By Albert Van SantVoort. Source: BIV.
Changing the way established industries operate is no easy feat, especially when those industries are as bound by long established conventions as retail and venture capitalism.
While there has traditionally been little crossover between the two sectors, Manica Gautam and Brooke Harley knew there was an opportunity to explore new ways to combine the two sectors, and in the process bring a fresh perspective to the old boys club of venture capitalism.
Harley, the former director of business development at lululemon athletica (nasdaq:LULU), and Gautam, a former director at private equity firm Onex (tsX:ocX), decided to bring their retail experience and networks to the investment world by creating Campfire Capital, a retail-focused venture capital firm.
The firm is the first of its kind in British Columbia and the second in Canada.
By introducing industry knowledge to venture capitalism as the foundation of their firm, the principals aim to change the way venture capitalism functions.
“Campfire Capital is structured differently than what’s out there,” Harley said. “We bring a combination of the best in class from finance, best in class from the industry and the best in class from tech and we put all those networks and expertise into one fund. We think that’s the future of venture capitalism.
“What i think is missing is really infusing industry expertise,” she added. “I think in the future you are going to see funds come out that are led by industry professionals matched with some of the best in finance, and that’s what we are.”
Gautam and Harley said that traditionally, most of the expertise within venture capitalism comes from the financial and technology sectors.
While they acknowledge the importance of that financial knowledge, they stress that knowing the intricacies of products, customers and the industry as a whole gives their firm – whose backers are cur- rent and former executives of lululemon and other household-brand companies such as Starbucks (nasdaq:sbUX) and Nike – an investment edge.
Campfire Capital, its founders said, does things differently than other firms. Where other startups and first-time funds may have four to five investors for a $30 million fund, campfire capital has 82.
Other firms tend to choose fewer investors to ease the learning curve and make the investor relationship more manageable. Campfire Capital, however, views its investors as a resource that needs to be cultivated, bringing outside expertise and previously untapped networks into the fold, Gautam said.
“When we speak to other venture capital firms and we tell them that we have 82 investors, their jaws drop and they’re like, ‘Oh my god, that must be a nightmare,’” Gautam said. “And it’s not. It’s great because many of those 82 investors come from industry and so they can actually really add value to our portfolio.”
Gautam and Harley are also changing the way venture capital firms obtain investors. Typically, Harley said, a venture capital firm will try to find the biggest brandname investors with the deepest pockets who are willing to write the largest cheques.
While major-player investors are needed to be successful, Campfire Capital views all its investors as an asset. It’s hard not to see Gautam’s and Harley’s retail experience shine through in this strategy, as they treat their investors database like a company’s valued customer list.
Being two women in a male- dominated field, Gautam and Harley greatly value diversity in the workplace and the variety of ideas that comes with it. Having people from different genders, ages and backgrounds gives the company a large pool of knowledge and perspective to pull from. Diversity in expertise is also important for the firm in order to provide its signature industry knowledge.
Being a first-time fund in a competitive industry means that finding investors can sometimes be challenging. Gautam and Harley make a selling point of their networks and expertise when trying to raise new funds.
Even with this obstacle, Campfire Capital is still far outperforming its U.S. competitors. According to Harley, similar industry funds in the U.S. like Forerunner Ventures had first- time funds valued at about $8 million to $13 million, a total that is dwarfed by Campfire Capital’s $30 million fund.
Harley said Campfire Capital’s mission, structure and knowledge also gives the firm greater negotiating power when it comes to determining valuations and getting positions on boards of directors. While many wouldn’t expect a first-time fund to have significant leverage, Harley was not surprised.
“We have been able to gain incredible negotiating leverage when it comes to valuation and getting board seats,” she said. “But I knew that we would, because there’s no one out there like us, with the level and expertise we have rolled all into one place.” According to Gautam and Harley, venture capitalism hasn’t been more broadly embraced by retail because of the competitive nature and secrecy that surrounds the industry. Harley said that she and Gautam had to explain what venture capital investing was to some retail industry leaders because the concept was so new to the sector.
“Ours is a fund that’s by the industry, for the industry, and it will absolutely set us apart,” she said.