Joe Hovde is an equity analytics data scientist at CircleUp, a venture capital firm and technology platform focused on consumer goods.
Briefly explain to us the responsibilities of your current role.
I work as a data analyst on our internal VC fund. I sit within the venture group and serve as the liaison between the product side and the venture side, and help determine the best way to use our data from an investment standpoint.
DTC has been a great channel for brands to control the messaging with their customers. Perhaps equally as important, it’s provided a significant amount of actionable data. What under the radar metrics do you think are the most important when analyzing a DTC company?
Good question. You know, a thing that is tough for investors to analyze is the engagement and commitment of a brand’s customer base. I think that figuring out some way to quantify the extent to which a brand has an intense and dedicated following is extremely valuable.
If you could dissect deeper into that data, it would reveal significant insight about your customer base. For most investors, it’s tough to distinguish whether you have this customer base that you paid to acquire through social channels and buy your product but don’t care too much about it, or this rabid organic following who really care about your brand. If you have a way to understand that, you can predict more efficiently what customers to focus on in terms of acquisition and better tailor your messaging to enhance that relationship.
That’s really interesting. I wonder if there is a quasi-accurate way to indirectly measure brand engagement. One thing that comes to mind is looking at the click through rate and average session time for a newsletter. The 2pm Newsletter is a good example of a brand that broadcasts this information. In the case of a consumer brand, I guess the idea would be to analyze the extent to which customers engage with your brand without commercial intent.
That’s not a bad idea. Another obvious way you could look at it would be through social media. How many shares, likes, etc. you are getting on your social channels. Again, it’s trying to find a way to measure conversation and loyalty.
But for an investor, for the most part, this type of engagement data is less transparent. The repeat rate is a great metric to measure commercial strength — but again it’s difficult to attain this information as an investor.
Right, and the problem being that engagement information isn’t told in purely quantitative terms. It’s a spectrum. A lot of conversation doesn’t necessarily mean more loyalty. The quality of the conversation is what’s important.
Right.
Given the rising prices of social media ads and the paradigm shifting to focus on profitability rather than growth, what are the best ways for brands to acquire customers?
This is something that our founder [Ryan Caldbeck] is really interested in. You can scale early by spending a lot acquiring customers on social media, but you reach a point where you become too reliant on acquiring new customers rather than developing your customer base.
Definitely. If you have to raise capital in order to acquire more customers and keep your rate of growth, you’re in trouble.
Yes. Another channel I would look at is retail. It is still a cost-effective way to scale if you know how to go about it.
Personally, I am really fascinated by companies that are media companies first and consumer brands second. For example, Barstool Sports. Their media platform has this manic following, which they can then tap into to sell apparel, alcohol, and even sporting events. Goop is another brand that comes to mind that has a really strong media presence, which they can use to acquire customers cheaply and monetize via CPG.
The barriers to entry are so low for both categories that if you open up the doors and have a tribal following, you can tap into both of those really well. It takes time to develop, but it is also less capital intensive.
What is a recent investment you are excited about?
We just announced the Unilever acquisition of Liquid I.V., one of our portfolio companies. Liquid I.V. is a better-for-you electrolyte drink mix brand, which we discovered in late 2017. What is really special about this investment is how we sourced it. Helio, our machine learning platform, recognized that Liquid.I.V. was performing in the top of its category in terms of the strength, reach, and intensity of its brand. The success of this investment just reinforced our conviction in Helio and the power of our data-driven process.
I notice that a lot of your data analysis looks at text analysis on different platforms (google search, reddit, etc.) Do you think a particular platform provides the most insightful data? If so, which one?
For personal projects, I think reddit is great because it has a huge amount of text and you can use it to see trends over time. Also, there are all of these well-defined communities that you can dig deeper into sub-markets (such as people interested in Keto) and do analysis on well-defined psychographic groups.
How should investors consider behavioral economics when analyzing a potential company or category?
First and foremost try to be aware of their own biases and the biases introduced in their investment process.
Then, it is important to look at the product or category and try to think about what psychological factors are at play in the purchase decision – is it a purchase that conveys status (a peloton)? Security (Judy, the survival kit brand)? Or something else?
