Investing in Consumer-Focused Israeli Companies

Israeli retail companies are underappreciated. Listen to this podcast to learn about successful Israeli retailers and Israel’s retail innovation ecosystem.

Craig Weiss, Managing Partner, Flagstaff Ventures

Craig Weiss is the Managing Partner of Flagstaff Ventures, an early-stage, consumer-focused venture capital firm, headquartered in Arizona. Craig brings an entrepreneur-focused perspective to the venture capital field as one of the few institutional investors to have both built a unicorn as a CEO and also identified and invested in an early-stage startup that has achieved unicorn status.

Craig is also the Co-Founder and CEO of Retainer Club, Inc. & Mouthguard Club, Inc., two companies that help orthodontists and dentists provide their patients with online fulfillment of post-treatment retainers and custom-designed mouthguards for athletes.

Craig Weiss is also the Founder & CEO of Aladdin Dreamer, Inc. a technology company with a patented wearable that is designed to improve the 1/3 of our life that we spend asleep.

 

 

Investing

Consumer Retail

Flagstaff Ventures

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SHOW NOTES:

00:00:59 – We’re at eight portfolio companies now…

Flagstaff Ventures is early stage consumer. It’s a venture capital fund. I launched it in the Q two of 2021. And so we’re at eight portfolio companies now. Typically, we’re the first institutional check into the company. Not always, but I would say the majority of the time and writing checks between, let’s just say, at the low end, one hundred K, and at the high end low seven figures.

00:09:48 – I ended up raising $200 million in private equity.

My thesis stems from the idea that if you can build a premium consumer brand, some of the standard kind of five to seven X EBITDA multiples for evaluation no longer apply. And I learned this lesson personally as an operator of an early-stage consumer company. I was the president’s CEO of this company called Enjoy, and I ended up raising $200 million in private equity for that company. We hit unicorn status in about three and a half years. So it was really kind of a wild ride. And along the way, I learned that even with negative EBITDA, we could raise money at a billion dollar valuation, which you can only do if you not only have a great growth story, but you also have to have not just a consumer brand, but a premium consumer brand. And so learning that lesson and being successful at raising that capital, I realized that there was almost an arbitrage opportunity in investing in early stage companies because, again, you’re not subject to this standard valuation that you see in more mature companies if you can land a premium consumer company or help create a premium consumer brand.

00:28:23 – What really gets interesting is where we have multiple levels of negotiation

They’re in 150 points of distribution. And so I look at them and I go, okay, I got into 130,000 points of distribution. I can help them scale distribution to an exponent of their current distribution footprint, which is going to have this outsized impact on valuation. It’s harder to do that with a mature company that more or less has a saturated sort of distribution currently. And so then the only way you’re going to really increase profits is by cutting costs or by trying to expand into some totally different new market. So most of my companies are really at an early stage of distribution, and so increasing that which I can help them do by helping them learn how to create that premium consumer brand. So I would say it depends on the company. Actually, three of my eight portfolio companies I invested in pre revenue, and the other five were post revenue. So early stage to me could be pre revenue as well.

 

00:34:47 – What we’re trying to do is we’re trying to set that individual up as the rock star

But then we subsequently have to go through this process every time. And it’s not always the same five that are in the next one. Right, because they’re smart and they don’t show up to each one. They’re like, hey, it’s your turn. You go do this one, right?

And so part of it is that we work really hard is to make sure that we’re setting up the individual that’s coming in that’s already been in the negotiation, whatever you want to call it, the legacy negotiator into this new group within their company. But really what we’re trying to do is we’re trying to set that individual up as the rock star. Like, hey, they’ve done this. They’ve done that. I just want to take a second. I’ll just make up a name.

00:40:16 – You need to support the decision that the chains made to make shelf space for you.

No, I’m not opposed to that. I mean, one of my portfolio companies is it looks like they’re about to get into about 30 or 40 stores in the Whole Foods chain. And so that one of the things. When I talked to that CEO, I encouraged her to make sure that that’s a successful pilot program, even if that means spending marketing dollars or handing out free samples or doing kind of some gorilla marketing in the areas of those 30 or 40 stores, because to your point, you need to support the decision that the chains made to make shelf space for you. But also you really want great data around the pull through that’s going to occur in those 30 or 40 stores to show a big chain like Whole Foods why they should be taking you national.

00:48:46 –  I believe in rewarding people for what it is that they brought to the table.

Well, in other words, I believe in rewarding people for what it is that they brought to the table. So if they’re achieving initial distribution, they should be rewarded for that. When it comes to like, for example, repeat orders, they’re not really responsible for the repeat orders. The quality of the product is responsible for the repeat orders. So I would try to cap the compensation based on initial distribution. And again, there’s plenty of retail distribution outlets available. They can keep expanding and expanding and expanding. But I view the middlemen’s job is to get you in the door, and then it’s your job to make sure there’s pull through the system because you’ve created a great product or you’ve got great and or great marketing behind it.

OTHER RESOURCES:

1) Enhanced Negotiating Strategies: This two-day seminar discusses the most intense negotiating strategies and tactics allowed without violating your ethics or morals

2) Valuation of Emerging Technologies: This seminar provides an in-depth review of more than 20 Valuation Methodologies

3) Solution Nation – The Book: Learn how the world’s most disadvantaged and destitute people stand to benefit from Israeli ingenuity.