How This VC Finds the Next Big Thing
The following post was a guest column by Kauffman Fellows Executive Chairman Phil WIckham in Fortune.
He’s taken bets on healthy living, messaging, and the needs of minority consumers and entrepreneurs.
This interview is part of VC to VC, a monthly series that features conversations between veteran venture capitalist Phil Wickham and other leaders in the investment world. Wickham is also the chairman of Kauffman Fellows.
Marlon Nichols sees a world of potential — and he’s determined to unlock it.
As co-founder and managing partner of Cross Culture Ventures, Nichols focuses on high-impact startups that leverage emerging global trends and the untapped talents of entrepreneurs of color. His partners include Troy Carter, founder of entertainment company Atom Factory and longtime manager for Lady Gaga, and Trevor Thomas, a seasoned investor who founded former airport lounge startup The Third Space.
I spoke to Nichols about how he created the idea for his fund and how he sees global consumer markets evolving.
This interview has been edited for length and clarity.
What have you and your partners created?
It’s a venture capital firm called Cross Culture Ventures. We are studying culture on a global basis and look for overlapping trends. We try to understand consumer behavior and habits, trends that are emerging in, say, China and in Africa alike. If we can understand where consumers are and will be spending money, we can then make bets on companies that are building relevant solutions.
What trends do you see?
In the U.S., we see a huge shift in demographics. They call it majority/minority, the fact that, in North America and other places, in the not-too-distant future, there are going to be more Latinos and blacks than whites. If our country is going to be made up primarily of blacks and Latinos, who by the way spend 30% more of their income on tech and consumer goods than people of other ethnicities, and there are unaddressed challenges in their communities — challenges that represent billions of dollars –it makes good financial sense to go after those opportunities. This is how new markets are created.
Our portfolio company Mayvenn did this by creating a mobile solution for black hairstylist to sell products directly to customers without carrying inventory risk. This simple sounding idea unlocked a $6 billion to $9 billion market.
We are fortunate in that my two partners are also black men. We come from very different backgrounds, but we are black men; additionally our venture partner at Atom Factory is Suzy Ryoo, a Korean woman. This helps us to look at opportunities from a very different lens. We understood Mayvenn’s value proposition and the potential for the market very quickly.
Another trend that we follow very closely is something we call the democratization of healthy lifestyles. Or put another way, the concept that irrespective of race, social class, or education everyone should have access to healthy foods and have the option to lead healthier lives. Our portfolio company Thrive Market is a significantly more cost effective and convenient online alternative to grocers such as Whole Foods Market. Thrive Market just completed a $111 million new round of funding, is doing above $150 million in revenue and recently opened a fulfillment center in Reno, Nevada, which is expected to create 400+ jobs. This progress tells us that our research on this trend is “on point.”
We also developed a thesis around mobile messaging — SMS and chat — well ahead of the recent bot craze. Our perspective is that mobile messaging is quickly becoming the primary communication channel for consumers worldwide. As such, it is only a matter of time before that sentiment will bleed over into business. We made a bet on mSurvey, a software company in Nairobi, Kenya, that integrates with mobile carriers in emerging markets to allow brands to effectively communicate with current and prospective consumers.
What motivates you?
We are in this not strictly for financial gain. There are a lot of other motivators here. I don’t know that there has been an early-stage venture capital fund started by three experienced and capable black men. This sends, we hope, a huge signal to the communities that we grew up in that this path is possible. This is a potential career choice for you. That’s really important to us. If you don’t see it, you can’t dream about it, and if you don’t dream you can’t achieve.
Isn’t it also true that, in a lot of ways, minority consumers punch above their weight in terms of creating trends across all markets?
A lot has been written about the driving cultures, particularly in the U.S. Black culture, essentially. We definitely pay close attention to that. But we are also looking for companies that are relevant globally. Again, our goal is to unlock new markets worldwide, but we would be foolish to not focus on the groups with outsized purchasing power and influence in the largest economy in world.
Look at what happened this year with Hamilton dominating the Tony’s after the #OscarsSoWhite controversy. Is there something within that disruption with Hamilton that presented an opportunity for you? Does it indicate something about the broader market opportunity?
