Can passion make sense as an investment strategy? Menlo Park’s Trinity Ventures thinks so.
It could make a lot of sense, especially amid today’s glut of venture capital where investors frequently resemble a mob of Cosmos-crazed TV addicts lurching down the i-way mumbling, “Billions and billions and billions.” With every month setting a new record for fundraising, all too many VCs seem to have no more strategy than “Raise a helluva lot of money and spend it really quick and go raise a lot more.”
Trinity Ventures, which closed its $300 million Fund VII in October believes that investing “passionately” and concentrating its efforts makes a lot more sense than the wretched excess that seems to have washed over the so much of the industry. The fund was raised in about two weeks and was oversubscribed by $100 million.
“Because of our ten-year history in investing in consumer brands, we have always felt it was important to find those companies that differentiate themselves through quality of their products and service,” said Trinity General Partner Augustus O. “Gus” Tai. “That’s why we invested in companies like Starbucks and Jamba Juice. Through those investments, we know that passion is important. We learned that if you could have a passionate relationship with consumers and deliver on the promise — no, make that over-deliver — then they are willing to pay for higher levels of quality and service and indeed are happy to do so.”
But translating what might seem obvious enough into a strategic investment plan took some deeper thinking, Tai says. “In trying to apply how passion relates to the e-commerce world, we were acutely aware of the challenges of low margins and low margin percentages that we see with many of the consumer e-commerce models out there.”
As a result, Tai said Trinity developed a set of categories in which consumers feel passionately about the products and services offered, and then quickly funded as many congruent plays as they could find including: kids, weddings, cars, diamonds, adventure sports equipment.
It’s also no accident, Tai said, that these areas “can drive higher ticket expenditures with higher gross margins. That’s why we funded companies like BabyCenter (acquired by eToys) — there’s hardly anything people feel more passionate about than their babies.”
Tai should know: his wife Anna gave birth to fraternal twins, Austin and Olivia, on Nov. 12, the day after his interview with VC Watch. He is now learning how passionate a new parent can get for just a few minutes of sleep, one of the few things e-commerce can’t deliver.
But before his bout with sleep deprivation Tai told VC Watch that Trinity’s other big-ticket, high-margin, passionate investments include: iMotors (profiled by VC Watch Nov. 3), wedding site, Della and James, diamond e-tailer Blue Nile, the e-nachronistic antique’s site, Circline, and adventure gear site, Planet Outdoors.
Passion, according to Tai, increases the willingness to pay more, which means that these investments “don’t have the problem of some of the e-commerce companies out there that have an average gross price of $20 and a gross margin of $ 2 or $3 and a cost of customer acquisition of $30 or $40. When you wrap these economics up with operating costs, they never pay off.”
Tai said that Trinity’s partners are also passionate about the companies they invest in. “Since all of us have operating experience, we understand and appreciate how hard it is to launch a new company.” He said that unlike some VCs where partners sit on eight or ten boards, Trinity restricts each partner to five or six, thus making sure they have the bandwidth to pitch in actively.
Nutshell:
Company Name: Trinity Ventures
Address: 3000 Sand Hill Road, Building 1, Suite 240, Menlo Park, Calif. 94025
Phone: 650/854-9500
Fax: 650/854-9501
Contact email address: info@trinityventures.com
Web address: www.trinityventures.com
Partners & Associates: 8
Total Funds Under Management: $600 million
Typical investment size: $1 million to $10 million
Investment Targets: electronic commerce, communications and software
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