Natalie Dillon of Maveron joins Nick to discuss Consumer Retrenchment or Reallocation, AI Impact on GTM and Purchase Decisions, How to Balance Consumer Sentiment vs. Behavior, and Where Smaller Funds Win. In this episode we cover:
- Investing in the Older Adult Category
- Challenges for Smaller Funds in Venture Capital
- Consumer Investing and Market Trends
- Participation as a Product and Consumer Creators
- AI’s Impact on Venture and Marketplaces
- Distribution and Go-to-Market Strategies
- Balancing Portfolio Construction and Ownership
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0:17
Natalie Dillon joins us today from San Francisco. She’s a Partner at Maveron, a consumer-focused early-stage venture firm investing $2-$10M checks out of a $225M fund. Prior to Maveron, she was an investor at Susa, and early in her career, she worked at Goldman and Silicon Valley Bank. She’s backed companies including Dolls Kill, Parade, Otis, and Snif. Natalie, welcome to the show!
0:44
Thanks, Nick for having me.
0:46
Yeah, it’s such a pleasure to connect. Would love to hear a bit about your backstory and your path to venture.
0:53
Sure, sure. So I was born and raised in San Francisco. Mom’s an immigrant. She she was a social worker, and actually still is a social worker, still working. Dad was an immigration lawyer, and I bring that up because venture capital was not a topic of conversation during our dinners. And so I really sort of learned about venture much, much later, but part of my path, and when I was a kid, I grew up next to a public park. I bring this up because they offered free tennis lessons, and I picked up a racket when I was five, and sports and playing tennis, frankly, completely changed my life, and I think put me on a path that eventually led me to venture but so much of sport, of competing, constantly looking to improve, wanting to win, reviewing why you lost, like all those attributes, I think, really chiseled me at a young age. I ended up going to Stanford and had the opportunity to walk on to the tennis team there, which had been a total dream of mine. By my junior year, I was a scholarship athlete, made the roster for the playing Team, became a captain, and we won two national championships during my time. Again, complete kind of dream come true, but following sort of that intensive athletic period of my life. I wanted a more technical education, and so found myself at Goldman Sachs, did my tour of duty there, as I like to say, and it worked really hard and and it was really there where I started to learn more about venture capital and private companies. And I was just fascinated by it. And I was reading all the analyst reports that the different banks were putting out, and I coveted Mary meeker’s Internet Trends reports and and I was just a sponge during during that period. And so, you know, while at Goldman, this is in the 20 2014 2015 era. I’m grinding away. I’m like, watching more sunsets and sunrises, and I really cared to see and friends are working at Uber and Airbnb and Pinterest. And I just I felt so far away from technology, and so I ended up going to SVB, which, at the time, was working with every venture backed company under the sun. And there I was on a small research team that had access to a lot of really fascinating private company, early private company data, and we were tasked with cleaning it up and coming up with insights for our executive team. And so it was there where I both started meeting with investors, started meeting with founders, started understanding the landscape of venture and got to the point where I’m writing these memos of different industries and sharing them with my friends at different firms. And I was like, I think I’m kind of doing the job of an investor without the fun part, which is partnering with founders, working with them. And so I went to SUSE ventures, and, you know, fantastic team. Love them, and but wanted to have a little bit more of a consumer focus. And so moved over to mavron Almost seven, eight years ago, and it’s it’s been a fun ride, and excited for the next seven to eight years.
4:27
Incredible. Well, I can’t wait to dig in. It’s so funny. The banking stuff like, I’ve been talking to bankers lately, and they’re all kind of complaining about, we can’t figure out how to underwrite these AI deals, because they’re raising 100 million bucks without revenue. Yeah, yeah, they’re in, like, kind of their own tough spot. Awesome. Well, tell us a bit about the thesis and the investment approach.
