Our purpose at M13 allows us to find and nurture the bright spots within global challenges. We reflect on the 20th-century economist Joseph Schumpeter and his assertion that adversity like this will generate positive innovations. As in preceding macro crises, entrepreneurs have been inspired to create, and that has resulted in the next generation of truly iconic and beloved brands and business models that become part of the fabric of our daily lives and help make them easier and more fulfilling.
M13’s investment thesis is predicated on understanding changing consumer behavior, and we invest in companies that are building defensible businesses around these emerging behaviors. We believe pureplay direct-to-consumer companies have become commoditized due to paid marketing challenges—instead we look for businesses that have some technology or product differentiation and can generate network effects.
Two-thirds of consumers’ wallets are spent on health, food, housing, and personal finance–the core areas of focus where M13’s partners have deep track records. Our focus on consumer wallet share is both in the established areas of recurring spend (e.g., pharmacy, housing) and in the growing discretionary areas we believe are integral to consumer behavior over the longer term (e.g., esports, mental wellness).
We often ask ourselves: What are “nice to haves” today that will become “need to haves” tomorrow? We seek out and invest in founders who are driving this transformation and then use M13’s Propulsion Platform of vertically-focused operating partners to help them accelerate their businesses (e.g., achieving product-market fit faster) and increase the probability of success.
How we see COVID-19 changing consumer behaviors
The sudden and acute health and economic crises resulting from COVID-19 are catalyzing consumer behavior changes today and will create new behaviors in the future. As investors, part of our job is to assess the timing and scale of these changes. Are there areas that were previously heavily invested in but that will now be ready for rapid adoption? What are the secondary and tertiary ripple effects of supply-and-demand shocks driven by this unique environment?
The changes associated with COVID-19 have been immediate and will be long-lasting. Almost instantly, our day-to-day lives look radically different. We think about the way people’s routines, options, and ways of doing things have been upended and where the white spaces for new necessities and innovation will be. Families are spending more time together, which may create interesting outcomes, such as more babies, more divorces, and a reversal in urbanization trends away from cities and urban environments.
Prolonged uncertainty, health fears, and social distancing may also lead to increased mental health issues. New habits are forming—both good (e.g., healthy eating, meditation/mindfulness, fitness) and bad (e.g., substance abuse)—which will continue long after shelter-in-place restrictions have ended.
Office culture is now just culture. Teams have found ways to be productive in their individual homes across disparate locations, and that may fuel the growth of remote teams and the greater acceptance of work-from-home paradigms. Increased remote work can drive labor efficiencies, and those efficiencies, including mitigating or obviating commuting times, will drive potential redistribution of our scarcest asset: time.
Consumers may then spend this time connecting with friends and family virtually, which could evolve into people meeting new friends entirely online, potentially on new platforms that facilitate the feeling of more authentic human connections. Or perhaps that additional time will be used to find creative ways to generate additional income, drive new forms of entrepreneurship, or consume novel forms of entertainment.
We believe safety (both physical and digital) will be prioritized over privacy. Higher unemployment—expected by some to be greater than 20%—will drive further expansion of the gig economy but with a greater focus on the rights of workers. Consumers will have less disposable income for the foreseeable future, which should further drive utilization models on both the supply and demand side. Consumers and businesses will both have a finer appreciation for data, leading to an increased focus on measurement and the quantified self.
E-commerce penetration will accelerate. Online retail sales are currently at 16% worldwide and have grown at a CAGR of 20% over the last three years.
While globalization is a positive long-term trend, we’re also concerned there will be short-term challenges driven by nationalist leaders globally who now find additional rationale to close their borders and increase their authoritarian methods. That will continue to hurt cross-border trade. Efficiencies driven by decades of supply chain optimization and low-cost labor markets, such as in China, may also adjust, driving up operating costs, the price of goods, and global inflation.
There is a lot to consider and monitor on an individual, societal, and global basis, and these factors will undoubtedly serve as the basis for our investment focus going forward. Changing behavioral dynamics are creating potentially unique and unprecedented investable opportunities, and we’re exploring those both within specific and across multiple sectors.
We expect emerging technologies will accelerate changes across multiple sectors, as these technologies are focused on driving stronger human connections, creating greater efficiencies and allowing people to “take a break” from their current environments. These technologies include:
Consumer staples that impact consumers every day
Below are some themes in M13’s areas of focus:
Health
Housing & real estate
Food
Education
Discretionary
We look forward to continuing to invest in the next generation of household names. If you would like to learn more about M13, please contact us at info@m13.co.
Our purpose at M13 allows us to find and nurture the bright spots within global challenges. We reflect on the 20th-century economist Joseph Schumpeter and his assertion that adversity like this will generate positive innovations. As in preceding macro crises, entrepreneurs have been inspired to create, and that has resulted in the next generation of truly iconic and beloved brands and business models that become part of the fabric of our daily lives and help make them easier and more fulfilling.
