Mike Duda comes from the world of advertising. In fact, he spent 13 years at the renowned ad agency Deutsch, becoming the youngest partner in the company’s history until another creative, Brent Vartan, came along and stole the title. Little wonder that in 2010, when Duda struck out on his own to create Bullish (formerly known as Consigliere Brand Capital), he stole Vartan, later making him the firm’s second managing partner.
It isn’t that the two wanted to outgun their former employer exactly. Instead, the idea from the outset was to create an ad agency that also happens to be an investment firm. In a way, they stole a page from many Silicon Valley service firms that, beginning in the go-go dot com era of twenty years ago, worked for pay and, when the right opportunities arose, for equity.
It’s turned out to be a pretty good approach. Bullish, which is based in New York and works on a pay-for-performance compensation model, has managed to sneak checks into some of the biggest consumer new brands out there, including Warby Parker and Peloton and Harry’s and Casper, companies that have happily agreed to include Bullish as a syndicate partner including because of its advertising know-how.
In the meantime, to keep the lights on as those privately held companies have continued to operate privately, Bullish has also managed to land more traditional big-league clients, including Anheuser-Busch, Pepsi, Nike and Walmart. It also counted GNC as a client and reportedly turned heads when it dropped it in order to invest $250,000 in the three-and-a-half-year-old vitamin supplement startup Care/of.
With Bullish now contemplating fund two, we decided to sit down with Duda last week to learn more about how the whole things operates, and where he and Vartan are shopping now.
TC: You’d spent your career in advertising. What circles were you traveling in that you were also seeing seed-stage startups — good ones — in need of funding?
MD: It was through outlier circles. Like, Peloton struggled to raise money, so it got 104 angels to invest, including high-net worths, and us, who looked institutional, though I laugh at that now. [Founder and CEO John Foley] didn’t know how to play the VC game. He’d been the president of Barnes & Noble and he had this idea that people thought was crazy. He had a PPM for his fundraise — he didn’t have the [traditional] ten-page PowerPoint. So a lot of people in New York passed, and those same people now funding the Mirrors of the world and Tonals of the world.
It was a similar situation with Birchbox. It had trouble raising money because its founders are women, and most of the guys they were talking to were like, ‘Well, my wife would get bored of this after a couple of months.’ But the target audience doesn’t have a seven-car garage in Palo Alto. It’s a mom of two in Cleveland who subscribes to the New Yorker.
On the agency side, we worked on Revlon for two years, so we get that a consumer doesn’t have to be like just someone we know. It isn’t, ‘Oh, it’s a product for women; let me ask my wife.’ We actually do focus groups to [find] consumer insights.
TC: So the pitch is that it isn’t just money you’re bringing but a full marketing group, too.
MD: A marketing group with people from places like Deloitte and A.T. Kearney and Goldman Sachs and RBC who try to understand what’s really going on among the says 330 million Americans out there – – not just in New York, San Francisco, L.A. or Boston, which are the hotbeds for consumer investment in VC. We look at stuff that could be disruptive for the normals, which is sometimes unsexy stuff like a stationary bike with a TV.
TC: A $3,000 stationary bike is for normal people?
MD: There were 1.6 million stationary bikes being sold in the U.S. every year [when Foley first began pitching investors]. Harry’s taking on Gillette before Dollar Shave Club came along [is another example]. The jeans I’m wearing are from a company called Revtown in Pittsburgh, Pennsylvania, founded by Henry Stafford, who was the North American president of Under Amour and [previously worked for both] American Eagle and Gap. So this was a first-time entrepreneur who had corporate experience was paranoid about raising too much money and promising investors too much too soon. And we’re attracted to entrepreneurs who don’t want to raise tons of capital before they build a profitable business.
That’s not the case with all of our investments, obviously. Casper and Peloton have both raised a fair amount of money, but their growth kind of followed suit.
TC: Why jeans?
MD: I think [Stafford[ was kind of ticked off and wondering why do people have to choose from either the Gap or a $200 pair of jeans. He wanted to build a great pair of jeans that sell for under $100 and that he can sell through great advertising. The pair I’m wearing right now is $75 and it’s a great pair of jeans. Not that I have the ability to stretch, but if I could put my foot over my head without them on, I could do it with them on, too, because they’re stretchy and durable and well-made. Also, from an operations from business standpoint, this is an adult who has built up businesses before and brings that sensibility so that we can get the scale right. Though a direct-to-consumer brand, it’s not too precious to go into physical retail earlier, either.