Latino and Black cultures and communities have very large voices now, not only on Broadway but also on Facebook, Twitter, etc. In fact, elements of these cultures are now mainstays throughout the world. When these communities embrace something, they have the power to make it an almost overnight success. These communities are far more likely than others to be early adopters of technology, entertainment, and consumer goods and as I mentioned earlier spend 30% more of their income in these categories than any other group. So, really understanding their wants and their preferences is pretty important. Hamilton resonated on a lot of different levels, which is why it was so successful. One such element is that the story was told via hip-hop. Leveraging hip-hop for the musical art form is so natural and appropriate—Hamilton had to win.
You’ve had this big change in your life with moving from a large venture firm to starting your own firm. Walk us through the story.
I got into venture capital about seven years ago. I started out at Cornell. I led the school’s pre-seed venture capital fund, an MBA-led fund with seven fund managers and 61 associates. While I was going through that process and learning about venture and trying to figure out if I liked it, one of the things that really stood out to me was that I wanted to lead my own firm someday. I was then fortunate enough to land at Intel Capital and spent five years learning the business. There were a lot of things that I loved about it, and a lot of things that I didn’t so much care for. I also became a Kauffman Fellow during that period. That experience helped to move my goal post and accelerate my thinking around starting a firm. I was surrounded by several really talented, smart, and driven fellows, many of which launched their VC firms. I looked around and said, “Well, why not me? Why not now? What am I waiting for? I’ve got enough experience. I have a deep and influential network. I have a support system. Do it.”
I also was fortunate enough to find my partners, Trevor Thomas, also a Kauffman Fellow, and Troy Carter, a prolific angel investor. We just clicked, got together and started building. It’s been over two years since we started working together as a team. Fund One recently celebrated its one-year anniversary, all nine companies in the portfolio are performing above expectation, and we can boast quite competitive IRR numbers. It’s an exciting time for us.
What do you and your partners look for in a company?
We have a joint venture with one of the world’s largest advertising firms. They operate in over 255 cities worldwide and capture consumer insights in all of those cities. We leverage this data to identify overlapping trends. We utilize those trends to identify opportunities and new markets—large markets. We like to invest in emerging trends that are global in nature. We’re attracted to solutions to real challenges. The greater the impact or change that technology or a solution can have on the world, the greater our interest. We look for entrepreneurs that have a strong emotional tie to the challenge they are going after or strong domain expertise and unique experiences in the target space. We also look for a track record of hustle, the proven mentality of “I’ll do whatever it takes to win as long as it’s within legal and ethical boundaries.”
What are some of the common mistakes that entrepreneurs make interacting with you?
Some entrepreneurs are really demanding and don’t appreciate that just like their schedules are really busy, so is mine. That is a red flag right away that this person is not going to be easy to work with. This person is not going to be understanding. There is aggressive/ motivated and then there is pushy or overbearing. The former is fabulous, the latter is a buzz kill. Another mistake is coming off as a know-it-all entrepreneur. Yeah, you should know your business way better than I do and should exude confidence, but, please, still realize that I have had some experiences in life and in business that could be of value. A degree of humility and being open minded is something that I cherish in entrepreneurs. If it is not there, we probably won’t get along well. After all, if they are not good listeners, or curious or humble with their investors and team, they probably won’t be with their customers either. This for obvious reasons can be catastrophic to a company’s success—the voice of the customer should be held paramount.
Phil Wickham is CEO of the Kauffman Fellows. Phil was in the Charter Class of the Kauffman Fellows Program, serving his fellowship under Ed Kania at OneLiberty Ventures in Boston, and was founding Vice-Chairman of the KF Board. Prior to joining the CVE staff, Phil served as a General Partner at JAFCO America Ventures and at Copan, based in Munich, Germany. In his venture career, Phil made over 30 investments, including Twitter, Ikanos, Web Methods, Com21, and Trilibis. Phil received his BSME from the University of Arizona and his MBA from Rensselaer. He serves on the boards of Trilibis and Lawson America. firstname.lastname@example.org