Sugar Capital's Krista Moatz on Investing in Success
November 30, 2022
May 10, 2023
min read

Sugar Capital's Krista Moatz on Investing in Success

The Profit Forecast: The eComm CEO's Podcast

Episode #13: Krista Moatz of Sugar Capital

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Ben Tregoe: [00:00:00] It's awesome to have you on the Bainbridge podcast. Thanks for joining. 

Krista Moatz: Thanks for having me. 

Ben Tregoe: You have this awesome background of like hardcore finance and then media and brands, and now you're doing venture investing and I think that's a really interesting background. Certainly give, has given you a lot of perspective on how to look at companies today. Yeah. But it would be super, if you could start, how you got into the space, little bit about your career, how you got to sugar capital. 

Krista Moatz: Sure, happy to. So I started my career in investment banking as an analyst in the summer of 2000 at Robertson Stevens in San Francisco. So right when bubble was starting to burst, Robertson Stevens was one of the banks that was taking all the internet companies public. It was like if you wanted to work in [00:01:00] tech banking in San Francisco, Roberts and Stevens was high on the list. So fortunate enough to get an analyst position there, we really had a front row seat to just the bubble bursting. Learned a ton from that actually. And even some parallels with what's happening today. As I, I was talking to one of our founders the other day about sort of things that were happening back then, that are happening now, and it's interesting. Oh, I wanted, so during that time, yeah. , we can talk about that in a bit, but during that time I met my current partner, Brian Sugar, went to work for him at a company.

He started 2002 and. That company was an I P T V solution that eventually got sold to at and t. Once that was all done with bound to banking for a while, I joined a few of my former colleagues from Robertson who had started a boutique investment bank, and then a few years later, Brian and his wife, Lisa Sugar, who's another one of our partners here at Sugar Capital, called me, asked me to [00:02:00] be a co-founder of Pop Sugar.

This was 2006. So it was right as blogging was about to take off and Lisa had started pop sugar just as a personal hobby. She was working in advertising and she loved celebrity and fashion and just started blogging about it. It took off organically. And so Brian, who's a serial entrepreneur, was like, we should make a company out of this.

Called me up to be a co-founder. Spent over 15 years running that business. Pop Sugar is a fairly large women's lifestyle brand, primarily digital media, but we had several commerce extensions throughout the life of Pop Sugar as well. So we had a clothing brand, a beauty brand. We still have a fitness brand.

We did live events, we did all kinds of brand extensions. And at its height, pop sugar was over 500 employees, a hundred million in revenue. and had operations all over the globe. So my role there was really about scaling the [00:03:00] business from a people operations and international perspective. We sold pop sugar to Group nine Media at the end of 2019, after the integration was done is when we left to forum for your capital.

Ben Tregoe: Nice. And as you're given the background of pop sugar, I was remembering that era and. That was like the tent pole for all these other things that you could go into. Do you think that's a fair description that, the content, the blog, the, that focus that allowed you to expand?

Was that, did you always know you were gonna expand into all these other areas or was it just completely organic 

Krista Moatz: At the beginning, we definitely did not know we were going to, you saw, we saw to figure out the media business model, right? It was so early days back then for digital media that we spent probably the first five years growing. The audience productizing the media. Growing the sales department, and then we were at a point where we [00:04:00] reached over a hundred million people every month. And so we started to think about what else could we do with that kind of an audience. And that's really where the commerce piece came in. 

Ben Tregoe: Yeah, that it's amazing also think of the effort that you guys put in to get to a hundred million people. And then there's some person that's just oh, I've got that many followers. , right? Yes. 

Krista Moatz: Yeah, I think about that a lot actually. . 

Ben Tregoe: So tell me about sugar capital, the, when you go to the website, it's sugar

. The first thing that jumps out at you is wow, the logos are insane. Like you guys have done a good job of getting deal flow and making investments. Thank you. But tell me a little bit more about what you guys look for and what stages and Yep. How you think about the world of vc.

Krista Moatz: Yeah, so we are, we're early stage, so we invest in pree, but primarily seed rounds of companies in the entire commerce ecosystem. So we think of [00:05:00] ourselves as sitting in the middle and looking at all of the various aspects of commerce and the brands, obviously that they're selling to consumers.

But then all of the technology platforms, tools, plugin support systems, All the things that they need to do what they do. So we invest in that entire ecosystem. We're investing at a fund two right now. We write one to $2 million checks, so we lead, but we'll also co-lead or we don't have to lead.