M13’s investment thesis is predicated on understanding changing consumer behavior, and we invest in companies that are building defensible businesses around these emerging behaviors. We believe pureplay direct-to-consumer companies have become commoditized due to paid marketing challenges—instead we look for businesses that have some technology or product differentiation and can generate network effects.
Two-thirds of consumers’ wallets are spent on health, food, housing, and personal finance–the core areas of focus where M13’s partners have deep track records. Our focus on consumer wallet share is both in the established areas of recurring spend (e.g., pharmacy, housing) and in the growing discretionary areas we believe are integral to consumer behavior over the longer term (e.g., esports, mental wellness).
We often ask ourselves: What are “nice to haves” today that will become “need to haves” tomorrow? We seek out and invest in founders who are driving this transformation and then use M13’s Propulsion Platform of vertically-focused operating partners to help them accelerate their businesses (e.g., achieving product-market fit faster) and increase the probability of success.
How we see COVID-19 changing consumer behaviors
The sudden and acute health and economic crises resulting from COVID-19 are catalyzing consumer behavior changes today and will create new behaviors in the future. As investors, part of our job is to assess the timing and scale of these changes. Are there areas that were previously heavily invested in but that will now be ready for rapid adoption? What are the secondary and tertiary ripple effects of supply-and-demand shocks driven by this unique environment?
The changes associated with COVID-19 have been immediate and will be long-lasting. Almost instantly, our day-to-day lives look radically different. We think about the way people’s routines, options, and ways of doing things have been upended and where the white spaces for new necessities and innovation will be. Families are spending more time together, which may create interesting outcomes, such as more babies, more divorces, and a reversal in urbanization trends away from cities and urban environments.
Prolonged uncertainty, health fears, and social distancing may also lead to increased mental health issues. New habits are forming—both good (e.g., healthy eating, meditation/mindfulness, fitness) and bad (e.g., substance abuse)—which will continue long after shelter-in-place restrictions have ended.
Office culture is now just culture. Teams have found ways to be productive in their individual homes across disparate locations, and that may fuel the growth of remote teams and the greater acceptance of work-from-home paradigms. Increased remote work can drive labor efficiencies, and those efficiencies, including mitigating or obviating commuting times, will drive potential redistribution of our scarcest asset: time.
Consumers may then spend this time connecting with friends and family virtually, which could evolve into people meeting new friends entirely online, potentially on new platforms that facilitate the feeling of more authentic human connections. Or perhaps that additional time will be used to find creative ways to generate additional income, drive new forms of entrepreneurship, or consume novel forms of entertainment.
We believe safety (both physical and digital) will be prioritized over privacy. Higher unemployment—expected by some to be greater than 20%—will drive further expansion of the gig economy but with a greater focus on the rights of workers. Consumers will have less disposable income for the foreseeable future, which should further drive utilization models on both the supply and demand side. Consumers and businesses will both have a finer appreciation for data, leading to an increased focus on measurement and the quantified self.
E-commerce penetration will accelerate. Online retail sales are currently at 16% worldwide and have grown at a CAGR of 20% over the last three years.
While globalization is a positive long-term trend, we’re also concerned there will be short-term challenges driven by nationalist leaders globally who now find additional rationale to close their borders and increase their authoritarian methods. That will continue to hurt cross-border trade. Efficiencies driven by decades of supply chain optimization and low-cost labor markets, such as in China, may also adjust, driving up operating costs, the price of goods, and global inflation.
There is a lot to consider and monitor on an individual, societal, and global basis, and these factors will undoubtedly serve as the basis for our investment focus going forward. Changing behavioral dynamics are creating potentially unique and unprecedented investable opportunities, and we’re exploring those both within specific and across multiple sectors.
We expect emerging technologies will accelerate changes across multiple sectors, as these technologies are focused on driving stronger human connections, creating greater efficiencies and allowing people to “take a break” from their current environments. These technologies include:
Consumer staples that impact consumers every day
Below are some themes in M13’s areas of focus:
Health
Housing & real estate
Food
Education
Discretionary
We look forward to continuing to invest in the next generation of household names. If you would like to learn more about M13, please contact us at info@m13.co.
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The views expressed here are those of the individual M13 personnel quoted and are not the views of M13 Holdings Company, LLC (“M13”) or its affiliates. This content is for general informational purposes only and does not and is not intended to constitute legal, business, investment, tax or other advice. You should consult your own advisers as to those matters and should not act or refrain from acting on the basis of this content. This content is not directed to any investors or potential investors, is not an offer or solicitation and may not be used or relied upon in connection with any offer or solicitation with respect to any current or future M13 investment partnership. Past performance is not indicative of future results. Unless otherwise noted, this content is intended to be current only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in funds managed by M13, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by M13 is available at m13.co/portfolio.