Meet the Investor Who Bet Early on Warby Parker, Glossier, and Dollar Shave Club
While most VCs were focused on software, Kirsten Green at Forerunner Ventures saw the potential of the direct-to-consumer revolution
Usually, the pitches from entrepreneurs arrive electronically. Occasionally, they arrive in the mail. At times, they even arrive hand-delivered by a particularly eager young person hoping to stand out by conveying an I’ll-do-anything-to-succeed passion.
Their destination: 1161 Mission Street, Suite 300, in San Francisco. It’s the office of Forerunner Ventures, Kirsten Green’s venture capital firm.
The pitches, however they arrive, never stop coming. Each year, there are 2,500, give or take. July 2018 was a typical month: 198 business proposals, including 67 wanting to launch new online brands (cosmetics, shoes, toiletries, clothing, you name it), another 64 pitching “platforms” (mostly for selling goods on mobile devices), 16 new retail concepts, and 18 e-commerce marketplaces. Green and her team of a half dozen colleagues sift through all of them. About one in 10, perhaps 200 to 250 a year, get invited to present their ideas to Green in person. Like pilgrims heading to Mecca, the entrepreneurs trek to Forerunner’s office just south of downtown San Francisco’s Tenderloin district, passing or stepping over homeless people on the way.
In the hour or so they are allotted to persuade Forerunner that they are worthy of an investment, the would-be entrepreneurs are grilled by Green or one of her partners about everything from the competitive landscape for their product to its financial potential to their strategic vision.
Don’t bother coming if you aren’t thinking big. Forerunner’s brashly stated mission: “We partner with those who challenge industry norms. Those who upend entire categories.” Forerunner stands out for investing almost exclusively in e-commerce, a bet-the-ranch strategy that has made Green a celebrity in this corner of the VC world and beyond.
Fashionable and photogenic, with a megawatt smile, Green no doubt is the only venture capitalist ever named to both TIME magazine’s 100 Most Influential People list and Vanity Fair’s International Best-Dressed List — in the same year, 2017.
Becoming one of the pied pipers of the direct-to-consumer brand world didn’t happen overnight for Green. A decade earlier, she was virtually unknown. After getting a business degree in college in 1993, she initially toiled for several years at a big accounting firm — “I mean, whoever aspires to be an auditor?” she told an interviewer — where she once found herself in a Safeway grocery freezer counting inventory.
Then she worked for nearly a decade in relative anonymity as a Wall Street analyst following the retail industry, before quitting because she sensed that e-commerce would transform the retail world. It was at that point that she began consulting and dabbling in investing in startups.
Without a track record in the venture capital world, she was a supplicant searching for deals. The pitches from entrepreneurs started to come to her, slowly, only in 2012 and 2013, after word circulated that she was the biggest early investor in Dollar Shave Club and also had put money into other new online brands such as Bonobos and Warby Parker.
Then came the summer of 2016, when Green’s name entered the VC stratosphere. In a matter of weeks, two companies in which she was an early investor became unicorns, the term for startups worth at least a billion dollars: In addition to Dollar Shave Club’s $1 billion sale to Unilever, the online discount retailer Jet.com was bought by Walmart for $3.3 billion. “For a long time, we took our address off our website because people would come and knock on our door with pitches,” Green says.
By then, an investment by Forerunner in a startup had become an imprimatur among the cognoscenti in Silicon Valley. Liz Reifsnyder, one of the early employees of Dollar Shave Club, recalls meeting with the founder of Ritual, a direct-to-consumer women’s vitamin startup, to discuss a senior job in 2016—before it had officially launched. “I said, ‘I don’t know if you’re raising money, but if you are, you should really talk to Kirsten Green. This is right in her wheelhouse,’” Reifsnyder says. Told that Forerunner had already agreed to become a lead investor, Reifsnyder didn’t hesitate. “I was like, ‘Basically, I’m on board. I’m in.’”
In the not-too-distant past, if an entrepreneur wanted to pitch an idea for a new consumer product (outside of a tech gadget), the reaction from most VCs would have ranged from “Huh?” to “You’re kidding” to “Go away.”