4:52
At mavron, we’re a small team, so there’s five of us on the investment team, and we really take a stance of everyone should run towards their strength. So we have some folks on our team that are very network driven. We have other folks that are very thesis research driven. And all of this is sort of done to to answer the question of where, where do we see, sort of the major behavior changes with consumers. Where do we see major demographic shifts, and where do we see sort of inflection curves in terms of consumer adoption with when it comes to technology products? So people have different approaches of how they answer those questions, and we certainly honor that, but really it’s kind of understanding, where are the shifts happening? And then, you know, the last question, which is probably the most important, are, who are the best teams that are building into those major shifts? And so a lot of that, again, is staying close to the market and and people do that in a number of different ways.
5:58
So aside from technology shifts, I think some of us are aware of maybe the big one or the big two going on. What are some of the demographic or consumer shifts that stand out, you know, to you that you’re observing now, one of the
6:15
demographic shifts that I’ve been observing for a long time, and we’ve made several investments, and our biggest investment is a company called Sage, is in the older adult category. I think it’s very popular for folks to focus on young people, and there’s lots of good reasons to focus on young people. They tend to be early signals of where culture and behavior are heading. But as I dug into the older adult category, and I’m saying kind of 65 plus. We have 70 million Americans that will hit 65 or older by 2030 we don’t have enough caregivers for the amount of folks that are getting older. And I think covid was a really challenging experience for many of these senior living homes. And so I started to kind of dig into that category, saying, like, there has to be technology has to be part of the solution. Like, the problem is only getting worse. We have not enough caregivers. There’s the caregivers that join. There’s 80% annual turnover. Like, technology has to be part of it. And so we invested in a few companies in sort of a smaller capacity, and then really sort of backed up the truck on a company called Sage, which is a operating system that sells into senior living homes for sort of replacing the nurse coordination. If you’ve ever been to a senior living home, there’s usually like a string on the wall for residents to ask for help. They are completely modernizing that experience, so that residents can get help much faster, and that all the care that’s delivered is actually being tracked, monitored, and insights are sort of being derived from that. So that’s like one example of sort of a bet that we’ve made,
8:02
but many others. Well, rumor has it with the boomers, we’re going to have, you know, an expanding population in that category. So yeah, I mean, that’s more tech, yes. And we need, we need better services and better housing. Well, I maybe we’ll start out at a high level, and then we can dig in to some details from there. Sure. So when I, when I started TFR 12 years ago, you know, $225 million fund would have been quite large in this day and age, with multi stage, you know, multi sector. It’s not, you know, it’s reasonable size. So my question to you, Natalie is, you know, how do smaller funds compete in an environment where, you know, these firms are aggregating capital, they’re anointing the the cap, the category winners, you know, with massive funding rounds before traditional metrics and milestones are hit. You know, we talked about that a bit with the bankers trying to underwrite these deals. The prices, you know, can get out of control. The category winners can be set at the beginning instead of earning their way into it. So, you know, how do the smaller funds compete? Well, I think
9:15
anytime competition heats up, it forces every investor to, frankly, look at themselves a little bit more directly in the mirror, and sort of answer like, why are we different? Why do we have the right to win? What’s our edge here? And when I think about, sort of the bigger firms, there’s been a lot of turnover, if you’re not at the management level. And so I think if you’re a founder, that that values longevity of a relationship. I think the smaller firms are more likely to be better suited for a founder that values that. I think the smaller firms, and not all of them. I think mavron is is, you know, an exception in this that we are sector and. Stage focus, and so that’s going to bring a level of expertise like I hope that I am better at pattern matching consumer founders and teams. I hope that my network is more supercharged in helping this next wave of consumer founders and teams. And I really try to show that sort of in that first meeting. Because I think not only, you know, are they anointing these king makers faster, but the time that these rounds are getting done is gotten compressed. And so my my role is, you know, at the very first meeting, having a prepared mind and and also having, I think, a network that during that deal process and when we’re negotiating and when we’re competing, that I’m trickling people in that I know this founder would want to have as part of their advisors, or want to have part of that, like coaching staff. And so I think part of it, like, you know, any sort of competitive thing, it’s understanding who that founder is, is the offering that you have, even something that they value. And if a founder, you know, doesn’t value the things that I’m bringing to the table, and they want that big, round size, and they want the big valuation, I’m probably not the right fit for them, and that’s okay. But I do think there is a I think there’s many, many founders that want a dedicated relationship, want a boutique focus. Don’t want to deal with the signaling risk or the relationship risk that your partner may leave. And I think you know, particularly, even for consumer we’ve seen this through many, many cycles. Consumer becomes the like, it’s the belle of the ball, or like the ugly stepsister, like it goes in and out of vogue. And I think you feel that as a founder, even more so at the bigger funds versus a dedicated fund that’s we’re long this sector. We’re going to stay with you through thick and thin. And you know, it’s just, it’s communicating that to founders in the right way and, and sometimes that’s through me, or sometimes that’s through founders that have, you know, walked in their shoes before.