It's really about getting the allocation. So we look to get about 10% equity for a one to 2 million investment. Yep. We're investing outta fund two, which is 75 million. 15% of that will go to brands. So the brands are really important, but it's the lesser part of our focus at this point. And then the other 85% will go to the commerce enabling technology solutions.

Ben Tregoe: And was fund one set up like that with that, that hard distinction of 

Krista Moatz: Fund one was [00:06:00] same focus in terms of the commerce ecosystem. It was smaller. It was a 25 million fund. Our average checkout of there was about 750 K, and we ended up with about 40% brands and 60% software. And it, yeah. The, we set out with that allocation in mind.

Yeah. And we just, we've learned some things along the way about how hard it is to build a brand and the kind of criteria and metrics that we're looking for. So our bar is a lot higher. Higher, I would say on the brand side. Yeah. Now but we're really proud of all the brands that we invested in and fund one.

Also, I would say the on the deal flow side, coming from pop sugar. , we had so much, we had brands pitching us every day for coverage. Yeah. So we had a ton of insight into the ecosystem there. Yeah. And a lot of deal flow there and on the software side as well. But we just looked at so many brands and fun one.

Ben Tregoe: Yeah. That, I would love to get your thoughts on that change. Funding, right? Because what you're describing [00:07:00] was common across the kind of VC brand ecosystem. A lot of brand VCs that started heavily in brands more so than even you guys with 40%, really pulled back.

What do you think what do you think is the sort of common re the reasons for that? There's the commercial wisdom, but I'd love to hear it directly from. 

Krista Moatz: Yeah I wanna start off by saying we still a hundred percent believe in brands and we know that there are brands being built today that are gonna be the next, household names.

And we think it's really important and we think it's important to understand what their pain points are too, so that we know what to look for on the software side. I think it's just a lot harder to build a brand these days. As everybody knows, customer acquisition online isn't what it used to be.

It's a lot more expensive, it's a lot less targeted. You really have to have an omnichannel distribution strategy in place, and even some proven traction there for us to get interested. So I think it's just there are less of those. It has to be [00:08:00] category defining or disrupting. They have to be able to speak to their audience in an organic way, have built a community organically, not through just paid advertising.

And then have taken that and gone to retail and have some retail contracts in place, some proven traction on sell through rates. There a path to expand even more into retail. So I think it's just, it's hard, harder to meet those criteria, which is why we're putting a lot less allocation. 

Ben Tregoe: Does. When you say am omnichannel, does Amazon factor into that or is that you really looking at D to C or directing consumer?

In retail, 

Krista Moatz: Amazon does factor in. We're happy to see Amazon, but it's really, we look pretty specifically for a mass retailer. Got 

Ben Tregoe: it. Got it. And the organic customer base, like why is that so important? To you guys the idea that they have [00:09:00] built a community but not, through paid advertising. 

Krista Moatz: Yeah. Just because of, just cuz customer acquisition costs are so high. You can't, you can no longer build a community by buying it on Facebook and Instagram. You have to be out there creating content. Brands are really content creators now, at the end of the day, which we obviously know a lot about from pop.

Interesting. So there has to be a reas. The content that you're putting out there has to be seen as authentic, not just pushing the product, actually creating conversations, things that people wanna share with their friends. Actually adding value in some kind of a way versus Hey, let me tell you like the three reasons.

This product is really great. 

Ben Tregoe: That makes. Do you look at how important are margins in your, when you're assessing companies? 

Krista Moatz: Very important. The product margins have to be, high 60%, I would say, in order to go to retail and still maintain cash flow [00:10:00] positive margins there. So they're big.

So we look at a lot of high margin replenishable things that people use every day that they're going to keep buying. Even in a recession, things that are part of people's everyday lives. Yeah, that makes a sense. The beauty skincare. Yeah. Yeah. Beauty, skincare, food and beverage, sexual wellness, supplements, things like that.

Ben Tregoe: Yeah. So you're staying away from like apparel things like that. Just more 

Krista Moatz: apparel, one time purchases, high ticket items, things like that. We're staying away. 

Ben Tregoe: I have this hypothesis that brand leaders often ddc brand leaders often under price, and so they make life harder for themselves. , I dunno, what do you think about that?

Krista Moatz: Yeah. Yeah. I think those days are over. You. Like they be 

Ben Tregoe: more like getting religion about increasing 

Krista Moatz: prices. Yeah, I do. I think all the founders understand that gross margin is important 

Ben Tregoe: these days. Yeah. Yeah. Nice. What are some of [00:11:00] commonalities. When you see brands do well, whether they're in your portfolio or outside, and I know I'm really focused on brands, but a lot of our customers are listeners or brands.