Like many revolutions, the direct-to-consumer brand revolution was slow to take off and caught the old guard by surprise. It was led by a loose but, over time, intertwined band of entrepreneurs and investors from new or lesser-known VC firms like Forerunner, who sensed an opportunity that more prominent investors overlooked. It was aided by research on how data could be used to target online shoppers, and by the lessons gleaned from the failures, and occasional successes, of first-generation digital retailers. A burgeoning infrastructure, underpinned by inexpensive plug-and-play technology, made it possible for just about anyone to launch a new product with a remarkably small amount of money. Few online shoppers have ever heard of Shopify, but it was a game-changer. Founded in 2004, Shopify created an e-commerce software platform that takes care of everything a startup needs to do to create an online store — build a website, take orders, receive payments, track inventory, and manage shipping — all at an initial cost as low as $29 a month, less than the cost of a single cash register at a brick-and-mortar store.
Little of this was immediately obvious, at least not to most venture capitalists, who pride themselves on peering into the future. In the not-too-distant past, if an entrepreneur had wanted to pitch an idea for a new consumer product (outside of a tech gadget), the reaction at just about any VC firm would have ranged from “Huh?” to “You’re kidding” to “Go away.” The price of creating a new consumer brand was steep, and the odds of succeeding were slim.
If most VC firms didn’t recognize how technology had the potential to lower the barriers of entry and disrupt this orderly world, Kirsten Green had an advantage. She, like most of the people at the forefront of the revolution, was an outsider who didn’t know that it couldn’t be done.
While working as an analyst at Montgomery Securities, Green had studied the mall boom and had tracked the growth it had spurred among traditional chains and specialty retail boutiques catering to teenagers in particular. “I watched a ton of companies get built on the back of the mall. Really a big impetus was the unlocking of teen spending,” she says. “A bunch of teens would show up at the mall with $20 in their back pocket, and that added up to a lot of money. And the whole thing worked in tandem really well, with teens being the tailwind, malls being the tailwind enabler.”
But she believed that the rise of e-commerce would change this landscape. Technology was supplying the new tailwind for selling goods of all sorts, and Amazon and eBay were in the early stages of rewriting the rules. “Clearly,” Green thought, “a shift is going to happen away from stores.” She was hardly the only person to feel this way, but she did something about it. If there was going to be a revolution, why sit it out?
After leaving her job as a Wall Street retail analyst at the end of 2002, Green used her knowledge of retailing and consumer brands to do consulting projects for private equity firms. But she realized that what she really wanted to be was an investor. While she continued consulting, she scouted for startups with promising new models for creating brands and selling to consumers.
When she found an idea that intrigued her, she would scramble to raise money, putting together syndicates of former colleagues or wealthy “angel” investors she had gotten to know, with each contributing $25,000 or so, which added up to enough to make investments.
In 2007, Green started looking into a relatively new startup called Nau, which she found especially interesting. It brought together many of the ideas about the new world of retailing that she had been pondering. Founded by former executives of Patagonia and Nike, Nau sought to create a brand of casual but trendy clothes you could wear to work during the day and then to a concert or a bar or dinner in the evening. And they were produced in an eco-friendly way, to connect with millennial customers, another nascent trend that she had an inkling would go mainstream. “They said people’s lives are merging. The idea that you go to work 9 to 5 and then come home — that’s changing,” she notes.
Just as intriguing to Green, Nau was rethinking how to use technology to sell its clothing. Its model wasn’t digital-only, but it was digital-centric. Nau clothing would be carried not by other retailers but only at its own boutique shops (of typically 2,000 square feet or less), which were more like showrooms that artfully displayed only a handful of items in different sizes and colors.
Nau’s shops had another novel feature for their time: touchscreen computer terminals. Customers were encouraged to use them to surf Nau’s website, and shoppers who placed an order online while in the store got a 10% discount. “We didn’t call it a store; we called it a ‘webfront,’” explains Ian Yolles, who was a co-founder and vice president of marketing at Nau. “We even trademarked the name.”
After researching Nau, Green contacted Yolles. “She was interested in the fact that we were structurally a consumer-direct business in an industry that was entirely driven from a wholesale model,” he recalls. Convinced that Nau was on to something and was ahead of its time, Green persuaded a prominent hedge fund, Tudor Investment, to invest $10 million in the company, and she got a seat on Nau’s board of directors as Tudor’s representative.
