Kirsten Green hates the word “bet.” “It’s like nails on a chalkboard for me,” she said.
It’s ironic, given most would argue that the role of a venture capitalist is to regularly make bets on highly risky startup investments. But for Green, the founder of Forerunner Ventures, the term implies a lack of control and not being strategic with how you manage a fund. “I’m not going to Vegas with somebody else’s money,” she said.
To her, venture investing is less about bets but highly considered, thought-out analytical investment decisions supported by a thesis.
Forerunner raising its first fund a decade ago was an example of just that kind of move. Learning the venture game as an angel investor and consultant had taken her six or seven years. Resolving to start her own firm, though, wasn’t because she felt that she had to do it her own way, but because it was the only path she could find into the industry.
“I probably underestimated myself and overestimated myself,” Green said. “Because on the one hand, I didn't think I had the right pedigree to go get a job. On the other hand, every single time a person looked at me cross-eyed when I intimated that I would start my own fund, I felt like, ‘Oh, I can do that.’ That was just fuel on the fire.”
In today’s VC world, Green’s start would have made her a solo capitalist, but she built her firm around the idea of a team. Her first partner in Forerunner’s $42 million debut fund was Eurie Kim, and the firm has since added Brian O’Malley and Nicole Johnson. Earlier this year, Forerunner announced its sixth main fund, a $1 billion vehicle that will allow it to invest later into a startup’s journey and take bigger positions. (It’s also raised five “builder funds” to allow for additional growth investing.)
While Green wouldn’t disclose her fund’s performance, the first fund was already returned several times over thanks to bets in companies like Warby Parker and Dollar Shave Club. Its largest remaining position is in Chime, a consumer fintech currently valued at $25 billion. The hype in direct-to-consumer investing may have cooled off, but that doesn’t mean the firm has abandoned its consumer-focused investing. It still has plenty of consumer-facing companies, but it’s also pursuing more B2B investments, like wholesale marketplace Faire and brand-partnership organizer Canal, that are meant to improve a consumer’s experience. In Forerunner’s last fund, 45% of its investments were backing B2B enterprises.
Now as a downturn approaches to mark the beginning of the firm’s next chapter, Green is finding she likes 2022 way better. After the craziness of the last few years, she’s decided to focus her firm on doing more proprietary research on the consumer to both support and challenge the decisions investors and portfolio company founders are making. And as someone who values experience and thinking things through, she thinks it’s good that founders and VCs alike are going to have to make some tough business calls.
“It's an opportunity to learn and to be better at your craft on the other side of it,” Green said. “Don't squander that by being flippant about it.”
Protocol spoke to Green on the occasion of Forerunner’s 10-year anniversary about what she’s learned from starting out on her own and what changes in a downturn, particularly as other investors sour on consumer investing.
The following Q&A has been edited for length and clarity.
Ten years is a long and short time in venture capital. Normally you finish a fund in 10 years so it's in some ways just the beginning, but you’ve also raised six funds during that time.
Maybe that's part of what makes it feel like it's always new, like you're always a startup. Every fund is a new opportunity to address the space and to build a portfolio and so I lean in with that approach. It keeps you thinking young about it, new about it, as opposed to thinking “Oh, I've been doing this for a long time. We're just doing this again.”
How did it feel when you were first starting out, making a 10-year commitment by raising a fund?
By the time I went and raised that first institutional fund, I wanted to build a firm as much as I wanted to invest that fund. But it was a real journey to get to that decision.
If I think about the last time I got a paycheck from somebody else and the first time I raised a fund, there was a good amount of years. It was a lot of time that I spent living my life and pursuing several different things, whether they were personal projects or in pursuit of a career. But I was definitely always looking to learn and always thinking deliberately, “OK, what did I just learn now? How can I move that forward?”
Until I made the decision to raise the fund, I wasn't hell-bent on raising my own fund or starting my own firm.
What helped me along that way was being open-minded to it, which was a real stretch for me personally because I very much need to know what's next. I've learned over the years of managing people, whether it's here or at companies that we're investing in, that people like to know what their opportunity is. They like to know their career path, and I certainly was one of those people too. It was when I let go of that a little bit and just said, I'm going to make sure that I'm just having a learning and growing experience every time and be open to where this takes me, that I enabled the path to unfold. By the time I got to a place where I decided to raise an institutional fund, I had a lot of clarity that this is what I wanted to do.
Was there a moment that the switch flipped?
Until I made the decision to raise the fund, I wasn't hell-bent on raising my own fund or starting my own firm. I was always bent on: I want to invest in things that I connect with, that I relate to. I want to work with people that I respect, that I feel inspired by. Along that journey, I got more and more clarity about what those things were for me.
It was also a time in the industry like it is today. A decade ago, it was another notable point of change with the rise of the micro fund. There were people starting firms in that seed space, and it made it viable to start something with a relatively small amount of institutional capital, which also made it viable to start something on your own.
