1. Bill, you work for a consumer-specialty private equity firm that manages $750 million in assets. What are the most important trends you are seeing in consumer private equity?
Consumer private equity has become a little less crowded. Between 2006 and 2008, it was very popular. Lots of the bigger funds were starting groups that were consumer- oriented. Now, there’s been a bit of a shakeout. There are still a number of firms specializing in it, but people have kind of gone back to what they’re really good at.
On the whole, the consumer industry has bounced back pretty significantly from where it was. It may have been more volatile during the downturn, but now it seems to be recovering quite strongly. That’s a little surprising given the current level of unemployment, but consumer companies seem to be doing pretty well right now.
2. Are you seeing more interest in sector-specific private equity funds like yours?
The answer is yes, and the reason is that just like people were getting more specific about geography about 20 years ago, private equity is now getting parsed out by industry. It takes a certain level of expertise to do consumer-product deals. There’s a level of knowledge that you only get with expertise and experience.
Our LPs recognize that. They understand our strategies. We take a lot of time to explain exactly what we’re trying to do, and why the niches we’re going after are the most attractive ones. So they understand it and believe it, and when we get the good results, they get paid for it as well.
3. Do you ever aim to build the next Starbucks, or are you happy with brands targeting smaller niches?
The size of companies we usually go after have $5 million to $25 million in Ebitda, so at that size, they’re not likely to be universal things like Starbucks, but they could be. In our last fund, we invested in a company called Zumiez, which had about 70 stores and $10 million in Ebitda. Zumiez has now gone public and has 400 stores. It’s one of the biggest specialty retailers in the “surf, skate, snow” sector. It didn’t quite become Starbucks, but it’s a national company. I think most of the things we buy have the potential to go national and get much bigger.
At the same time, we’re not looking for things that are going to be mass distributed at Walmart. We’re really looking for companies that have passionate, loyal customers in their niches. That’s the most important thing we look for. The Teaching Company, for instance, offers college-level courses for life-long learners. It’s not for everybody, but it could be for a lot of people. It’s growing at 30 percent to 40 percent a year, and we think there’s tons of growth left.
4. Are your companies using social media because everyone else does it, or is social media having an impact on your companies’ bottom lines?
We’re not just doing it because everyone else is doing it. We’re doing it because it gets us tons of traffic and offers us tons of power to keep our customers engaged. We don’t have any secret formula for how to monetize it. It’s something everyone is working on. No one is quite sure how it will translate into revenue. It might become as much about social marketing as social media.
5. Do West Coast private equity firms have a different way of doing business than their East Coast counterparts?
They do. There’s a different knowledge base and expertise that you build up. For instance, Orange County, Calif. is nicknamed Velcro Valley, because it’s where all the “surf, skate, snow” brands are. It started with Quiksilver and expanded to lots of other brands, so it happens to be an expertise that we have. Zumiez is an example of us knowing a lot about these consumers and what they’re most interested in, and what brands are good. By being here, we were probably able to evaluate that differently than some of our competitors.
Edited for clarity