Karen Howland is a Managing Director and General Partner with CircleUp Growth Partners, based in San Francisco. She has 15 years of investing experience across both the public and private sectors, and across all different elements of the consumer landscape, including retail, DTC and consumer products. Focused on investing in visionary founders, CircleUp Growth Partners is CircleUp's venture fund for innovative early-stage consumer brands. The fund leverages CircleUp's proprietary technology asset, Helio, to identify innovative brands with differentiated products and provides entrepreneurs with a unique set of resources and actionable, data-driven insights to propel their businesses forward.
With 15 years in the financial sector, what drew you to covering consumer and retail over other sectors?
To be honest, it was a logical transition. I started right after college in a two-year investment banking program where I focused primarily on healthcare. This is when Medicare was facing many regulatory changes like the establishment of Part D; I worked on a project about drug retailers and the drug store space. I was able to leverage that experience into more retail work, starting with food retailers and dollar stores to giants like Staples. It was a great way to build up my foundation to shift from corporate finance into investing. Over the past 15 years, I’ve covered every subsection in the consumer and retail space.
I’m really glad it turned out that way. Within healthcare, I felt like I was looking at biotech and pharmacy opportunities without the PhD. That felt a little problematic. Consumer trends is where I get excited - from the Amazons and Wayfairs of the world to emerging startups. I love to watch and analyze those big structural trends. But even as disruptive technologies become increasingly omnipresent, large CPG companies still lack innovation. I can’t tell you how many conference calls I’ve listened to where the big food companies talked about 1) raising prices, 2) cutting costs, 3) international expansion and then finally towards the end, they would mention something about new product development, practically as an afterthought. CPG is a category ripe for change, and I am excited to work with the brands that are fueling this shift.
In your post Why I joined CircleUp, you wrote about three things that really excited you about joining the investing arm: "1) Focus on small emerging brands; 2) Emphasis on using data to assist in investment decision making; 3) Use of data to help entrepreneurs thrive." What makes CircleUp's approach totally unique?
The data piece is particularly unique. During my personal diligence process, I researched and spoke to others in the CPG space. I never came across anything comparable to Helio. Helio is our technology that identifies, classifies, and evaluates data on 1.4 million brands. This data-driven view of the consumer landscape helps us understand consumer trends, find the breakout brands, and help our entrepreneurs. The models aren’t perfect – and won’t ever be – but Helio gives CircleUp a holistic view of the consumer that’s incredibly unique.
I love what we’re doing with Helio. We're not just utilizing it for better investment decisions, but also to help companies themselves make strategic decisions. We can advise companies on geographic markets. What flavor profiles will see the most growth? Do customers care if the product is organic? What changes should you make to your packaging? This advice adds a lot of value and is backed by reams of data.
Unleashing information to empower entrepreneurs and their strategic decision-making is so thrilling. I love CircleUp’s founding mission to help entrepreneurs by providing the capital and resources they need to thrive. That’s the core of the businesses. Since 2012, we've helped north of 300 companies unlock over $500M in capital– initially on our Marketplace, and now through our own internally managed equity funds and working capital lending program. We’re going to continuing to help future brands and (hopefully!) shape the products our kids will be enjoying.
Do you see CircleUp branching beyond the CPG focus? I imagine a lot of spaces would benefit from a data-driven tool like Helio.
Right now, we’re are squarely focused on the consumer and CPG side of things. I could see an opportunity over time to leverage our learnings and tools into other areas, but there’s still so much untapped for Helio on the consumer brands side. That’ll be our focus for the foreseeable future.
Does Helio consider certain non-quantifiable factors like community and identity created around brands?
You know one of the things that’s exciting about CircleUp is that we do quantify brand. I think if you’d asked me 2 years ago what brand is, my answer would sound like the famous Supreme Court Justice quote about obscenity: “I don't know what it is, but I know it when I see it.” Brand is like that. You know when a company has a strong brand, you don’t know exactly how. Is it the logo, price, or something else? Is it recognition - is it positive or negative recognition?
We have an amazing team of engineers and data scientists who've figured out how to capture many of the signals that indicate brand strength, at scale. In scoring these brands, we look at things like the size of their followings on social media, how often they share content, consumer engagement with that content, the rate of growth of followers, and a combination of other point in time values and historical growth. And we don’t compare brands across different categories; apples to oranges comparisons don’t work well for CPG companies. One of the things that makes CircleUp special is that we are actually quantifying previously unquantifiable signals. You can read more about our brand model here.
What are some of the common challenges that your portfolio companies answer with Helio? Are there things Helio can’t answer yet?
Finding the right talent is definitely a common challenge for our portfolio companies and not something we can answer with Helio. How do we find senior partners and executives who are interested in joining a fast-growing brand? Who are the right people to scale CPG startups? We launched a job board in response which currently has over 300 open positions across more than 120 companies.
Speaking of Amazon, how do CPGs Amazon-proof themselves?
Brand, brand, and brand. Especially as we move more to voice-enabled ordering, brand will become increasingly important. I saw a study recently that 3% of consumer purchases are going through voice-activated orders and that is expected to grow to 15% in the next 5 years. If you ask for “ice cream” in your AmazonFresh cart, you likely will get 365 Brand (Whole Foods private label) in your cart. If you ask for Halo Top Ice Cream, you will get the low calorie pint of ice cream you were hoping to get. Brand and brand name recognition will be increasingly important in the next few years.