12:12
So part of that superpower for you is focus, right? These multi stage, multi sector, you know, doing investments all across the board, you’re an expert in consumer. So you know, if we talk consumer investing a bit, lots of articles saying we’re in retrenchment on consumer, what’s your take?
12:35
I think it’s a really popular take that is not backed by substantive data. I think there’s a complete divergence between sentiments of like, how consumers are feeling and their actual behaviors. And it’s very easy to say everything is bad in the world, consumers aren’t buying like and there is, there’s, by far there are some bad things. Like, it’s not to say that everything is rosy, but you look at the data and inflation is bad, but it’s there’s. Wages have grown faster than than inflation. For most Americans, people are continuing to buy. You look at the holiday sales numbers. We had 7% year over year increase. We had even higher increase in furniture and jewelry and sort of electronics and high ticket items. And so I think the story is just overblown. And I don’t know. I think it’s clickbaity, it’s it’s not substantive. But consumer is also difficult. And so I get why some of this also comes from the investor community, and not just media. Consumer tends to be very power law, binary driven. And so if you have a few companies that epically failed. It’s very natural for investors to have loss aversion and sort of sour on a sector, but I don’t know. Personally, I think we are in a really interesting time and consumer where a lot of the infrastructure for AI is being built, the number of potential builders now has never been higher. I mean, the like, the barriers to build are so low and so very, very excited to see kind of in this new age, like, what, what will be built.
14:36
It’s pretty amazing, right? Like, I learned to be a developer when I was young, and bunch of old coding stacks, but anyone can build now, like there really are no barriers, regardless of your tool, there’s plenty of tools, whether it’s cursor or cloud code, anyone can build and. You know, you made this point about the divergence between sentiment and behavior. I mean, clearly one that I’ve witnessed is just the vast and rapid consumer adoption of AI. But, but how do you think about that? You know, when we’re hearing all these things of negative sentiment, right? But, yeah. But nevertheless, you know, behavioral signals appear to be strong. You know, how do you square that circle when you’re underwriting a deal?
15:27
Yeah, so we, we conducted our own survey of 400 consumers, and sort of broad based consumers, so fairly indicative of the typical American population, and think in actuality. And this is December, so this is before some of the major Claude model updates. So even I mean which is well to think that in three months, the survey is like already a little dated, but the results really show that consumers are still very, very early on their AI journey, less than 8% at that point, which is again, back in December, had actually utilized an agent to perform a task on their behalf.
