There’s a lot of dry powder in the venture capital world, but what are they looking to invest in if not apparel?
In a new financial Q&A series, Sourcing Journal caught up with Robin Li, a principal at GGV Capital, to get her thoughts on the current trends in the New York venture capital scene.
Past and present GGV investments include Alibaba, Boxed, Function of Beauty, Glow Concept, Houzz, Ibotta, Lively, Peloton and Poshmark, to name a few in the consumer space. GGV’s last direct-to-consumer investment was in Winky Lux, owned by Glow Concepts. Current investments are focused in infrastructure and supply chain logistics.
Sourcing Journal: Where are we now in the investment cycle?
Robin Li: From our point of view, we are busy, if not busier than last year. We are bombarded with deals [as] everyone is fundraising. For us, there are so many good companies. We actually are having a hard time making decisions because the companies are so good. There is so much deal flow right now [and] we are surprised by how good are the metrics that many companies are bringing in.
SJ: Why are the metrics so good?
RL: They have seen what predecessors have done. New York is a harder place to raise capital traditionally than the Bay Area so in New York, you are buttoned up before you go out and fund raise.
SJ: What are you looking at these days?
RL: We’re looking at urban tech, as opposed to traditional technology. Urban tech focuses around the future or work, living and transportation. It tackles the infrastructure of cities around the world, helping to power small businesses and small to medium enterprises. New York lends itself as a great city to do that and reinvent the tradition industries in real estate, fintech, all legacy industries that Silicon Valley doesn’t have.
SJ: How does that impact consumer and retail?
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RL: It’s about changing or improving workflow and the supply chain in retail. How do you bring a traditional pizzeria online? How do you help them open an online store, figure out delivery options and process orders? We started to see that in other industries, such as quick-service restaurants. It’s about disrupting the sector from past retail and apparel learnings.
SJ: So how is that different from retail and apparel?
RL: There’s been a lot of funding on helping retailers and brands on customer-facing services, such as chat. But the realization is that as much as we worked on the front end, companies have a bigger problem on the back end with supply chain inefficiencies, returns, finance and also on the payment processing side.
SJ: Investors seemed to have pulled back a bit on direct-to-consumer these days. Why has that shifted?
RL: The ecosystem connected with infrastructure is probably a bigger opportunity for investors overall. Unless a brand is in a break-out category or it is so unique it becomes a cult brand like Peloton, it can be difficult for a company to grow because it gets siloed into whatever vertical it is in. And some categories are not high frequency, so no matter how well it does, there won’t be many buyers in a vertical market.
We are seeking some sky-high valuations in some direct-to-consumer brands, but it doesn’t make any sense so they are pushed into this journey to have an initial public offering because no one can afford to buy them. Private equity will never pay up, and you can try an IPO but that’s not certain, so there are only so many options [for an exit strategy].
SJ: So if you’re looking at infrastructure and supply chain, why is NY the place to be versus other U.S. cities?
RL: New York is a great place to helping traditional industries come online because it is a big hub in general and for international activity. Whether that’s a time zone advantage or what, but even with China and Asia in general, New York is also a great place to live.
SJ: Do you see a great runway ahead, or a possible economic slowdown?
RL: From an investing scenario, there are always going to be risks that go into every single investment decision that we make. What we are seeing is that the stronger companies are buttoning up. They are careful about what they are spending and they are building up a war chest. They are raising now and more than they need to so they have more as a buffer to cushion any changes ahead. As for runway, even though consumers are changing the way they spend, we’re not sure it will hit the enterprise value as much for infrastructure firms.
SJ: And finally, what are you seeing that interesting in infrastructure and supply chain logistics?
RL: More exciting than retail tech are the innovations in fleet operations. That is because of the phenomenon of the rise in e-commerce and the use of apps. Companies can fulfill orders, but not for faster shipping. As Amazon rolls out its delivery program, it is letting delivery be part of its ecosystem. People are opening up businesses where they own local fleets to do last-mile delivery. So how do you manage them? That is one example we would look at. We see it as a trend that is not going to go away anytime soon.