I think the timing allowed for me to say I can do it, partly because it was the confluence of what was going on in the market and what was going on with me.
You had said previously that you didn’t start Forerunner because you wanted to do venture in a certain way, but it was the only way you could do it. What does that mean?
I was a relative outsider to Silicon Valley. I didn't work at a venture firm. I didn't work at a tech firm. I didn't have a Rolodex that helped me say, “Here's who you should call and where you should try to work.” I didn't go to a recruiter and say, “I want to work in venture. Get me a job interview,” either. I felt like I didn’t know how to get into this space, and that's been one of those questions where over the years with All Raise we've been trying to create more community, we've been trying to create more pathways in. I get this question a lot, which is, “I really want to work in venture. How do I get a job?” And it’s hard to answer that question.
I probably underestimated myself and overestimated myself.
A lot of people would just go to a recruiter and say, “Help me get a job in venture,” but it sounds like your path was “I'm going to learn how to do venture, but do it my way.”
That was my path. And that's probably a confluence of other things that contributed to that about me.
What do you mean by that?
Maybe in one part, my own insecurity about not being pedigreed in the right way and assuming that I wouldn't naturally be embraced. I probably underestimated myself and overestimated myself. Because on the one hand, I didn't think I had the right pedigree to go get a job. On the other hand, every single time a person looked at me cross-eyed when I intimated that I would start my own fund, I felt like “Oh, I can do that.” That was just fuel on the fire.
For a lot of reasons, I am a scrapper, a survivor, and I’ve always had to take care of myself. My career is really important to me and that contributed to me being tenacious and patient at the same time for those six or seven years while I was trying to figure out, did I want to do this? And if I did want to do this, how would I do it? And then if I was going to do it, by damn I was going to be successful.
Is there anyone in particular that you were looking up to at that point that you felt had charted a path that you wanted to follow?
I talk to a lot of people starting firms today, and I think in so many ways it's easier because there's a lot of examples to point to and a lot of investors have backed new managers and been successful. But the hard thing about today is that there's so much of it that it’s like you can do anything, and sometimes that has its own set of challenges.
When I was starting, there was a short list of people who had left to start their own firms who were building firms and there was a relatively short list of higher-profile institutional LPs that were willing to invest in those types of firms. The good news was I could identify them and reach out and build rapport, and fortunately all those people were really generous and nice to me. It was people like Jeff Clavier, Aydin Senkut, Mike Maples, Josh Kopelman — that group of the first wave of micro VC firms. I learned and took lessons from each of them in different ways.
But one of the things that I think has really been an advantage for Forerunner is that we haven't been following the playbook. I didn’t work at a VC firm before and say, “Oh, this is how you do it. Let's just go do it here and I'm going to tweak it one way or another.” It’s been very intentionally, consciously and studiously building it as you go.
Forerunner has become synonymous with consumer investing. You’re a name that comes up whenever anybody mentions anything consumer. How did you think about pursuing that as an investing strategy? Did you think you’d start there and grow into a generalist fund?
I'm not sure I totally knew what a venture firm does, but what I did know — and this dates back to even being a public-market investor — there's more money than there are good companies. So what do you do to stand out in the market?
I was this outsider with a little bit of a chip on my shoulder and thinking about, if I'm going to do this, how am I going to be successful? I want to be able to compete with all these people over time, but what can I win on day one to earn my spot? I knew consumer, because that's where I'd invested publicly. And to the extent I'd done side projects and made some investments individually along the way between quitting my job at a hedge fund and starting this firm, they were all geared towards consumer-oriented things. I felt I had a point of view and a beat on that market.
This was the start of what I think has been a Forerunner hallmark, which is “fewer things better.” My feeling at the time was like I was better off being known for something. And in order to be known for something, you actually have to be good at it. So I felt I had a better shot in that area because I had experience and ideas.
“Fewer is better” is interesting because it requires discipline, and the last year especially has tested a lot of firms on discipline. Some didn’t pass the test.
If I had to say there was one thing that I think underpins Forerunner, starting in 2012, and thriving in 2022, and feeling well set-up for 2032, it would be discipline. We have always been super disciplined.
Last year, prices got crazy, firms got very large. Everyone was hiring a content media team, launching accelerators or incubators. Even Forerunner raised a billion-dollar fund. Where do you see Forerunner in that conversation? What’s your place in the market?
We're still actively engaged in that question, because I look around as a competitive person and see whatever else people are doing. I'm constantly thinking, should we do an accelerator? What should our version of that be were we to do it? A lot of times it comes down to what we are trying to be really good at. What do we believe we need to be good at to do the kind of work that we want to do? Is that essential or not essential? And if it's not essential, we're not doing it. I'm not doing it just because everyone else is doing it.
Right now, one of the things that we feel is essential is to go deeper on our research effort. More research can allow us to be out in the market learning more things, building more connections which might accrue either to deal flow or to relationships or network that's valuable for the portfolio. More research might challenge some of the stuff we're doing on the investment side so that might make us better as investors.
