Strategy Session is a feature for Crunchbase News where we ask venture capital firms five questions about their investment strategies.
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Mark Hauser, Sarah Foley and Richard Kirshenbaum came together to start SWAT Equity Partners in 2016 to focus on identifying and investing in early-stage breakthrough consumer companies.
They each brought expertise in different areas: Hauser in private equity, Foley in private equity and consumer startups, and Kirshenbaum in advertising and branding.
This combination of financial and creative expertise gives the team a starting off point to evaluate investment opportunities and work on building the next big brands.
New York-based SWAT Equity Partners currently has one fund invested in by a group of families as limited partners, and focuses on seed and Series A investments. The fund has made 19 investments over the past four years, including Banza, Supergoop, Foodstirs and Knix.
Hauser and Foley spoke to Crunchbase News about their investments and where the consumer sector is headed. What follows has been lightly edited for length and clarity.
How did you come up with the firm’s thesis?
Hauser: I’ve spent 30 years investing with family businesses on behalf of investors, Sarah is a professional venture capitalist, and Richard is a marketing and brand guru. The families said to provide a unique perspective, and though we are looking at companies through three different pairs of eyes, that makes for a good partner for portfolio companies.
What aspects of the consumer sector are poised for growth in 2021?
Foley: There are three areas we have been looking at because of changes that positively impact them and adoption by consumers: education, wellness and health care, or access to health. These sectors are poised to leapfrog in ways that will give people more access to products and services. The advent of telehealth was pre-COVID-19, but adoption of it to access doctors increased substantially and has trickled down to the family and even to the pets.
Hauser Those larger categories have subsectors, too. You can always find within the food and beverage or apparel industries those that are using sustainable products and care about the wellness of the consumer. We have an extraordinary robust inbound model. The trick is to cull down the 500 to 700 companies we see a year and focus on those themes.
Foley: The conversion rate is 1 percent. You really have to be thinking and working smartly, and push through the noise. If it looks more like hobbies than what we think is a business and will develop brand equity, we will pass.
Are there any companies that you wish you had invested in, but missed out?
Hauser You always miss some good opportunities and are glad you stayed away from bad opportunities. The big issue is getting the allocation we want. We’ve been in situations where the founders know we are going to be an active partner, but we can’t get the allocation we want. As we raise the next fund, probably in 2021, we will keep the same theme, but take bigger allocation. We weren’t missing out, just not putting enough money to work.
How do you like working with founders?
Hauser: I believe in the jockey over the horse. We believe in people–a good manager and founders can get through business cycles. I’ve invested for over 30 years, so I look passionately for what they are doing, that they have a product or service that has a need with customers–not just a founder with a hobby. I’ve found some founders work easily with investors and, for others it takes time. We like to take the hands-on approach rather than a broad approach.
Foley: Over the last year, investing this capital in the first fund and spending a lot of time with founders, we’ve become trusted confidants who help them think through and develop their blueprint for growth–depending on how they are growing.
What lessons have you learned over the past several years?
Hauser: It’s clearly about the people, the uniqueness of what the startup is doing and acceptance by the consumer. COVID hasn’t changed what we do or how we do it at all. In 2018 and 2019, you would calculate a downside case. In 2020, we were seeing in real time the performance and how a startup adapted to the event. That tells you a lot about if they are good managers of cash flow and customer relationships. Investing with real-time data makes you a more intelligent investor.
Illustration: Dom Guzman
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