Yeah. So what do you think they do well? What common things, what sort of traits do they all seem to have? 

Krista Moatz: It's it something that's really approachable, something really mass, something that really could appeal to a really broad demographic. Something you could see picture showing up on the aisles at Target and Walmart.

So not trying to reach too much of a niche Yeah. Or being too narrow focused in your, even your product assortment. We'll see a lot of really great looking brands that could be mass, but they'll have, like one or two skews, which isn't broad enough to reach a large swath of the population.

And then again, they have to have a very authentic content strategy. So many of these brands are [00:12:00] hiring ex editorial people from magazines or from pop sugar or other places that are used to creating content about beauty or what have you. So a really strong. Content strategy and then a really strong idea of where to put that content and which kind of content does, where does what does well where, yeah.

And the other thing that we're seeing that we really look for with the brands is you have to have duo, the ideally co-founders, one that. The brand vision, the product vision, the content vision understands the audience that they're trying to reach and how to reach. . And then the other side is the operator.

Somebody who understands supply chain and inventory and how to get into retail and how to price items and actually run the business. That combo, we have a lot of those. Combos in our current portfolio and [00:13:00] we've just learned over the past few years that it's so important. So if it's not a co-founder, at least it's a right hand person or somebody has one piece of it and they know the they need the other and it's gonna be one of their first hires after they raise money.

Ben Tregoe: That's really interesting. It makes so much sense when you say it, and it sounds so obvious, but I'm like, I've never thought of it that way before. Yeah. Do you. I could see if you had the founder, a single founder, let's say that you didn't have the do well, you're a founder and you're like, okay, I've got this vision part nailed.

That's my specialty, right? , I don't have the ops part. I could see you could hire into that. You could be like, okay, I can go find a really good, even if you're three years in, you could just hire somebody and you'd pay the money and the equity to. . Yeah. If you're the ops person, , that was a founder, can you hire vision or are you just oh, you're screwed

Krista Moatz: No, I actually, I was going to clarify that, you have to have the vision. Ideally you have [00:14:00] the ops. Yeah. But if you have the ops and not the vision, it's just, it's not gonna be what we look for, which is just a really authentic brand. 

Ben Tregoe: Yeah. And is the reason that you need mass retail. Otherwise it's hard to build.

It's the revenue base to get to a really big exit. 

Krista Moatz: Yeah. Okay. Yeah, you just can't build that online anymore. Custom acquisition is just too high. You just can't and also so many of the brands that we look at are products that are more. impulse, right? If I need face cleanser, I need to go to Target today and get it.

I don't wanna wait three days for it to come online. So we really think about the online piece is where you build the brand and where you build the community and where you show up all over the internet. Yeah. But the majority of the revenue is going to come from retail, distribu. . Yeah. 

Ben Tregoe: And that the reason you start is a reason that you start with sort of the [00:15:00] DSC first is so that you have provable data points for those buyers at Target and Walmart, or can you start the other way?

I guess, can you start in. I, 

Krista Moatz: you can absolutely start the other way. So many of these retailers have accelerator programs that a few of our brands have been a part of. Target has one, Sephora has one. I'm sure others do as well. I don't really think, I think a lot of. A lot of brands just start online because it's easier.

You just start, right? You throw up your product, you throw up your branding, you start to understand your customer, you start to reach your customer, and then that attracts the retailers. But I don't think there's any reason why you can't do it the other way around. Yeah. 

Ben Tregoe: How does that, do you guys have experience in helping brands make it into the mass retailers, or have they already done that by the time they reach you?

Krista Moatz: Most of them have already done. 

Ben Tregoe: Okay. Yeah. Cause that I think 

Krista Moatz: is, they're at least in conversations, like they've already reached the right people. 

Ben Tregoe: Yeah. It's so different, right? You hear these [00:16:00] stories from founders and they're like, oh, there's two buying cycles a year. And yeah, we didn't make it this time, but maybe next year, yep. Yeah, 

Krista Moatz: we hear that a lot. We hear that a lot and a lot of times, we say, come back in six months. We think this is the potential, but we really need to see, we need to see. Debt proof. 

Ben Tregoe: Any tricks that, or tips that you guys have picked up that help, founders get through those conversations and have success, not just get deferred for another six months?