16:14
Is that in this Natalie? Sorry, is that in the States, or was that globally,
16:21
just in the United States, yeah, this was just us adults. So, wow, yeah. And so I think the behavior of AI is actually still, still fairly nascent in the, like, full, you know, when we think of this at full adoption, and it’s just, I think, a little bit of a reminder that we sometimes as investors, live in an echo chamber, and the folks around us are using these tools. Trust for AI is very, you know, very polarized, and people are using the, you know, people are aware of AI tools, but it’s not a daily habit. It’s not even a weekly habit for the majority of us, consumers. And so there has been tremendous progress, but there’s also, I think, significant progress to be made on the both adoption of using this as a truly daily routine and the sophistication of these tools, of sort of a consumer’s ability to use these tools is still quite limited. And so I’m, I think we have time like we’re we have not hit peak AI consumer.
17:37
It is amazing to me that very intelligent, very accomplished professionals in my peer group. You know that art in venture and art in startups will be asking me on the messenger chat like, but how are you using it like, what? And you know, I’ll just go through a simple example of, oh, well, I had to give a presentation and put together a slide deck. So I just recorded all my thoughts, and then, boom, I had a deck, beautiful looking deck in two minutes. And but people, you’re right, like, people don’t, haven’t quite unlocked, like, all the ways that they can build it into their their regular workflow, beyond just a search, beyond just basic inference,
18:22
yep, yep. And I think the pattern we’ve also seen is, at least in the in the survey that we did, the folks that are power users tend to first be introduced to AI through their work. So they’re a knowledge worker. It there, you know, it first helps them write emails. It then helps them, you know, automate some other aspects, but, but if your job is not a knowledge worker, then maybe you’re not being introduced to AI in the workplace, and you’re just using it on the weekends or in your spare time. It’s like that introductory is, I think, a little bit more challenging, but we’re, you know, again, I’m excited because it feels like there’s plenty of opportunity, and we’re still quite early in the consumer AI market that that is being formed.
19:10
So Natalie, you wrote this piece that I read debop, eBay piece, hopefully I pronounced that correctly in the in the piece, you argue that participation is becoming the product. What do you mean by that statement?
19:29
Yeah, so I thought the Depop, the 1.2 billion Depop acquisition, was just fascinating. And when I looked at Depop, one of the more striking aspects of that deal was how the percentage of of sellers that were also buyers. And I think it was like two thirds of buyers were also sellers. And we. Is very, very different than the eBay buyer and the eBay seller, right? So most are very two distinct camps, Depop, if you’re a buyer, you’re also a seller. And so that was sort of my point. And I think really looking at that generation, I think they think about their closet in a, you know, very fluid way, where they’re buying and selling, they’re renting like it’s it’s all part of a lifestyle. And I think eBay got that right, and I imagine that they want more young consumers that are also going to be buyers but also become sellers.
20:42
Is there a parallel here? This is a discussion point I’ve had with some other VCs for years. But the difference between pure consumers and pure creators, and as these tools have evolved, AI tools or Tiktok, you see a lot of consumers are becoming creators. You know, they’re doing their own videos and and spinning up their own code. So is there a parallel, you know, not only just buyers and sellers on a marketplace, but also kind of, the receivers of content versus the creators of content?
21:16
What you’re pointing to is that the, I know the barriers to produce and to make are are lower than ever. And I think there, there are many consumers now, and when you look even closer to Gen alpha, like Gen alpha’s number one job, or like most aspirational job, is to become a creator. And so I think there’s, yeah, that there’s more opportunities for consumers to create. I think younger consumers are creating more content. And, you know, at least in the Depop, I think it’s an example too, of this next generation they’re comfortable with these side gigs, you know, they they’re looking to sell, they’re looking to create content, maybe they get an affiliate fee. But I think they’re a very entrepreneurial generation, and, you know, somewhat, somewhat shaped by the like shadows of the Great Recession and and having sort of experienced that through, through when they were growing up, that also, you know, you meet so many of these founders too. I was just at YC yesterday. They’re so much younger. They’re so much more savvy. They’ve been listening to your podcast, I’m sure, for years, like they just know so much more about the space and so, you know, I’m not answering your question directly, but I’m excited about this next generation that feels that’s already very savvy, and I think wants to be very entrepreneurial.
