How long has the Simon Venture Group (SVG) been around? How much capital do you seek to deploy, and what is the overall investment philosophy?
Simon Venture Group is the corporate venture arm of Simon Property Group, an S&P 100 company as well as the largest publicly-traded real estate investment trust in the S&P 500. Since launching in March 2014, SVG’s efforts are being managed by a team of two key investment professionals. We do not disclose the size of our fund but our stage of focus spans institutional seed to series C with average cheque sizes ranging from $250,000 to $5m. Our investment mandate is to support the innovation of retail by investing in next generation commerce as well as technologies that enable or enhance the overall consumer experience.
We can serve as a unique investment partner to founders by leveraging Simon’s operating platform and access to market distribution channels to impact the slope and velocity of their success, while allowing them to retain creative and shareholder control. Our proposition has really resonated with founders who are looking for a partner that can strategically amplify their abilities to create value and capitalise on unfair market advantage.
SVG targets companies from a wide range of sectors and industries, bricks and mortar and online-based alike. How would you describe SVG’s investment scope across sectors?
Our investment scope is broad, as we are interested in technology’s impact on retail from every angle, so the dividing line between sectors continues to blur. For example, the distinction between bricks and mortar versus online has become less clear cut over time as retailers recognise that every person today is both an online and an offline consumer. Consumers’ expectations today imply that retailers need to deliver engaging experiences from multiple touch points, allowing their consumers to funnel their purchase intents across a number of devices, channels and distributors. Thus, any technology we may invest in would be relevant to an experience of unified commerce, which spans across a number of sectors.
Given this 360-degree investment perspective, we focus our efforts on identifying the sectors and themes that we believe could be high potential for growth under the relevant investment horizon. Although this is an important part of our investment process, we are not dogmatic about it and the equation is fundamentally also a talent-driven one. It is important to be supporting a team that we strongly believe will be able to navigate through the vicissitudes of the market successfully. To that end, I am looking to back exceptional founders who demonstrate creative differentiation, technology acumen, a drive for operational excellence and an ability to adapt to changing market conditions.
To what extent are financial returns important and where does strategic alignment come into play?
SVG is highly driven by financial performance and the fund follows best practices in VC to optimise returns. We have a separate investment team that manages the day-to-day of the fund. Our portfolio companies develop independently of Simon, incentives track a VC-style discipline, and we are not investing in companies to create an acquisition opportunity for Simon. Strategic alignment comes into play whenever we can invest to strengthen the broader retail ecosystem or address pain points for retailers that partner with Simon. We also look to invest in companies where SVG can leverage Simon’s experience in retail, industry insights, technical expertise and access, so that key partners can bring innovative ideas, solutions and experiences to market.
What are the general investment criteria you use when sourcing deals? What is it that you as an investor at SVG look for in a startup when deciding whether to commit capital?
The criteria differ, depending on the investment category, but I will try to summarise some of the key attributes that I believe are common to all companies.
In the first place, my goal is to invest in exceptionally well-managed companies that are growing rapidly in a highly attractive market with a pathway to long-term profitability and a defensible market position. Such businesses do not leave much to an investor’s imagination and are investable companies not in some distant future, but today. In the second place, talent is an incredibly important part of the equation. Motivated founders who bring vision and creative differentiation to the table as well as a drive for operational excellence are key attributes.
Beyond those qualities, I am looking to find teams with great and varied experiences and, most importantly, flexibility in their approach to the world, as this way they are more likely to handle what markets may throw at them.
What geographies do you source deals from, both within the US and internationally? Are there any emerging geographies on the innovation map that have caught your attention in particular?
Although innovation centres are more concentrated in certain parts of the US and the rest of the world, disruptive innovation can happen anywhere, so I am open to any geography outside those I have been most involved with, including New York, Los Angeles and Silicon Valley.