Krista Moatz: Yeah, I think it, it goes back to having a brand that shows up well on shelves that people will pick up when they're doing their target run that has some momentum already out there and some buzz about it. It also has to be a category that the buyer is looking for, so you have to make sure you find the right buyer in the right retailer.

In terms of and trying to understand what kind of assortment they're trying to get [00:17:00] out there and the kinds of new things that they're trying to buy into.

Ben Tregoe: What's that? Keep going. I interrupted you. Yeah. 

Krista Moatz: And then you also have to be able to, once you get the PO you have to be able to buy the inventory. You have to be able to make sure that you've got the ops in place to get it into your warehouse to then get it into their warehouse on time. Yeah. I think a lot of the retailers look for that as well.

It's do you have actually the right backend in place to fulfill these orders? 

Ben Tregoe: Yeah. Yeah. Cause that, there's, it feels like sometimes the focus is so much on getting the po. And then there's like this oh damn moment, like naturally do, like there 2 million inventory. Like we don't have that.

Like how do we, 

Krista Moatz: And it's tough. We actually do meet a lot of companies who are at that stage, they have the signed po but now they're raising because they have to buy the inventory. And that is, that's phase where we will get involved. If we really gain conviction around the brand and the product and can see the signed po, then we will certainly invest at [00:18:00] that.

Ben Tregoe: Wow. So you guys can move really quickly then. It sounds like 

Krista Moatz: we're a small team. There's only four of us and Yeah. Yeah. We're pretty nimble. 

Ben Tregoe: Yeah. I had an experience the other like a couple weeks ago in Target at Divide Deodorant, so I'd like, of course you, everybody knows the native story and you're like, ah, but it's theoretical, right?

Then you see it on the shelves and you're. Oh, now I get it. Like they're selling to for $13 and Old Spice is $4. I wonder, target gonna love 

Krista Moatz: this thing. , right? Yeah. 

Ben Tregoe: It was like but it really made, just like what you said about has to be like searchable on the shelf. They have to want it, you have no choice, but you're scanning these shelves and there's like a whole row of native deodorant and all these like cool kind of colors and looks totally different.

You've seen, it's surprising that, like how powerful that is. I guess that's what kind of shocked me is it doesn't seem it wasn't like some whole new technology. I guess [00:19:00] there, there is technology, I dunno. Yeah, 

Krista Moatz: and one of the things I think about too is it can all look good on paper, the signed PO and the number of skews and all of that.

But if you can, it's also really important to actually visit the store and see where on shelf is it, what kind of position does it have? How many other competitors are also on that shelf. Those are important pieces that are hard to get through. Just, conversations and meetings. You don't really have to do the actual, you guys 

Ben Tregoe: actually do that.

You'll go out and shop the stores that interesting. And what, how do you as a brand, can you control that? Or is it just as target's, just like I'm putting where I feel like 

Krista Moatz: They don't have a lot of control over it. Target really decides, and I do think it's a negotiation at times about, shelf space.

You didn't end cap, you not where, who does it appear next to? But if you're just getting into Target, you don't have a lot of. Yeah, it's really been about getting in [00:20:00] and the sell through numbers and then having a little bit more leverage after that. 

Ben Tregoe: Yeah. So we talked a little bit about like the things that successful brands seem to have in common.

What are some mistake, what are things that unsuccessful brands have in common or common mistakes? Yeah, 

Krista Moatz: I think I touched on it a little bit, being too narrow in your, either your target. Customer or just not having enough of skews to really make an impact on the shelf really stand out.

Under undercharging, like you said, not having the margins there, not having the ops in place to fulfill. Orders even so many brands are even sold out D to C, which yeah, has obviously been a problem over the past two years with all the supply chain issues, but really dialing in on that. And then, spending too much on paid marketing, not having the customer acquisition costs align with the revenue.

Yeah, huge. [00:21:00] Those are probably some of the main pitfalls. 

Ben Tregoe: It. Running these brands I think is a real challenge, and it's interesting to hear you say that there's often a pair there because that makes a lot of sense. Yeah. If we focus just on the operations person, you know what has always struck me about these brands is like you've gotta master like often international supply chains or some form of like manufacturing, processing, raw materials and assembly and whatnot.

you've gotta master logistics. Yep. And you are now having to master logistics across two or maybe three different types of businesses. Oh, I've got my D TOC business, I've got some Amazon and I've gotta deal with them. Yep. And now I've got retail and that's a whole different kind of logistics and buying cycle.

