Maveron, a specialist investor in consumer-facing businesses known for its Starbucks Corp. connection and early success with an eBay Inc. investment, is staring at what looks like a once-in-a-lifetime shift in consumer attitudes.
In the aftermath of the global financial crisis, shoppers who once lusted after high-priced fashion brands have turned frugal, would-be early retirees are polishing off their job skills and many homeowners owe more than their houses are worth.
“It’s pretty safe to say that you probably had a more dramatic shift in consumer behavior in the last two years than in the last 30 or 40 years,” said Maveron Partner Dan Levitan, who co-founded the firm in 1998 with Starbucks Chief Executive Howard Schultz. “People are less proud of indulgences and more focused on value.” But Maveron sees more opportunities than pitfalls in this trend.
It says its existing portfolio investments are holding up well despite the change in attitudes, as they “were able to very successfully realign their cost structures quickly and dramatically,” according to Levitan. “What we’re seeing now in a lot of these businesses is stabilization and growth on the top line coming off of a more rational expense base.”
For instance, portfolio company AllConnect Inc., which helps people who have moved get connected to utilities and other services, is seeing record revenue growth even though fewer people are moving because cost-conscious consumers are using its service to save money on services for their current homes. Frozen-yogurt vendor Pinkberry Holding Corp. continues to grow, in November announcing a planned expansion into several new areas nationwide. Maveron also expresses excitement about sandwich chain Potbelly Corp., which VentureWire recently reported has at least $100 million in revenue.
As for new investments, Maveron has been narrowing its focus in the last couple of years to three core areas: education, Web-enabled consumer services, and health and wellness. Maveron recently led a $3.3 million Series B financing for Kwedit Inc., a company that lets people pay for goods bought online with cash at 7-Eleven stores or other Kwedit partners. It also took part in a $1.25 million seed round for Latimer Education Inc., which is creating an online university to serve African Americans.
In health and wellness, Maveron foresees a wave of new services that consumers will pay for partly or entirely out-of-pocket, including for their pets. Its portfolio includes Trupanion, an online provider of health insurance for cats and dogs. Maveron financed it in April 2007, before the worldwide financial meltdown, and says revenue is growing as pet owners worry about paying vet bills and veterinarians recommend coverage.
Despite its optimism about consumers, Maveron, like most venture firms, continues to have a tough time finding exits. It does have two recent ones via M&A: Regence Blue Shield of Washington acquired Kinetix Living Corp., a provider of health and nutrition programs, while Global Payments Inc. bought Auctionpay Inc., a developer of fund-raising software for nonprofits. Prices were undisclosed in both transactions.
Levitan declined to discuss fund performance, but made it clear the firm has its eye on the public markets for future exits. While the start-ups able to go public recently have been primarily technology-related, Maveron thinks markets will ultimately reward high-performing, growing companies regardless of sector.
“I think great consumer businesses are fantastic public companies,” Levitan said, recalling the IPOs of Starbucks in 1992 and eBay in 1998. “There’s zero doubt that the best exits in great consumer investments are IPOs.”
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