Credit: Willow Growth Partners

  “Our thesis works because we are very disciplined on valuations, and laser-focused on margin profiles and unit economics ” 

Deborah Benton, Founder and Managing Partner of Willow Growth Partners, an investment firm focusing on values-led early-stage consumer brands, has been on the other side of the fence. The former president and COO of apparel brand NastyGal and COO of footwear brand ShoeDazzle twice raised about $60M from more tech-oriented VCs at valuations that, in retrospect, were far too high. She's seen first-hand why too-high valuations and too much capital raised it don’t work.

 

The story is quite different at Willow Growth Partners, with Amanda Schutzbank, Co-Founder and General Partner. The aim is to help early-stage brands find the right capital (right amount, right valuation), the right team, and the right path to scale. “Our thesis works because we are very disciplined on valuations, and laser-focused on margin profiles and unit economics,” says Deborah Benton.

 

Above all, staying very disciplined around this thesis as well as looking at both qualitative and quantitative early operating data, she has the talent to identify high-potential brands that will make money for everyone - founders, team, and investors. As Shai Eisenman, founder, and CEO of Bubble, backed by Willow right from the start in 2020, says, "They always have your best interest in mind".

 

I had the chance to meet Deborah Benton and I asked her what she looks at when studying a fundraising dossier, the metrics to follow for a young brand, and the technologies around Commerce that interest her.

 

Thanks Odile Roujol (Fab Ventures) for the introduction in Los Angeles!

 

Founder, Managing Partner, Willow Growth Partners

 

Laurence Faguer :  Can you first describe Willow Growth Partners?

Deborah Benton: Willow Growth Partners is an emerging growth stage consumer brands fund specializing on powerful values-led consumer brands, doing $1 million to $5 million trailing 12-month revenue. We typically lead seed rounds of around $3 million. We focus on beauty, personal care, health and wellness, food and beverage, pet and baby. Additionally, we selectively invest in commerce enablement technology that enhances the consumer brand experience. For those deals, will then invest alongside a very strong tech VC fund and we and write a smaller participating check.

Source: Compte Instagram Willow Growth

A big part of our thesis involves closely working with the founders in the trenches with them, guiding them, and helping them scale the companies. We're not passive capital, we don't write a check and walk away.

We prioritize brands that foster long-term customer relationships and repeat purchases, avoiding brands doing “one-and-done purchases”.

And we invest in values-led brands. They all have their personal version of values that are important to them and that are resonating with their consumers, which could include sustainability, ethical production, supply chain transparency, ingredients formulations, and high-quality nutrition. All those things are really important to us, and that's where we spend most of our time in these consumer brands.

 

We review approximately 1,000 deal opportunities annually and select about five.

We break our diligence into two areas. Quantitatively, because we invest after launch, we have enough data to look at things like margin profiles, repeat purchasing, unit economics, month-over-month growth, channels of distribution, and economics within those channels of distribution. We do cohort analysis to understand how frequently people are coming back and buying again.

Qualitatively, we spend a lot of time getting to know the founders and the founding team, how the team works together, and how we will work with the team. Relationships, communication style, collaboration style, and alignment of values with our founders are all really important.

And we do a lot of diligence into the brand itself: ingredients and formulations, its presence,  reviews, and engagement in social media. We are looking for truly differentiated products that have a moat around them, that have an unfair advantage, and that have built a very powerful brand that resonates with a core group of consumers. Those early adopters and early consumers will end up being advocates.

 

We get a lot of inbound, but if we have a specific thesis that's important to us, we'll proactively research and identify specific companies. 

Our approach to deal assessment remains unchanged because we've always been very disciplined on valuations. Typically, we aim for deals with an enterprise value below $10 million, emphasizing getting capital efficiency pretty quickly. We don't want these companies to keep raising and raising. We work with our companies on a path to profitability quickly; some of our brands are profitable from Day 1 and remain so. What has changed are the types of deals. Not so much in volume, but in terms of quality. 2023 produced several deal opportunities where companies sought extensions of their previous rounds to extend their financial runway.

 

There is no change in that either. It's probably reinforcing the importance of a lot of areas that were always very important to us anyway: capital efficiency, staying lean, a quicker path to profitability, strong unit economics, and establishing a sustainable, profitable business, with a strong emphasis on profit margins.

Many of our portfolio companies are already profitable, so that's less of a concern. However, as 2024 could be a tough year for the consumer, this might not be the year for taking huge, big swinging chances. Flexibility and early response to any signs of consumer spending weakening are vital strategies.