I am not certain if you can call LA emerging any more, but the type of innovation that I have been seeing out there has been particularly exciting. Given the proximity to media and commerce, there is a lot going on there that is directly relevant to retail tech. Due to dearth of venture funding in the region over many years, LA companies seem to build with a different mindset from the get-go. I have seen more companies innovate there at a phenomenal speed and strive to become immediately profitable. The lower costs of doing business in LA means that it is somewhat easier to be capital efficient than in other geographies like, say, New York. Coupled with a strong exit pipeline in recent years, there are quite a few reasons to be bullish about LA’s tech scene.
Internationally, other interesting geographies for innovation include Europe and Asia based on rising consumption patterns and technology trends. Innovation is now multidirectional, and with both the local and global converging, it is important to keep an increasingly global mindset.
You have been an investment principal at SVG since August last year. What have been the most exciting and most challenging aspects of your new position?
This role has given me an opportunity to work with some of the most forward-thinking entrepreneurs who are leveraging technology to solve problems or create new experiences that impact our day-to-day experience of commerce and improve overall consumer welfare. This element of social impact is a big part of why I was drawn to this role and I am grateful to the entrepreneurs who have let me do my job in helping them with their missions.
The two most immediate challenges are, first, closing the awareness gap between SVG and other top venture funds in this space, which are several investment cycles ahead of us, and, second, maintaining a high say-do ratio on the promises that we make to the founders we back to help them realise their vision with greater probability.
What would you say have been SVG’s best deals to date?
We are supportive of all the companies in our portfolio. I will only reference a couple of my most recent investments. FabFitFun is a lifestyle subscription service where the founders have done an impressive job in scaling the company, while spending strategically and building for long-term sustainability. Their approach to subscription is unique, as they leverage customer datasets to create an intelligence platform and optimise development decisions around products they can bring to market to either satisfy unmet consumer demand or capitalise on a white space opportunity.
MeUndies is an e-commerce company that is building a bold, relatable and expression-driven lifestyle brand that is changing the way intimates are being purchased by men, and more recently women. The company’s creative differentiation stands out along with its unique ability to innovate in a product category that has been largely been overcommoditised and lacking in experience. This imagination differential is what I believe makes them most interesting and positions them to build a brand that could become iconic in an age of social media.
Are there any business models that you find particularly appealing as an investor?
There are a few emerging, as well as evolving, business models that are attracting my attention. Without going into any level of detail, many of these models are leveraging the capital efficiency of technology to decrease the capital intensity of starting a new business, optimise margin economics and allow a faster ramp to scale.
What new or emerging trends have you been seeing in retail, e-commerce and the consumer sector, overall? How likely are they to disrupt and change the playingfield in the medium and long run?
E-commerce companies are savvier in leveraging novel customer acquisition channels and technology, including advertising tech retargeting, software-as-a-service tools and Amazon Web Services, to decrease the capital expenditure required before they can get to a point of product market fit and even brand creation. The value of physical retail continues to expand, as it evolves to become a highly effective form of media available to a brand for perfecting its consumer experience and driving sales across multiple channels.
Social networks are evolving to become shopping platforms. Over the past several years, brands have used social media to market their products, talk to customers and even make merchandising decisions. They may soon add selling to the list of things to do on social media.
Retailers have adopted and experimented with technology to enhance overall shopping experience. Cloud-based point-of-sale technology have outperformed their counterparts in all respects. Beacons have made their way into stores. Fashion is beginning to incorporate wearable technology, rather than the other way around. 3D printing is slowly making its way into retail. Data will continue to become more accessible as the number of businesses using them continue to grow. Retailers recognise that they need to know their customers in order to provide personalised experiences. Mobile technology has also grown significantly and smartphones will play an even bigger role in the customer journey. The bottom line is that the customer is king and it is all about fuelling the best customer experiences.
What sectors should we expect to see SVG invest in during 2016, and what investment trends do you see going forward?
Without going into much detail, I believe that inventory distortion is an important pain point to address and I will be focusing on investing in a B2B solution for this space. As the economy tightens and the dislocation that exists between public and private markets around valuations start to correct, we will invest find ourselves investing in a more moderated environment, where investors will focus more heavily on entry prices, unit economics and burn rate as well as revenues and growth.
