Make Change, Make Money: Announcing BBGV Fund III

Today, we’re excited to unveil BBG Ventures Fund III — a $50M fund to lead investments in early-stage, female-founded companies that will transform the collective or lived experience of the 99%. This new wave of founders is poised to do giant things across areas of the consumer economy still begging for reinvention. We’re here to give them that first institutional investment.

But first, a short history.

Our origin story goes back to 2014, when tech advances like cloud storage, iOS, and open source software had dramatically lowered the cost of launching a startup, creating opportunity for a different kind of founder. We saw that a new wave of female founders had arrived — from B-School, legacy industries, non-profits — a cohort that the traditional world of venture capital had overlooked and underestimated. You know the stats well by now: 2.4% of venture dollars was going to women-only teams, 12% to teams with even one female founder, a staggeringly low 0.64% to teams led by women of color, and 88% to all-male teams. We knew that founders who intuitively understood the dominant consumer would have a competitive advantage imagining, creating, and launching consumer-facing businesses. For us, it was a no-brainer to back them.

We were working together at AOL then — Susan as the CEO of the AOL Brand Group, Nisha as the Chief of Staff for the Group. Combined, we had decades of operating experience from startups to public companies: Susan began her career in the magazine industry, then spent ten years at ABC where she rose to President of Entertainment, green-lighting shows such as Grey’s Anatomy and Desperate Housewives. She was CEO of Martha Stewart (MSO) and CEO of Gilt Groupe before joining AOL. Nisha was a recovering M&A lawyer and former Bain consultant who was Susan’s first hire at AOL. She oversaw strategy & operations for the 1,300-person, 40-brand group. On the side, she took over and turned around AOL’s millennial website, Cambio, and then launched BUILT BY GIRLS, a leading platform for young women in tech that algorithmically matches high school students and professionals to give female and non-binary talent their first connections in the tech world.

We were operators, not investors. But, we knew our extensive operating networks would give us differentiated access to this new generation of founders and a unique capacity to support early-stage companies. That, combined with the fact that the incumbent VC world was still chasing an old founder-model, suggested we could drive outsized returns with this as our focus. We took the idea to Tim Armstrong, then CEO of AOL, who agreed to put up the first $10M fund in September 2014. With AOL as our sole LP, we built a reputation for delivering real operational support and a constructive, but frank, ear to our founders. In early 2017, still backed by AOL (now Verizon Media) we began investing a second $10M fund, increasing our check size and sometimes leading rounds. We’d heard since launch that “there just aren’t enough female founders” to support a top-quartile fund — but our first two funds put that fallacy to bed. We’ve seen almost 8,000 startups and invested in 76, building successful funds with great companies including Zola, Modsy, Lola, KiwiCo, The Wing, Pymetrics; newer companies like Spring Health and Blueland that have broken out in only a couple of years; and innovators like Squad (acquired by Twitter last fall) and Trash (acquired by VSCO).

The Next Chapter

As we neared the end of Fund II, we reflected: tech had experienced its own #MeToo movement; multiple micro funds were emerging to invest in women; and there was much talk at top funds about recruiting their first female GPs. But the investment gap still loomed large, and the percent of venture dollars going to female founders had moved barely a point between 2014–2018. Some of this had to do with mega-rounds — but even taking those out of the mix, the difference wasn’t meaningful. And there was still a dearth of funds leading institutional rounds for female-led companies. The whitespace we’d identified early on remained — as did the opportunity for alpha. But to go after it, we’d need an institutional-sized fund and strong early ownership targets.

With Verizon Ventures’ blessing and commitment to invest, we spun out to raise Fund III and did our first close in the fall of 2019. Then COVID hit, creating huge uncertainty everywhere. We decided to pause our fundraising, focus on our initial investments and work with our portfolio companies during what we assumed would be a lull in startup rounds. But female founders did not slow down: while Pitchbook stats released in Q3 2020 showed investment in women-led companies had dropped from 2.8% to 2.3% YOY, deal flow at BBGV during the April-September lockdown period actually went up 17% YOY. So in early Q4, we re-opened our fundraise.

In retrospect, the pause was valuable — for us, and for LPs. The pandemic, followed by a powerful new push for racial justice, had touched every company and consumer, changing habits, attitudes, and ideas about what matters, and illuminating sectors of the consumer economy in need of reinvention. LPs saw the value in founders who understood this new, more conscious and intersectional consumer, and in GPs going after those shifts. We think that 2020 will be long remembered not just for COVID-19, but as the start of a decade of accelerated change. Transformation at the scale we’ve seen over the last year opens up more and greater opportunities to create value. We’re delighted to bring together a diverse LP base who believe that change will drive returns — that venture capital can once again kindle the future. Our investors come from multiple worlds: corporate, institutional and family office, including George Kaiser Family Foundation, State of Michigan Retirement System, Verizon Ventures, Nordstrom, Bank of America, Industry Ventures, and Gingerbread Capital. They are complemented by a slate of extraordinary operators and investors who bring firepower to help our companies win, including Tim Armstrong (Flow Code), Kevin Ryan (Alleycorp), Aryeh Bourkoff and LionTree Partners, Andy Dunn (Bonobos), Bre Pettis (Makerbot), Payal Kadakia (Classpass) and Anjula Acharia, Shan-Lyn Ma (Zola), Vanessa Wittman (Glossier), Jen Fonstad, Aileen Lee, Sonja Perkins, Nancy Twine (Briogeo), Michelle Kennedy (Peanut), Carly Zakin & Danielle Weisberg (The Skimm), and Tracy Sun (Poshmark).