, product development. I gotta do marketing, I gotta do paid acquisition, finance, operat. It's like staggering how complex [00:22:00] these businesses are. . So given all that, like what do you think good operators look like in this space? Like when you think of some of your companies that have had some really exceptional operators, do they come from a certain background?

Are they athletes, are they specialists? What are what. 

Krista Moatz: Yeah, a lot of them were, came out of Unilever or p and g and they actually managed a business within one of those. That's a great background. A lot of them came out of, actually, came out of retail so they understand what it takes to get a product on shelves.

Those, I would say, are probably the two most common backgrounds. Or they ran a D to C. Business before and now they really understand all the pitfalls and have a lot of . 

Ben Tregoe: Wow. That's, cuz that's I'm actually frankly surprised that you said, a Unilever or a retail makes total sense. You're like, that's not been like the sort of, oh, the ops person coming through a D to C brand in the past, it was like, you weren't, [00:23:00] I wasn't seeing him coming out of league, but it.

It's interesting cause like Yeah. They understand how it should work. Yeah. And then they can go into these brands and okay, this thing's a total mess, but let's start straightening it up. Yeah. And I wonder if that's it. Do you think it's because they understand like how it needs to work and should work so they can build, they can fix the behind the curtain, yeah. Is often going on. I'm banging. Every small company has that issue. 

Krista Moatz: Yeah. Yeah, I think exactly like they, they've had the MBA in, in, in inventory and supply chain and getting product on shelves and they understand, so many of those big companies have training programs where they put people through that type of a program.

So those are, I think, in my mind, ideal candidates. 

Ben Tregoe: Interesting. Oh, that's awesome. Yeah. And if you are the founders that you're running into, are they like, do they know that they're going omnichannel, like from day one, or are they, oh, lately, [00:24:00] 

Krista Moatz: yes. Lately they, they understand that for sure, almost every pitch deck.

I see. Even if they don't have any sort of traction yet, two years out, it's like Target, Walmart, Sephora, what have you. They know 

Ben Tregoe: right. Switching off of brands, like what you guys get this like phenomenal flow of information. You had said something earlier oh, this is similar to bus that you had had the fortune to live through and observe firsthand.

How is it like that? Or you, maybe I mis Sergio. Is it not like that? 

Krista Moatz: Yeah. No, I was more referring to. The fact that so many companies who were trying to do the same thing 20 plus years ago, Are now doing it successfully. So the, what I was talking about was I was talking to a founder and we were talking about and web van, and there was an OnDemand delivery service in San Francisco called [00:25:00] Cosmo all back in the summer of 2000.

Every single one of those companies, Failed. But now we have Chewy and we have Instacart, and we have Go Puff, so some of those businesses were just too early for their time. Not enough people were online. There wasn't enough broadband. People weren't used to putting in their credit card on a website.

There were no phones, right? So you couldn't just pull out your phone and order your groceries. So I was more referring to. The companies that might be failing now might just be too early for their time. We might just need, we might just need a little bit more adoption in certain areas. Yeah. 

Ben Tregoe: Which is a lesson for some, college student who's.

Can observe this 10 years from now, be like, now's the time. Yeah, exactly. You're one of those founders now, you're like 

Krista Moatz: yeah. I went to school in Seattle at the University of Washington, which was a booming, a burgeoning, I guess tech hub back then even, and some of the [00:26:00] companies I met.

Really like the streaming services now, but just nobody had broadband and when I think back to one of those companies that everyone was trying to get an internship up at that ended up failing. And yeah, it's just sometimes you have to wait for the technology to catch up with the ideas. Yeah. 

Ben Tregoe: Yeah. On that front, what are you seeing in the commerce enablement space?

The 85% of your target? Yeah. What are some of. Trends or things that you're, you guys are observing, 

Krista Moatz: tons of companies trying to solve customer acquisition then conversion, right? So it's so expensive to get a customer to your site, but then only three a percent of those visitors actually convert into sales.

So a lot of companies trying to solve that piece. About how do you actually get, convert those customers? So we're seeing a lot in personalization, a lot in [00:27:00] discounting, dynamic discounting, dynamic pricing. A company we invested in is a company that monitors your site for errors. So somebody was trying to add something to cart, but they couldn't, or they had to make a choice that they didn't wanna make, so they never got to the checkout.

Companies that are also, focused on the checkout page, card abandonment, ways to decrease that. So that's a big theme, I would say. And. Still companies coming up with influencers solutions as companies are understanding that is a way to reach customers. Yeah. So we're seeing a lot there.