CPG brands can approach CircleUp for equity and lending. What are the characteristics of a startup you would lend to versus invest in?
We love the opportunity to be a holistic solution for growing brands and I think that is one of the other really unique aspects of CircleUp.
We do see overlap between the two, but there’s also a distinct difference for when a company needs equity versus working capital.
Working capital is an essential tool for companies to fuel the everyday demands of growing a business. An example here might be fulfilling a large purchase order from a retailer, which won’t pay them back for another 90-120 days. Startups move quickly and to fuel that growth, companies have to re-up inventory even before they’ve received money from sales. Moreover, D2C and subscription models don’t fit the typical evaluation molds of traditional lenders. Few lenders out there have the consumer-industry expertise to understand the needs of these companies and provide them with an attractive and tailored solution. That’s where CircleUp Credit Advisors comes in.
On the equity side, we look for innovative brands that are creating new categories or disrupting existing categories and entrepreneurs with a strong vision and passion for their product. These companies typically have revenues in the $1-15M range and are raising under $10M in growth equity. We are entering into longer-term partnerships with these brands. In this partnership, we provide data through Helio, and our own expertise and experience to help bring their strategy and vision to life.
Just five years ago, CPG startups were reaching consumers through ecommerce sites. What are your thoughts on digitally native brands returning to brick and mortar (in the form of pop ups, one flagship store, etc.)?
Good question. I think there’s been a misconception that D2C is the only channel for young startups, but it's actually very challenging to scale because it’s not capital efficient. D2C is a good way to quickly test new products and iterate, and to build a direct relationship with your customers, but it’s much harder now to cut through the noise and overcome the rising cost to reach your audience.
I truly believe that one size doesn't fit all for the CPG space. Think about meal kits. For the longest time, all the companies were focused on D2C only as the only way to own their channel. Now, they’re popping up in retailers everywhere as another – effective – way to reach consumers. We have some beauty companies we look at who are wildly successful exclusively selling DTC. Personally, I think the omnichannel approach is increasingly important, but a company has to evaluate and figure out what channels make sense. Someone dead set on one method of distribution versus another will be at a disadvantage.
What obstacles have you faced as a female investor?
To be honest, very few. I am exceptionally thankful for the women who came before me. Women are still the minority in finance and banking, but that was much more pronounced when I started in the late 90s. I’ve also always viewed being a female investor as an advantage. That might sound funny, but in my previous career in the hedge fund space, you got noticed as a woman because there were so few. You had to be careful and articulate, but you were really able to stand out. I tried to use this to my advantage. But I’m also very lucky that I haven’t experienced the challenges that I know other women have faced.
One difficulty is maintaining work-life balance. As I now have 3 kids under 8 years old, I do find it challenging and I sometimes envy friends who might have a bit more flexibility in their schedules. It’s a challenge, but it’s not insurmountable and I have a great support team with my husband and family.
Going back to the advantages of being a female investor for a moment, I love that I can be a role model for my children. I love being able to talk to them about the difference I am making in the world, and I genuinely think we are doing that at CircleUp helping these smaller businesses growth and improve. And the fact that I can talk to my girls, and my son, about the fact that so many of our companies are woman backed is really powerful to me as well. Time will tell, but I hope it is resonating with them.
How do you see CircleUp Growth Partners growing and what impact do you hope to make?
Next year we’re excited to continuing investing in breakout brands. We have ten portfolio companies and we expect that will grow to 30-35 in the next few years. As our portfolio grows, we’ll also be spending time with our entrepreneurs to make sure they have the support need. All of the brands that we invest in aim to solve a problem or address a whitespace need in the market today. We hope that by supporting our entrepreneurs with our data, resources and breadth of our network, we can ultimately help more consumers by providing them with access to brands that better address their needs.
To me, the most exciting thing is when I can work with a founder and make their lives easier. I have such respect for these founders, men and women alike, who imagine, design, and operationalize visionary concepts. They’re taking risk to make products come to life. It’s unbelievably hard to do what they’re doing. To help make certain decisions and actions easier for these entrepreneurs is super rewarding. With my experience looking at the consumer space for 15 years, I hope to surface ideas they or strategies that they didn’t originally think of.
And, like I said before, I find it really inspiring that almost half of our founders are women. It isn’t a criteria we look for in a company, but personally I think it is great to support diverse founders.
What advice would you give to other young women seeking a career in venture and consumer investing?
My path to venture was not the most straight forward. The advice I give people, and this isn’t really gender specific, but is when thinking about any career and the advice I finally took before I joined CircleUp is a) identify what you are good at. b) identify what you like to do. c) find a job where those two overlap. And I don’t mean what your resume says you are good at…..take a long hard look at yourself and figure out what makes you want to get out of bed, leave your house and potentially kids and partner for ten hours a day. It sounds simple and easy to do, but actually taking a hard look at what you want to do and marrying that with skill set takes time. You need to be passionate about the job, otherwise it will get exhausting. For me, I love to learn about consumer trends and disruptive technologies.
I also learned that I love to drive into company’s problems and try to help solve them. I joke that I like to think my experience and counsel can be value add for a founder, but I 100% know the work is value add to me as I find it so rewarding personally. Being able to use some of this expertise to help smaller brands solve supply chain issues, marketing plans, distribution focus, it is really exciting. And it turns out that I am a numbers dork who loves analyzing statistics, so CircleUp’s data driven approach was perfect for me. But that is my journey. Everyone else needs to go thought the process themselves to see what makes sense for them.