It seems to me that the more emotional and psychological factors involved in a purchase, the more opportunity there is for companies to carve out defensible brands and/or charge a price premium.
What are a few ways that early stage CPG brands could be using data analytics more effectively?
If you are smaller than $5M, you are probably best off using out of box solutions. This is because you are better off devoting capital and attention to factors that can help you get to scale.
But once you begin to scale, it is important to focus on setting up data systems that will scale with you and give you clean, reliable data. I wouldn’t worry too much about applying any sort of fancy analysis when you’re still in the beginning of this stage, rather invest in data engineering that will set you up for success when you’re big enough to really benefit from analytics.
Early stage venture investing has traditionally prioritized other factors (founding team, product-market fit, etc.) over data-driven decision making. Do you think this is the right approach?
Yes, for most investors. Data is sparse and analyzing it is expensive and if it isn’t your core competency I wouldn’t use it much. Unless there is some reason that you have this proprietary data stream, then there are other aspects to consider. So for most VCs, I wouldn’t suggest it.
What category are you most excited about?
I am excited about a lot of these alcohol alternatives brands. I think many people like this ritual of alcohol and the culture that comes with it, but are also realizing it’s really bad for you. For me, It’s the lowest hanging fruit of what I could remove from my lifestyle to make me healthier.
Especially younger demographics, people are rethinking what effect alcohol has on them and replacing it with products that are better for their lives.
There is this huge trend towards wellness which we chatted about earlier.
Yeah. I would guess that 10 years ago it would be more rare for people like you and me to be studying stoicism and meditation. But now the conversation is about how I can have rituals in my life to optimize health and happiness.
Where do you see white space in the consumer brand space today?
Brands that can become habits – especially since the world’s habits have been shaken up, anything habitual like an after-work beer or a morning coffee or a nightly sleep-aid, I think there is a ton of opportunity to win these newly-formed habits.
I couldn’t agree more. I think you can look at it in two ways. One, people’s relationship to these types of brands is really unique. It’s almost like these products become these signals of accomplishment, a type of reward you give yourself. So, you may be ok with spending a few more dollars on an alcohol or coffee brand that feels authentic to you.
And secondly, you are seeing people trying to form new habits. Madefor, which was started by Blake Mycoskie [Founder of Tom’s], is creating this low-tech subscription box that teaches you a new habit each month. I think that’s awesome. And you know, when you read these books like Atomic Habits by James Clear or listen to the Tim Ferriss Podcast, it becomes evident that there is this relationship between habits and wellness, which I think is really interesting.
My girlfriend, to your point, was saying she likes to have a drink at the end of the work day as a way to reward herself. But, what I think we are seeing, is people want to reward themselves in ways that are beneficial from a health standpoint. I think there’s a lot of opportunity for brands to find ways to do so.
What is your creative outlet and how does it help you get into a flow state?
Great questions. I need to prioritize getting into a flow state more, that is something I don’t do enough of. But I find that walking on uneven trails or over rocks to be a great way to do that, I think because you’re making lots of tiny decisions about where to place your feet next and it occupies your mind. This is something that is easier to do everyday in San Francisco and I should do more often.
What is a daily ritual that you cannot live without?
Honestly, I don’t have a daily ritual that I can’t live without but I’ve been trying to write 3 pages freehand every morning, a sort of stream of consciousness that I have done for 94 of the past 95 days! That is a really nice habit that I think I will continue doing every morning.
What is the last:
TV show you binged?
Instant Hotel. Australian Airbnb hosts compete to have the best hosting experience. Incredible antidote to 2020.
Movie you watched?
Before Sunrise directed by Richard Linklater.
Song you listened to?
Isabel by Frank Turner.
Podcast you listened to?
Tracking Your Life with Boyd Varty, which was recommended on the great podcast Invest like the Best. It is about this lion tracker in South Africa and his philosophy on life.
Book you read?
Fiction – The Wind-Up Bird Chronicle by Haruki Murakami, which was really good if you like strange, surreal plots.
Nonfiction – The Autobiography of Gucci Mane by Gucci Mane and Neil Martinez-Belkin. Amazing, especially on Audio.
Up Next: Michael Goldman, Senior Manager of Special Projects at The Farmer’s Dog.