But Nau, it turned out, was too much ahead of its time. The cost of building the elegant, easy-to-navigate website was high because there was less off-the-shelf technology back then. While Nau built a very loyal following in the five cities where it had “webfront” stores, that’s all it could afford with the initial capital it had raised. It didn’t have enough money for a television advertising campaign, and there was no social media back then to get the word out widely enough to increase online sales. Facebook was in its infancy, and Instagram had yet to arrive. Running low on cash, Nau sought to raise additional funds. But it was the spring of 2008, when the financial markets were starting to buckle, not long before the financial crisis that fall. Unable to get additional financing, Nau was acquired by a distressed-asset buyer for a small amount, not even enough to fully cover its debts, and its investors got nothing. The company managed to stay in business, but as a tiny brand without the ambitious vision of its founders. In Yolles’ view, and Green’s, their grand plans for Nau might have succeeded if it had been founded a few years later, when it could have used the tools available to the next generation of digital-first brands.
Green, along with the founders, was devastated. “There were a lot of heartbroken people,” she says.
Yolles remembers consoling Green, but what he recalls most is that she remained confident in her view of the inevitable change coming in creating new brands and in retailing. “She believed in what she had spotted. That professional trauma didn’t derail her fundamental belief in her central investment thesis,” he says.
Despite the Nau debacle, Green was undeterred. “I had gotten it instilled early in me that the way to make money was to think differently than other people, to have a point of view that other people didn’t have and try to be a contrarian,” she says.
Even as she continued consulting, Green kept looking for new brands to invest in. “For a lot of years, it was like, ‘Hey there’s this one person in San Francisco who doesn’t have any money but she’s really interested in this stuff,’” she says. “In 2010, no one gave a shit about a direct-to-consumer brand. Nobody even knew what it was.”
Among the new brands she would eventually find, thanks to her network of retailing and consumer-brand connections, would be one that was far from Silicon Valley: A startup founded in 2008 at the Wharton business school by four graduate students, aiming to disrupt the overpriced eyeglasses market with a home try-on solution, called Warby Parker.
In 2010, Green became one of the first investors to put money into Warby Parker. The four founders were advised to meet her because she was familiar with the industry giant Luxottica from her days as a Wall Street analyst. “Like any investor, my job is to be skeptical,” she recalls. “I wasn’t quite sure how the home try-on thing would work. But I thought it was interesting that they were thinking about that as a means to ease the friction of buying, and I bought their thesis around the category.”
Two years later, in early 2012, Green was raising a larger pool of money to seed Forerunner’s first venture capital fund, which would enable her to build an ongoing business that would make more and bigger bets to test her investment thesis about the changing online retail landscape. On January 25, Green attended a dinner at Park Tavern’s private dining room in San Francisco’s North Beach neighborhood. The dinner was hosted by Alpha Club, an exclusive, invitation-only networking club for tech industry investors and founders, the former looking for ideas and the latter looking for money. A couple of days before the dinner, an investor with whom Green shared ideas asked her in passing, “Have you heard of Dollar Shave Club?”
“No, what is it?” Green answered. Told it was a men’s razor startup, Green thought to herself, “Geez, Gillette is a big, formidable company. They have a huge market share, huge presence, huge mind share, incredible loyalty, and a big budget to defend it. I can make only a few investments a year. Do I need to make that one?”
By coincidence, she found herself sitting at the same table as Michael Dubin, the founder of Dollar Shave Club, and Peter Pham of Science Inc., an incubator that was an early backer, who had come to the Alpha dinner from Los Angeles looking for investors. Pham introduced Dubin, who explained his vision.
Years later, Green still hasn’t forgotten that moment: “I definitely had the sensation — I remember the tape in my head going, I have to invest with this guy,” she says, with a trace of amazement in her voice at how quickly she changed her mind about Dollar Shave Club’s prospects. “I hadn’t seen the video; I hadn’t seen anything else. I wasn’t exactly turned on by the headline of ‘I’m going to sell razors.’ But I don’t remember a conversation super focused on razors. I felt that he ‘got’ the male consumer. The conversation was a much bigger one. The conversation was about the guy who was waking up to paying attention to his own health and wellness; who was waking up to owning his own decisions about what was in his medicine cabinet; who was peeking into his girlfriend’s cabinet to see what she had. And I also was a believer already in my own right in pursuing things that were direct-to-consumer. When I heard him talk about that, I was like, he gets it.”
