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Banks were the first to be hit in the 2008 financial crisis. But this coronavirus-induced financial downturn is impacting consumers first, with the unemployment rate likely now at 14.7% of Americans.
Many think consumer-facing brands will be the first to feel the pain as people close their wallets to wait out the coronavirus. So Term Sheet spoke to Kirsten Green, founder of Forerunner Ventures, an early-stage venture firm invested heavily in such brands.
For those new to her origin story: Green is known for turning Forerunner into one of the most successful early-stage funds in Silicon Valley, having made bets on razor delivery startup Dollar Shave Club (acquired by Unilever in 2016 for $1 billion) and e-commerce marketplace Jet.com (bought by Walmart for $3.3 billion that same year). Other investments include Chime, Glossier, Warby Parker, Outdoor Voices, and Away.
Here is our conversation, lightly edited for clarity, about how Forerunner is navigating the current crisis—and if female-founded companies might face disproportionate scrutiny in the middle of what many say will be a recession.
This particular downturn is pressuring consumers. With your commerce- and consumer-focused portfolio, what are you seeing?
I don’t want to be a Pollyanna and say, “Everything is fine!” But I will say that companies in our portfolio have been more resilient than I would have thought with the magnitude of what is going on. But we’re only three weeks into it, so I think the best practice is to assume things are going to slow since it’s just too early to tell. We’ve generally been in a mindset telling founders: “Be really thoughtful about how you would navigate an extended period of general weakness, and think about how you preserve the integrity of the company while preserving cash runway.”
Being in the travel sector, for example, puts Away in the eye of the storm. It’s extraordinary to face that level of drop-off in demand. However, it makes it clear what you need to do to preserve your company. [Term Sheet note: Away, which sells luggage, announced it would furlough half the staff while laying off another 10% amid a 90% drop-off in sales in the recent weeks.]
On the flipside, in a lot of consumer-focused businesses that are online-only, they have candidly not seen weakness yet. Consumers have been more resilient than we thought. So it’s a question of, how do we reconcile, “Oh, our customers are holding up really well,” with the overall idea that we need to hunker down and preserve runway? That’s a harder calculus to come by.
Why do you say consumers have been more resilient than you thought?
Some physical retail stores have shut off, so consumer demand has gone to online opportunities.
I also suspect some new behaviors are being formed. For some of us, it’s probably hard to believe that some people are now discovering online shopping, but the truth of the matter is that if you just look at the Instacart story, online shopping is new for some consumers. Does that imprint in a way so that behavior gets modified even after the crisis? I think that’s probably true—and that it’s an acceleration of a trend that was already in place.
On net, do you expect your portfolio to take a hit from the coronavirus?
Fortunately, we’re coming off of a record fundraising cycle and we also had a lot of record fundraises in our portfolio, so companies have generally good balance sheets.
Yes, I’m cautious, yes, I don’t want to show our investors our markups from last quarters in this whole new world. But I feel cautiously optimistic that we’re going to come through this with some better operations and more innovative thinking.
Do you expect bankruptcies in your portfolio?
Right now, we don’t have a company that is on the brink of bankruptcy, but we also don’t have a crystal ball for how long this lasts and how people navigate through it. I think it’s unrealistic to think that every startup is going to make it through this—this is just too big of a deal.
Before the coronavirus, a large number of female-founded companies were under scrutiny (Brandless, Away, Outdoor Voices, ThirdLove, etc). Two of the companies that faced heavy scrutiny in reports were in the Forerunner portfolio—Away and Outdoor Voices. Do you think they were unfairly targeted?
I think when an article or two like that comes out, at first you hear the stories and think like, “Wow, this is really unfair”—you pick up the narrative of how wrong [the operations were]. But then when you get to the third, or the fourth, or the fifth—you’re like, “Wow, wait a minute, what are we talking about here?” And you bring a higher level of scrutiny to the conversation. We had enough of these articles that [it became clear that] the lens at which those businesses were evaluated were harsher and revealed some biases. That conversation was just unfolding as the coronavirus started. My hope is that people keep that in mind during an incredibly hard time for founders right now.
[On Outdoor Voices and Away]: It’s complex. I think those companies endure a lot of scrutiny and a lot of press coverage.
But people have to rise to the occasion [during coronavirus], and Away was thoughtful about that, and with how they approached talking about really tough decisions they needed to make for their business. That to me was a real sign of leadership, with the way they owned it and navigated it. And I think that’s a light juxtaposition to some of the critiques that have been made of the company in the prior news cycle.
Do you think female founders will be impacted in higher numbers during a recession?
I think too many female founders already got dinged even before coronavirus. I want to be constructive on this topic. Honestly, genuinely, I don’t have an answer—except I sure as hell hope not. It was super unfair before and it’s even more unfair now. Just think about what it’s like to be a founder navigating this crisis.
On the female founder front, I haven’t had a conversation about it in the last month and a half. I think everyone is focused on their companies and their portfolios—and maybe that’s the interesting thing. Everyone is having a hard time right now. I think this moment is a big equalizer—this coronavirus knows no gender.