Now Forerunner is 10 years in and it's the first downturn in that period. How are you feeling, particularly about consumer, which is an area that has been hit pretty hard? A lot of venture firms are kind of shuffling away from it.
There was nobody doing it when we started and it was great. [Laughs.]
I do think we're in a downturn. I don't have a magic crystal ball to see if it's six months or 18 months or whatever, but it's not last year. I like ‘22 way better than ‘21.
I think that there are hard decisions being made right now by companies about their cost structure and their plan, but these are, a lot of times, good decisions. It might be market conditions that called the timing of this slowdown, but the pace of what was happening before and the things that people were valuing were not sustainable. They just weren't. I'm not trying to say we were better than everyone — we were in there with everybody else doing it — but I do think we had more discipline.
I just think that we cannot lose the plot. The plot is we want to build businesses that matter. We want to build companies that are good companies that can contribute great products, great services and employ people and provide good livelihoods and maybe even spill over and do good things for the world. That’s a new opportunity, maybe a growing mandate for businesses, but essential to doing that is being around.
I gave a town hall talk to one of our portfolio companies recently and there was a question that came up that was kind of lamenting the challenges of this time. It wasn't just being a Pollyanna but my answer was, “This is good.” This is where you test the mettle and you really get the opportunity because the game just got a bit more complicated. Instead of being one-note, like we just need to get scale or we just need marketing to be out there, you actually need to be able to pull all the levers of a business to stay in business or to earn the right to build this business — and that's much healthier. That's not going to work some and it's harder than what it was before. But if you can do it, you can build a better business and maybe there won't be as much noise in the market — and that might be an advantage.
What about on the venture side of things? There's a whole cohort of VCs who have only had their companies marked up, never down. So how does it change for venture?
Nobody likes tough times, right? But tough times are what build experience and competence. Before I started Forerunner, I made a small handful of SPVs into companies. The biggest one that I did, and the most notable one, was just a fabulous failure. And if there is such a thing as a fabulous failure, that meant that it was high profile. The first call I ever got from a reporter was from CNBC when [that company, sustainable retailer Nau] was going under. They literally had been on the cover as one of the most innovative business ideas of 2008 and then a week later, it was bankrupt.
I’ve written my own share of those.
I was like, “Oh, my God, I'm done before I start, this is awful,” blah blah blah. But there was one person that put it simply to me: “Now you have experience.” It was that idea that you can get hit 1,000 times and never learn the lesson, but if you're here to learn the lesson, you gain experience and you can use it to your advantage.
[For Nau], the team scrambled to try to get the cost structure down. High-profile people from Nike and Patagonia flew down, and we sat around my dining room table, because somehow I was the only person left standing to try to find some money. They showed me this new plan, and it was the most ridiculous plan ever, and I had $5 million. I could have put it in the company — I had rounded it up from people who trusted me — but this was the dumbest plan ever. So I said no. Then they hated me, of course, and it was terrible. But it was a good experience.
If you haven't had that, I think you should take seriously the advice or the perspective from people that have been through it because it's an opportunity to learn and to be better at your craft on the other side of it. Don't squander that by being flippant about it.
DTC is now a bit of a dirty word. How do you feel about how some of those big names have become symbols, like the Pets.com, of this last period of exuberance?
Well, certainly not every company is meant to be a venture company. I think what we're here to do in venture is we're here to be part of the companies that are changing the dynamics in categories, that are uncovering better new ways to do business, that are showing existing categories how they need to transform or establishing whole new categories. So if you look at what has been called DTC that was really a generation of businesses that were evolving the retail/wholesale model.
Early on, we invested in Bonobos, Warby Parker, Dollar Shave Club. They all were branded product companies, but they were challenging the norms of how business got done and really specifically what they were challenging is how businesses started. If you look at the product businesses that we've funded, by and large, most of them have opportunities to live in other channels because I think our mentality was we were never saying stores are going away. It was about people redefining how you started those businesses and how you would lay the foundation for what could be a good business.
I would say that Warby Parker and Dollar Shave Club — and Away and Glossier, still TBD — they're gonna be good investments for us. They were first movers. Once you invested in Warby Parker, we saw the Warby Parker of everything. We saw the Dollar Shave Club of everything. But the 10th of those is not innovating anymore. They're actually just being smart and following a better business model. I think you can make money there, but I don't think you could probably make venture money there. It’s about being at that edge of change and being at the forefront of defining new models.
Of course, the headwind there is sometimes you're going to spend more doing something that becomes easy for people later. At Bonobos, we didn't have Shopify so we had a big giant tech team and that became a money pit. If we could have had Shopify, it would have been easier. So it doesn't always work out that way. But there was a new store model that they were doing, which gave them a halo for innovation on that front, which still helped capture value for the company. I think you just have to make sure that you haven't missed the difference between a great venture investment and a great PE investment or a business that should be self-funded. Saying DTC sucks overall is taking it a little too far.