22:54
Does it change the way that you vet marketplaces at all? You know, the Depop example, where you’ve got, you know, buyers and sellers moving to, you know, both sides of a marketplace is that, like a new liquidity metric you’re looking for, in a way, a little bit, I mean,
23:10
I think you look at the success of whatnot, and that’s something they got right pretty early, that the collectible buyer was also a seller, and that there was such high liquidity in the marketplace as a result. And so it’s, I think for us, it’s more looking at like, what are the pockets and consumers, where there is that participation on on both sides, because you can then get the flywheel of the marketplace working much faster. And again, I think whatnot was a great example of like, doing that, right? Get collectibles, that’s right, yeah, but we’re, you know, hopefully there’s going to be more 100% so
23:53
back to AI. We touched on it briefly, but AI is starting to change Tams in venture math. What markets may you be revisiting that were two services heavy or operationally expensive to be considered venture scale. Maybe, you know, five plus years ago, we’ve
24:15
been spending a decent amount of time in the like dermatology, skin esthetic space, there’s tremendous amount of consumer spend in the category. And I think previously, we assumed it was two caps, capex heavy, two services heavy. Now with AI, there’s, you know, people can take a photo of their face and can see the type of treatments they want done, or they can track the progress of either the treatments they’ve done. And so there’s been a few companies sort of in that space that have really great teams, and I think again, part of the behavior shift is you have younger consumers that are more interested in skin care. Are spending more on skincare, and so that’s been a space that I you know, truthfully, I think a few years ago, we wouldn’t have doubled down and and spent the time, and we’re on the hunt to find something there, given the increase of wallet in that category, and also, sort of now you can do a lot of these treatments remotely and create a really sticky relationship with the customer by tracking progress over time.
25:27
Would you look for deployment models where the consumer is doing it themselves in their own environment, or is it still done in a facility? Or, I think it needs probably
25:39
has to be a mix of the two, because some of a lot of the most sort of expensive and sort of most highest revenue driving procedures need to be done by a physician, by a provider in a space. And so we’ve seen different models where they have folks coming to your home, or someone’s hosting, like a party or, you know, group of people, right? And they’ll, they’ll do sort of multiple sessions. So we’ve seen a few of, you know, where they don’t have an actual location, but I think in order to get sort of the full wallet size potential, you probably need to have a location. But the location doesn’t need to be as doesn’t need to be on the first floor. It doesn’t need to be in like the most desirable locations, and you can still continue to have a relationship with the customer outside of just that, that four wall experience.
26:34
Not everyone has the Brian Johnson setup at their house
26:37
Exactly, exactly, and that too is we actually had Brian Johnson at one of our CEO summits, and it was just fascinating to hear his whole regiment, and very intimidating to sit next to him at lunch and while I just piled pasta in my face, and he he would not. But I think there, I think you’re touching on a really interesting trend that there are also so many more consumers now that are educated, aware on biohacking longevity there feels like there’s a huge opportunity for sort of mass consumers to have access to that, but not pay. You know, I think, you know, five, $10 million a year, or whatever he’s paying for his treatment, absolutely. And I think there’s a lot of room there. And that’s another category that that we’re spending some time digging into. Like, how do you bring the longevity to the lenses?