Yes, very much so. I made a lot of mistakes in my operating experiences, mostly around valuation, capital raised, and worrying too much about top-line growth, and not more about margin and business fundamentals. Those experiences have been instrumental in building our thesis and informing how we invest. We’re careful about who we invest with, ensuring they share the same philosophies of capital efficiency and healthy growth.   

 

I had raised from tech VCs, at too high a valuation I kept raising more and more capital, but it wasn't building a sustainable business. The goals of the tech VCs (namely, billion+ plus exits) didn't align with how these brands naturally scale and exit the market.

There was a misalignment where the tech VCs prioritized top-line growth for the brand but didn't recognize that a brand's real value lies in its profit margins, achieving a positive EBITDA, building a substantial company, and a sought-after acquisition target. Acquirers value the business based on these factors, rather than focusing solely on top-line growth, which is more typical for successful SaaS or tech companies.

 

We know brands are different from technology companies. And we understand brands, how they scale, and the capital required to scale them.

Most importantly, we understand the exit strategy and ensure that we're underwriting a realistic exit and building the company in such a way that everybody, shareholders, as well as the founder and the entire team, can make money upon an exit.

When valuations keep increasing, and more capital is continuously raised, it not only leads to undisciplined spending and doesn’t force operating teams to make healthy trade-off decisions, it also leads to a capital structure that precludes a reasonable and achievable exit.

For many of these brands, they should do one round of financing (Seed), maybe a bridge, and then one more early growth round and ideally, never raise again. That's a terrific strategy because, with a strong margin profile, they can get to profitability relatively quickly and grow to such a size where there could be a great exit in the $300 - $700M EV range

 

It's quite rare to hear such a clear distinction between consumer brands and SaaS companies. This is likely due to the fact that there are very few VC, if any at your level, who have held leadership roles as President and COO in consumer brands and successfully raised substantial amounts such as $65 million for NastyGal and $66 million for ShoeDazzle.

I developed this thesis honestly after making capital raising and operating mistakes. I left operations to move to the investor side to help early-stage brands find the right capital and team, and scale in such a way to maximize the possibiilty for success. 

Deborah Benton, Founder & Managing Partner, Amanda Schutzbank, Co-Founder & General Partner (May 2023).

“In May 2023 we held our first Willow Annual General Meeting and were excited to welcome many of our LPs, prospective LPs, founders, and friends, with some flying great distances to join us”                                                                                                         Credit: Willow Growth Partners

 

We just invested in a company called Daash, a B2B analytics company, starting with the beauty industry. They're selling their services to brands, retailers, and even professional services, providing SKU level, category level, and brand level sales data across retailers. And that's pretty new. We can infer certain data through the websites and through online like traffic data, but we have no visibility into retail data, at Sephora, Ulta, Target, CVS, etc. Daash is using machine learning and various other signals that they're pulling in to create a robust picture that allows brands and investors to see how things are trending. For example: which brand has the top-selling moisturizer? We're really excited about accessing that kind of data

On the marketing side, I think AI is going to play an interesting role in the next three to five years, both around the acquisition, like identifying target audiences and acquiring, also on visual merchandising and creating a very bespoke, unique experience based on the user, improving the consumer's experience of the brand and in discovery.

 

 

Time is certainly the most scarce resource for us. I have a partner, Amanda Schutzbank, who is amazing. So there's the two of us on the investing side. We also have those two operating partners you mentioned who are former CEOs. Very, very, very helpful. They help us advise our portfolio companies, they spend time diligencing opportunities with us,  and sometimes they'll take board seats. And we're going to expand that program, bringing on more former, very senior-level operators.

We have to be very judicious with our time, staying very disciplined around our thesis. We are quite thesis driven and we have a very strong sense of what we want. So we know the areas that we are particularly interested in and we'll often outbound proactively go and try to find those. 

 

In the case of our most recent beauty investment, we've known the founders for three years. We recognize that developing a strong relationship cannot be rushed, and we spend a lot of time building it. That time helps us forge conviction and helps us believe that we're entering into a business relationship where we can have a healthy, productive, and enjoyable relationship, and for the founders as well. It goes two ways.

 

We are almost finished deploying out of this current fund, and we are mid-fundraise for our next fund, a $75 million fund. We have an incredible group of investors in Willow and are talking to a number of other potential LPs, many of which bring strategic value. Our thesis is exactly the same, we just will write a bigger check to buy up more ownership early on.

We have carved out a very desirable position as the leader in the emerging growth consumer brands fund sector, focusing on the first institutional round of financing, generally around  three-million dollars.

My goal is to maintain and strengthen this position, making Willow the best partner for emerging brands, and supporting them however we possibly can, not just with capital but with expertise. It's about building a community and building a group around each of these brands to help them be as successful as possible. 

And if your readers want to reach me, please do!

 

 

Thank you, Deborah.