Where society goes, so do returns.

With BBGV III we’re leading investments in pre-seed and seed stage companies that will reshape the way the majority of consumers live by driving systems change within industries (B2B), building 10X better consumer solutions or addressing new buying behaviors (B2C).

Today’s consumers are increasingly intersectional, more conscious, multi-generational, and often underserved. It makes sense to invest in founders who intuitively understand these new consumers — because they’ve experienced the same broken systems and challenges. As we’ve noted since we first launched BBG Ventures, these founders have a natural competitive advantage. By embracing societal shifts, they are creating companies that could propel a tidal wave of change and drive enormous value.

We’re focused on some of the biggest opportunities — categories of the consumer economy that demand human-centered transformation: Health and Wellbeing; Future of Education and Work; Climate Friendly Products and Platforms; Overlooked and Emerging Consumers. In particular, we’re looking for companies making large-scale behavior change possible by improving access, enhancing affordability, or reducing friction in the consumer experience. More on these categories below.

Health & Wellbeing: As a nation we are not well, and we can’t afford to be well. Per capita spend on healthcare in the U.S. is over $10,000 — more than 2X costs in the UK, France, Canada and Australia. It’s no surprise then that 40% of adults in the U.S. forgo a test or treatment due to costs. To compound matters, 5.4M people lost health insurance in 2020. The US ranks #43 in the world for life expectancy and has the highest chronic disease burden: 60% of adults suffer from at least one chronic condition; 42% suffer from multiple conditions — ailments that account for 70% of deaths in the US. In addition, 40% of adults in the U.S. struggle with mental health. We need affordable, accessible healthcare; new delivery mechanisms; and more focus on proactive and preventative care, so we reduce hospital visits where healthcare costs are highest. Technology is enabling powerful shifts for the patient, putting them finally at the center.

We’re focused on multiple areas that we’ll cover in more depth in future posts. For now, these include: 1) use of data to personalize products and services for individual patient needs, bodies and goals; 2) the disentangling of services from the doctor or specialist’s office, bringing care to community hubs, to our screens and to our homes; 3) targeted solutions for patient communities delivering lower-cost and better care; and 4) clinically-proven, non-pharmaceutical solutions for preventative care. Examples of our investments in these arenas include Spring Health (Fund II), a precision mental health company that uses AI to match patients with the right care for them, quickly and accurately; Oova (Fund III), a women’s biomarker company combining low-cost consumable test strips and a computer-vision powered smartphone app to aggregate a body of longitudinal data that is more precise than anything before it; Alula, a platform transforming access to products, services and experts for cancer patients and survivors; and Sugarbreak, a new suite of affordable, clinically-backed natural products to reduce sugar addiction, minimize glucose spikes and and support healthy blood sugar levels for the 100M pre-diabetics and diabetics in the US.

Climate-Friendly Products & Platforms: Climate change is the paramount challenge of our time. While there’s no question that solving this requires a singular focus on game-changing solutions that can get us to net zero carbon emissions by 2050, individuals aren’t off the hook. Consumer behavior can play a crucial role in creating a groundswell of change. While in previous funds we had a strong focus on ecommerce, we’ve narrowed that focus in Fund III to Climate-Friendly Commerce. We predict consumers will become increasingly Climatarian, caring about their consumption footprint and wanting to consume responsibly. This shift is already underway: 62% of Gen Z and Millennials say they prefer to buy sustainable products; and 55% of sales growth in CPG from 2013–2018 came from products marketed as sustainable (despite the fact that these goods accounted for under 16% of the market). The growth of rental, resale, and upcycled products show further consumer commitment.

Our interest in climate-friendly consumption began in Fund I when we invested in Full Harvest, a marketplace and logistics platform for the 10M tons of food that goes to waste on farms every year because it doesn’t meet cosmetic standards for grocery. In Fund II we invested in Blueland which helps reduce single-use plastic in the home with their proprietary formulations of eco-friendly cleaning products. In Fund III we’re doubling down on these arenas, focusing on proprietary technology or formulations that can transform consumption and behavior at scale. We expect to see products & platforms that are not only sustainable, but also better and affordable. In Fund III we’ve already invested in Planet FWD, a carbon impact assessment and simulation tool for consumer food brands; Thousand Fell, the first circular economy company for the footwear industry; and a new personal care company in stealth which is completely removing plastic from your day-to-day care routine by replacing it with dissolvable packaging.

