Inside a Museum of Ice Cream, one of the investments from Elizabeth Street
Museum of Ice Cream
Will McClelland had his first taste as an investor when he supported his brother’s efforts to launch a bike company in the Philippines that was manufactured out of bamboo. That experience, including their bikes being a gift to President Obama from the Philippines government, led Will to focus on investing in consumer startups. Today, Will is the co-founder and partner at Elizabeth Street Ventures. We sat down to talk about the 30+ investments he has had made, why the intuition of the entrepreneur is what he looks for the most, and the broad aperture they use at Elizabeth St to define consumer.
Dave Knox: Your journey into venture capital and consumer start-ups began with a bamboo bicycle. How did that come about?
Will McClelland: I’m a dual citizen as a Filipino American. My mother is first generation Filipino and my younger brother actually lives in the Philippines. About 10 years ago, my younger brother pitched me this idea that he had of starting a bamboo bicycle company. His thinking was that bamboo is a renewable resource, bicycling is the greenest mode of transportation, and he’d see people making these bikes. When he pitched me, I told him to write me a business plan and let’s talk about it. I ultimately wrote him his first check to get him started. It was the first time I’d ever considered investing in a startup.
Today that company is called Bambike and it’s a social enterprise. We manufacture and sell amazing bicycles made out of bamboo. We have a village three hours north of Manila where we make the bikes and do a lot in the village. We run ecological bike tours and have actually become the number one rated activity on TripAdvisor in Manila. The whole amazing experience culminated when the Philippine ambassador to the United States actually gave one of our bikes to President Barack Obama as an official state gift. That means our bike is now permanently housed in the Library of Congress. That to me was the moment where I saw the impact of believing enough in an idea to invest.
Knox: At Elizabeth Street, you have invested in next generation consumer brands like OROS and Museum of Ice Cream. When you look at these brands as investor, what do you think are the most important characteristics?
McClelland: The brand is very important but I look at it second. I always look at the entrepreneur first and what I look for in the entrepreneur is their intuition. I look for entrepreneurs with an intuition that is so strong that they see an opportunity or a gap in the market and are building their life around it. I look to get behind that intuition and then match it with a large market size and areas where I think there are a lot of natural strategic acquirers.
Take OROS. They are an outdoor company built around this proprietary insulation that they adopted from NASA. They were undergraduates when they discovered that you could take particles of this thing called Aero gel and inject it into a thin foam core to create a lightweight, breathable insulation for use in jackets and fleeces. They were not only scientists but also business minds to actually bring it to market. In turn, the created a technical moat around their product construction because not everyone would have that intuition.
Knox: When you started investing in consumer brands, not every investor was a believer in the space. What do you think has changed?
McClelland: A brand is a kind of moat around the business, but some tech investors don’t see it in that way. It takes a long time to build a great brand, but over time your customers are buying into your brand. That accrues a lot of equity value to a brand over time and does create a moat. But it is hard to analyze that with numbers.
For a long time people thought investing in consumer companies was a niche space. But if actually you look at the revenue of technology companies and consumer companies, consumer is actually a bigger industry by total revenue. And now because of the digital distribution of products, a lot of these companies can gain consumer traction and can have very fast revenue growth. They might not understand the intricacies of the consumer market but people wake up pretty quickly when they see returns that are 30x.
Knox: Are there any categories or consumer brands that you think are still ripe for disruption?
McClelland: One of our defining features at Elizabeth St is the broad aperture that we’re looking at consumer. We’re looking at everything from FinTech to health care to beverage, beauty, apparel, and home. With that, the area I’m most excited about now is this whole experience economy with companies like Museum of Ice Cream. What we find real interesting is that many companies in the experience economy have a big real estate component to them, which isn’t a fit for a lot of tech investors but also a little bit too early for traditional private equity. These types of experience businesses fall in between traditional VC and private equity.
While there are a lot of retailers closing locations, physical real estate isn’t going away. We’re very excited about companies that are building business models for those spaces. The Museum of Ice Cream is a great example of that. There is a very exciting opportunity for startups that have business models that can take 30,000 square foot locations in cities globally. SoulCycle and other fitness companies have solved the problem for real estate owners with 5,000 to 8,000 square feet but who’s solving the problem for real estate owners with bigger vacancies. If you can do that and you can do it with a very profitable business model, you’re extremely interesting to real estate owners.
Knox: As you invest in disruptive consumer plays, what do you think should be the responsive from the established legacy brands?
McClelland: We have long believed that M&A is the new R&D. Large companies are looking to either partner with or acquire an innovative, fast growing young challenger brands that are reaching a demographic of digital consumers in a way these larger brands weren’t initially built to. We’re funding things early on that these larger brands will hopefully see high value in. They might try to copy and replicate it but they might also acquire it and bring it in house. As venture investors, we can be a bridge between startups and the larger strategic world by understanding their pain points and then looking for companies that are tackling those white spaces across a lot of categories.
Bigger companies need to acquire different brands and talent that just inherently know how to sell to this generation. They need to learn how to do it through all these new channels and how to build things that this next generation of customers wants. These bigger companies need to have innovative thinking on where the world is headed. Ultimately big companies can benefit from the talent, the brand equity, the new products and the experiences that are being developed by these incredible entrepreneurs.