There was one problem: Green didn’t actually have any money to invest in Dollar Shave Club because she was still working on raising her fund. But Dollar Shave Club needed money now to launch. If Green wanted in, she would have to move fast to find someone who would lend her the money.
At the top of her list of people to call was Sandy Colen. A San Francisco hedge fund executive, Colen for years had been Green’s biggest financial backer. They had known each other since the mid-1990s when Colen offered Green a job. Though she turned him down, they had stayed in touch. Like Green, Colen was intrigued by how e-commerce might change retailing, and the two were like-minded in thinking that advances in technology and changes in consumer behavior would cause disruption.
“She was perplexed that no one showed the same passion for these opportunities,” says Colen, who put money into some of Green’s early one-off investments before becoming a major source of capital for her, putting in $5 million as the sole investor in a Forerunner “angel” fund in 2010. “I was investor one,” he proudly points out.
Colen’s belief in Green’s thesis had been reinforced, he recalls, when he traveled to an investment conference in 2011 and attended a talk by the founders of Warby Parker. “Kirsten had already made an initial investment in Warby Parker, and I was pretty much 100% convinced this would work when I saw them at that conference,” Colen recalls. “It was one of best presentations I’d seen by a disruptor.”
So, when Green called asking for money for Dollar Shave Club, Colen didn’t hesitate. He made what’s called a “warehouse loan” of $250,000, with the agreement that Green would pay it back when she raised money from other investors to bankroll her new Forerunner fund.
As Dollar Shave Club’s sales soared, Green invested more money in the company as it raised additional VC funds in subsequent rounds. And when Unilever bought the company in 2016, just four years later, proving her intuition right, Forerunner earned many multiples of what Green had invested.
Kirsten Green has built the biggest portfolio of direct-to-consumer startups, with investments in nearly 90 e-commerce companies as of mid-2019.
Green’s growing prominence has enabled her to raise ever-increasing amounts to invest in startups: $75 million for her second Forerunner fund in 2014; $122 million for the firm’s third fund in 2016; and $360 million for another fund in 2018.
Though Forerunner’s initial investment funds aren’t large by venture capital standards, Kirsten Green has built the biggest portfolio of direct-to-consumer startups, with investments in nearly 90 e-commerce companies as of mid-2019. As much as Green looks for technology and online marketing smarts, she also seeks out entrepreneurs whose disruption strategy includes connecting directly with consumers. Brands that convey a sense of authenticity, rather than simply selling a product, can create a devoted community and take business away from bigger mass-market brands that by their very nature have a hard time identifying with consumers — for example, Dollar Shave Club, whose customers loved Michael Dubin’s irreverent, stick-it-to-the-man (that is, Gillette) attitude.
Green saw in Glossier’s founder, Emily Weiss, the same thing she saw in Dubin. Weiss, then in her midtwenties, in 2010 had started what became a wildly popular blog named Into the Gloss as a side endeavor while working at Vogue. A few years later she began approaching a number of venture firms seeking funding for a startup, but had little luck — until she talked to Forerunner. Green helped Weiss focus her business plan on a line of affordable basic cosmetics (including moisturizers and eyeliners), and Forerunner led the first “seed” investment round for Glossier.
Green’s intuitive grasp of Weiss’s vision was in sharp contrast to the response Weiss and her team received from other VC firms, says Henry Davis, who was president of Glossier for four years before leaving to launch his own direct-to-consumer startup. “Some of the shit we would get was, like, spectacular,” Davis recalls. “Assistants were brought into the meeting because they’re women and understand beauty. Some VC guys who say, ‘I’m going to give it to my wife and see what she thinks.’ And I would leave meetings; I’d just get up and leave.”
Thanks to Weiss’ digital savvy, Glossier quickly built a huge following on Instagram, the social media app of choice for millennials, who often use the site to post photos of their favorite products. Like Dollar Shave Club, Glossier has turned into a big winner for Forerunner. Green has invested in Glossier’s subsequent fundraising rounds, and the company’s annual sales have topped $100 million. In the spring of 2019, it was valued at $1.2 billion — another Forerunner unicorn.