Future of Work & Education: We’ve been focused on the future of work since Fund I, when it became clear that independent workers had the potential to become the majority of the US workforce. This includes solo-preneurs, creators, independent contractors, recent graduates with side hustles, and retirees who want to stay in the game. Unsurprisingly, women and people of color over-index here. In 2019, the Bureau of Labor statistics revealed that 57 million people, more than a third of the labor force, were employed independently — and projected that 1099 workers will be the majority of the workforce by the end of the decade. They need tools, services, and infrastructure to build and sustain living wages; and platforms and programs to connect and learn. This thesis drove our investments in Mighty Networks, a SaaS platform that enables solo-preneurs to build all the elements of their business in one place, with no upfront costs; and The Wing, a co-working space and community for women. More recently we’ve been looking at companies that address the challenge of caregiving for working women, who bear an outsized burden for both childcare and eldercare. Our first FoW investment from Fund III was in Grayce, a technology-enabled platform for aging and elder care. The company sells into employers as a benefit, providing employees who are supporting a vulnerable relative with expert guidance, personalized content, and vetted resources.

Education is a newer arena for BBGV. School closures that began over a year ago have exposed a deep at-home digital divide and exacerbated inequities in the US education system. But the unprecedented demand it drove for direct-to-parent and direct-to-student content and platforms has advanced the potential for hybrid learning models to improve student outcomes long-term. Digital products will never be a replacement for in-person schooling, but they can enable learners to focus on and develop mastery in disciplines that matter to them. We are particularly interested in community-driven platforms that combine the best elements of student-led online learning with the social connection that students need. Our first investment in the space is a company called Fiveable that combines test prep with a social network. Starting with AP, Fiveable provides dynamic test prep resources at a much more affordable price point than traditional solutions, increasing the pass rate for HS students from every zip code. Their highly-engaged community self-organizes interest groups, contributes content, and provides feedback on product development.

Overlooked and Emerging Consumers: As we noted above, the face of the consumer is rapidly evolving: increasingly intersectional, more conscious, multi-generational, and very often underserved. Together, so-called “minority” groups are fast becoming the majority. Female spending power is $6.5T, and women are expected to control two-thirds of US consumer wealth within the next 10 years. Black, Asian American and LatinX spending power is $4.3T. Gen Z will number 67M in 2023, overtaking Millennials as the largest generation (combined, the two groups are already bigger than Gen X and Boomers). One in four Gen Z are Hispanic; 22% are the children of immigrants. And, there are 55M Americans over 65, who are living longer and spending more. New generations have always driven profound change: in their value set, the platforms they adopt and the brands they embrace. So too are overlooked consumer groups for whom social media has created a megaphone — allowing brands to finally serve their individual lived experiences, rather than lumping these groups together as a monolith. In Fund III we’ve backed Freddie Harrel at RadSwan who is building a new brand for protective hairstyles that celebrates the individuality of Black women in the Global African Diaspora; and Isabela Rafferty Zavala who launched the first bilingual streaming service by and for Hispanic audiences, Canela Media. We continue to look for founders going after large markets with high lifetime customer value or repeat user behavior and unique distribution advantages.

What’s Evolving With BBGV III

• Investments: We’re leading or co-leading rounds at the pre-seed or seed stage. As a result, our check size is bigger: $500K-$1M. And we’re spending even more time with our companies — taking board seats and meeting with teams bi-weekly, as part of a Year 1 sprint to use our operational experience to help on everything from PR to hiring, business models to partnerships.
• Focus: We’re spending more time on the thesis areas described above than on consumer companies generally. Additionally, while we still invest in companies with at least one female founder, our thesis demands more attention to intersectionality: 58% of our new investments have a non-white founder, 33% have a Black or LatinX founder.
• Geography: One of the upsides of zoom as a pitch medium is that we’re more open to companies cross-country. We’ve already made Fund III investments in Milwaukee and San Diego. Regional entrepreneurs are taking advantage of local talent and lower startup costs, and they often better understand the day-to-day experience/needs of a particular sector or demographic than their coastal counterparts.

This has been a year without parallel. For everyone. But there’s a ton of learning to be banked from this experience, and we’ve never been more optimistic about the potential for technology to shift existing paradigms. COVID is a once-in-a-generation global health crisis. But education inequality and climate change will still be with us after the pandemic has passed. So will the racial and economic divide in healthcare outcomes; and the burden on working mothers when childcare fails them. Segments of the population will still find it difficult to track down what they need online, or to connect with services that will improve their health, spirit, or minds. Over the past year we’ve seen that behavioral changes can be rapid when consumers have to adapt, or when new conditions create a window for exploration. That’s great news for entrepreneurs and investors working to solve these problems. Founders with diverse backgrounds — whether they be mothers, cancer survivors, Boomers, former teachers, or women of color — will play a critical role in the next phase of digital transformation. If you’re a forward thinker who breaks the mold, who understands consumers who look like you, and who wants to reinvent a service, an experience, or a broken industry, we’re keen to talk.

PS: Our team is growing. We’re looking for a Head of Platform, Community Manager and MBA Summer Associate. Join us.