s in terms of: What are you eating? How are you treating your body? How are you treating your mind?”

Himmel broke down how that shift will impact Vanterra’s future investments in fashion and beauty brands. Below are additional highlights from the conversation, which have been lightly edited for clarity.

DTC vs. omnichannel sales
“We’re venture investors, so at some point, we are going to need to exit these businesses. That’s the name of the game for us. In terms of getting to a point where we feel they’re large enough to be on the radar of a strategic acquirer or a financial acquirer or go public, ultimately, you are going to want to have an omnichannel type of strategy. And obviously, that’s a combination of your DTC strategy and your physical retail strategy. So, our strategy is typically to work with businesses that are digitally native — they’re digital-first, whether they’re selling on their Shopify site or on Amazon — and to really .. create enough momentum behind the brand or behind the product to then go out to specific retailers. And to be honest with you, every situation is different. So some might be a better fit for a CVS or a Walgreens. Another might be a better fit for a Target. Some might be a perfect match with a Walmart, per se. And it’s [about] really using that as a way to go out and continue to build brand awareness.”

On smart growth
“It’s becoming more difficult for earlier-stage businesses to scale in a digital-only manner. We’ve seen the changes that Apple just implemented on their new iOS platform, in the tracking of data and privacy. I think that there’s a continuing increase in the cost of advertising across Facebook and Instagram, which has really been the best crutch to date to help scale these companies. So trying to keep them a little bit more creative and less reliant on those channels is one thing to keep in mind. The other thing to keep in mind is just that it’s OK to move slowly. Part of it is really just a cultural change, in terms of the younger generation wanting everything now; there’s a desire for immediacy. So they’re like, ‘I’m going to launch this business, and I need to have at least $10 million in revenue in the first 12 months,’ or whatever the numbers may be. It’s very anxious, and they want to kind of go, go, go. Our recommendation is to just take your time. If you’re spending to acquire a customer for, say, $100, and your AOV is only $60, those numbers just don’t make sense in the long term. So take a step back, and really figure out what’s working and what’s not. And if it takes you a little bit longer, that’s completely OK. Because we’re in this period where there’s liquidity across the board. People want to continue to invest in earlier-stage businesses, and that may not last forever. Who knows what could happen in the future to cause the capital markets to dry up? So at the end of the day, cash is king. And you’re going to want to have a little bit on the sidelines for a rainy day, if you will, just in case things don’t continue to go this well.”

Beauty brands worth investing in
“A lot of businesses in the beauty space are really just marketing companies, and [I have] nothing against them; they’ve built really great businesses around community and identity and connection with a specific brand or a specific group of people. But at the end of the day, there are a lot of beauty brands out there that are very successful that, when you peel a layer deep, don’t really have any proven science behind them. So when it comes to the category of supplements and also beauty, we’re really looking for efficacy. We feel like that will give us a leg up and will really allow the business to continue to scale over the long term, as the product actually performs. So if you think about companies that are not science-backed that maybe don’t work, at some point, our belief is that you’re going to start seeing higher churn in that business. But if you back a business that has science behind it and proven performance, your retention of that product will be higher over the long term. We’ve seen that in a business we back called Biome, which is a probiotics business focused around gut health, [which is] also a big benefit from a beauty standpoint. And they have the world’s largest database of gut profiles and are doing some really interesting things around that data.”

Acquiring customers in 2021
“Unfortunately, I think a lot of businesses are still tied to Facebook and Instagram. But I do think that there are other channels that are cheaper and that have really strong engagement and a sense of community that will only continue to grow. One example of that is Pinterest. The costs of getting on that platform and advertising are far cheaper. And it’s a really great visual platform; it can allow you to display your brand and your identity in a really effective manner. And I think it’s only going to become more sophisticated, in terms of how Pinterest is working with small businesses to help them scale. Twitter, honestly, is another one that has a really interesting advertising and marketing platform. It’s probably an afterthought, relative to Facebook and Instagram. And outside of that, it’s really just being creative, in terms of guerilla marketing and identifying the right partners that have a nice following. They don’t need to be mega-influencers or anything like that. But I would recommend looking into a platform like Julius, where you can go out and figure out who the thought-leaders are in a specific category and work with them. Everybody in a gig economy is open to a conversation and promoting a brand that they identify with, so those types of platforms are a good place to start.”