TC: Most direct-to-consumer brands are showing up in the offline world faster.
MD: DTC 2.0 is definitely going to be more about going where your customers are. When Harry’s went into Target, it was a genius move, because there are people in Overland Park, Kansas who may not see its digital banners, but they’re in a Target, and they’re like, ‘That’s new, that’s interesting.’ So it’s another form of marketing.
TC: What about social media? All the platforms are already saturated. Who’s doing really novel things out there, in your view?
MD: I’ll maybe start with the stuff that just annoys us. First, I think a lot of VCs and other people involved with early-stage companies think marketing is a customer acquisition cost and it’s not. If you have to rely on Facebook and Google, you’ll never grow because your [costs] never go down.
When we think of DTC companies, we’re looking for is, what can you do that gets talk value, not just at your initial PR launch but that [produces] advocates in a kind of flywheel talking about you. People do talk about this stuff. People like to be the one to discover something before anyone else and like to talk about it.
TC: What about TV spend? I’m always astonished to see fairly new brands spending what I’d guess is a lot of money on television ads.
MD: With digital marketing, the accountability is not there as much as people thought. And that’s why about a year ago, you started see the [men’s wellness company] Hims start spending $6 million or $7 million a month on TV advertising during March Madness. Was that a flawed strategy? No. TV works. That’s why you see companies that reach a certain size go to TV; it’s like some sort of validation that this a real company. TV is a storefront for companies that may not have one.
TC: I do wonder how these brands, many of which are great, deal with fickle customers. There are some brands that I will always love, like Patagonia, but a lot of newer brands that I buy but I will throw over in two seconds for a newer, shinier brand when it also has a compelling product.
MD: It’s more like someone is probably not serving you well enough. They’re letting you forget about them. Is it Amazon’s fault that RadioShack and JC Penny are going out business? Probably not. They weren’t serving the customer. If you build a relationship with your consumer rather than advertising to her, you have a much better chance of keeping that person as a customer longer term. Patagonia makes great stuff, but so do other people. It’s that the company’s values are bigger than the product itself [that keeps people coming back].
TC: You’re going to start raising a fund later this year. How it will it be different than what you put together the first time around?
MD: We undershot our proposition the first time around. Being an executive at an ad agency, I wanted to be more conservative rather than sell the dream and not achieve it. It was actually harder to raise $10 million than what I was told it would have been if I’d been raising $25 million or $30 million. But we wanted to show proof of concept. Now, a lot of people have left the seed and pre-seed area as investors have raised bigger funds and we see a great opportunity, in a world where there is literally trillions of dollars in play, to get in as early as possible, then play pro rata defense [to maintain our stake]. And in our case, we’ll probably offer up later rounds to the [limited partners] who support us.
TC: A lot of seed and pre-seed deal flow comes to investors from Series A investors. Which are those firms in your universe?
MD: By and far, the most helpful firm to us was First Round Capital. Without their time, we wouldn’t be where we are.
I’m dating myself, but back in 2009, they did office hours. They were commercializing this angel VC investing thing. And I went to one of their office hours and [firm founder] Josh [Koppelman] spent 10 minutes with me and gave me his card and it was like a ‘Dumb and Dumber’ moment. I called my wife, and I was like, ‘He’s saying I have a chance!’ Then I flew to San Francisco to do another office hours . . .
TC: You flew cross country expressly for another of these office hours?
MD: Yes. And 78 people showed up. And it was like the land of broken toys. There were older gentlemen in three-piece suits, and a 19-year-old guy who showed up with a Rock’em Sock’em Robot and people who flew in from San Diego and Portland. And they just gave every one 10 minutes and I was like, ‘Here’s our proposition. It’s a marketing agency with a fund.’
And 75 of of the 78 people got 10 minutes, and two got 30 minutes, and one of them — me — got an hour and a half with Chris Fralic and Kent Goldman, who were kind enough to spend time with someone who kind of wanted to do what they do in a different way. Really, they’re the ones who gave me the confidence that this could work.
Photo above, left to right: Mike Duda, Brent Vartan. Courtesy of Mike Duda.
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