27:38
It’s like, the perfect example of disruption, right? Like, bring the cost down, and you can increase the TAM exponentially, because now all your general consumers can access therapies or treatments that otherwise they couldn’t. Yeah, so, so talk to us more about distribution. How are strong companies today thinking about go to market and distribution. You know, how is that side evolving in the consumer lens? You know, in this AI first world,
28:09
I think about it in waves, and I think in the sort of the 20 teens, 20, let’s say 2015 2018, era, if you were great on Instagram, you were killing it as a consumer brand, and there was a whole host of brands that rode that wave. Sort of post 2018 TPM started to get really expensive, just relying on meta was challenging, so we’ve seen a divergence in strategy, and I don’t think, frankly, there’s one strategy that’s the dominant of one, but rather, every brand needs to have sort of multiple touch points with the consumer. And so that means showing up in real life, in a retail presence. That means having a Tiktok strategy, a YouTube strategy, having a podcast strategy, and there’s, you know, the level that you that you invest in a certain strategy is dependent on the product and and sort of where, where that product market fit is or isn’t. But I think today, you know, brands cannot be reliant on a single channel, and rather, they’re investing deeply across many, many channels on the AI front, you know, we’ve seen like so, truthfully, we’ve seen so, so success on the Geo. And there’s a lot of, I think, promise and hope that you know certain platforms can help on Geo I think the jury’s still out on how brands do that effectively. There’s tricks and tips that founders are sharing, but I really can’t tell you that like one platform is like help. And brands have, you know, 20x better search results or conversion but we are seeing like, you know, interesting things on websites being hyper personalized for that consumer. And so when they get on the landing page because they know who that consumer is, the conversion rates are much higher because the right product is sort of positioned to them with the right copy. And so I think what we’re seeing is more hyper personalization on where shoppers are, are going and and that seems to be working, but I think the geo is still still too early to really say this. This approach is working.
30:47
You know, Natalie, at the beginning of the interview, you talked about the size and scale of consumer exits and how they can be quite large. Venture is already a power law industry. You know, the B to B folks like myself, you got to do enough investments to make sure you get some hits, and that might be even more true for consumer investors. So, so how do you think about that? You know, catching the big ones, balancing portfolio construction and and ownership, you know, in a in a category that tends to have huge winners and, you know, many that aren’t going to generate sort of the returns that can be fun makers,
31:35
yep, yep. It’s a great it’s a great question, and something that we discuss a lot at mavron, and I think it also the approach has to vary Market to Market, but the approach that we take is a barbell approach, and so in order to get enough shots on goal, we’re writing early checks into pre seed seed companies where we can own meaningful amount of ownership. And part of the reason we’re able to do that and take sort of that risk at that point where companies are either just getting incorporated, the product is maybe out in test flight. But you know, Product Market Fit has not been proven, is we’ve done significant amount of research on this is a category where we believe consumers want a product. This is a team that is incredibly advantaged in delivering and so we’re able to underwrite that risk. And there, you know, we’re looking for 15 to 20% ownership. We are taking a decent amount of risk, and so we think that that risk reward is there on the on the other side, on the other sort of barbell side of the the equation we’re waiting for companies that have proven they have product market fit, and you know how, maybe not quite yet, scaled or but have Signs that there’s a playbook that they can scale against. And there were writing much larger checks and depending on the round dynamics. And this is where it gets tricky. In this environment, you know, looking to own, ideally 15 to 20% I think in reality, in this market, we have to own a little bit less than that, but the company is much further along. And so that risk, reward, conversation and equation makes sense for us, but that’s, that’s sort of the the math that that we do, or the approach that that we take, is looking at things that are fairly early, and then, you know, waiting a cycle or two until the company is fully, you know, is more proven, and there’s product market then, and then doubling, then really investing a much larger check there.
33:51
Perfect. Natalie, if we could feature anyone here on the show, who do you think we should interview and what topic would you like to hear them speak about? One of my
33:59
early mentors is SAR bore at at CRV. He was a seed investor behind DoorDash, and outside of being a fantastic investor and done well and consumer, just a really good human like, always positive attitude. Always get three exclamation points on his emails. And I would love to hear the story of early days at DoorDash.
34:25
Amazing. She is Natalie Dillon, and the firm is mavron. Natalie. Thanks so much for joining us. We don’t talk consumer enough, and this was just a great education exercise for me. I’m sure the listeners are going to love it. So thank you. Applause. All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social, or shoot them an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of. The smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently. Thanks so much for listening.