We're also seeing a lot interesting. It's. This third phase of commerce on the internet. So the first phase was all the retailers going online, so j,, all of that then came the phase of these direct to consumer brands. So they didn't have storefront, but they all started online and they were able to take advantage of acquiring customers cheaply through online ads.

And [00:28:00] now that's all coming to an end. In terms of it being inexpensive to acquire customer. So the third wave seems to be about like, okay, who else can we get online that's not online yet? ? So we're seeing a lot of companies who are targeting contractors, trades people. Even like small mom and pop businesses that are selling, bone broth out of their house.

So trying to get that last long tail of people online and using the internet in e-commerce in an efficient way Yeah. Is something we're 

Ben Tregoe: seeing a lot too. Yeah, that's interesting. Yeah, cuz yeah, you just naturally you're like, oh, I need a plumber. And so then you. . You're like, wow, this is surprisingly hard to find people online.


Krista Moatz: To trust. Or maybe they have a static webpage or they have a Yelp page or something, but there's nobody to book them. Nobody likes to make phone calls. I hate making phone calls. I would rather just book my plumber online in between meetings. 

Ben Tregoe: Yeah. [00:29:00] Yeah. That's interesting. Oh. What are you seeing in terms of, like you're saying customer acquisition and I was like thinking you were going into paid acquisitions, like what are you seeing in terms of paid acquisition?

It's like, how's that market changed? 

Krista Moatz: We're invested in a company called Disco, which is really tackling that problem. Their initial idea was how can we create these cohorts of like brands that will then, be part of a network where they show up on each other's sites. So just Go's initial product was pretty simple.

Like I buy some olive oil, say on Bright Land, and then underneath the confirmation page is like other brands that might go well with your olive oil. So maybe. A spice packet brand, or maybe there's caraway, for example, pots and pans, things like that. Yeah, so that one I would say is probably the biggest that we've made on the customer acquisition front.

And they're doing really well and they're growing their [00:30:00] network and they have other, they have email products now as well, and they have nice products, right on the product description page and things like that. Then more on the sort of influencer, but also customer acquisi acquisition side is a lot of companies around, like, how do you turn your customers into evangelists or ambassadors or influencers for your brand?

And easy, simple ways to do that. So we're invested in a company called Bounty that on the confirmation page you have the, you can have the ability to become an influencer. So you can, if you create a review on TikTok, then you can sign up to have it be connected to the brand, and then the brand pays on a CPM basis for page.

Wow. Yeah. So it's super seamless automatically. Yeah, you have to, you have to, as a customer you have to engage with the product and then you have to create account, an account, and then there's guidelines about the content. But yeah, anybody can make a video about TikTok or [00:31:00] take a video about a brand and if it catches momentum and actually gets views, then you'll.

Ben Tregoe: Yeah, that sounds like it, like dramatically simplified the kind of affiliate marketing flow and I gotta choose my platform and then Yeah. On and on and have some agreement or 

Krista Moatz: something. I don't know. It's yeah, we had a, that's, we had an influencer business within Pop Sugar where we would match brands to primarily bloggers back then.

And we sat in the middle and we would negotiate between the brand and the blogger and the brand would. All these crazy restrictions about what they wanted. And then the blogger, if they were big enough, they would have managers that would get involved and negotiate these long, complicated contracts. And so we, that really resonated with us because Yeah.

We were like, wow, if you're gonna make that process so much simpler, that makes a lot of sense. 

Ben Tregoe: And you could see somebody just if it's this easy, maybe I'll just give it a try and then I'm not bad at this. Yeah. Interesting. That's cool. , [00:32:00] what about, what's the what's your take on paid acquisition?

Like what do you, what's the kind of word? I know that you guys aren't probably investing in that space, but 

Krista Moatz: Yeah. No, we're really not. We actually look, one of the things we look for brands, actually, that I didn't say before is that less than 20% of revenue goes to paid acquisition. So again, yeah, we're just, we're really not looking.


Ben Tregoe: That's, how did you choose 20? It sounds like a good number, but 

Krista Moatz: Yeah. Just how it works out from a margin perspective. Yeah. Bottom line is even if your gross margins are good, your product margins are good, but then you're spending 75% of that margin on paid marketing. There's no way you're ever gonna get cashflow positive at the end of the day.

Ben Tregoe: Do you have a number for all market? Is it 25% or 30%?

Krista Moatz: Yeah, I would say 30 ish. Yeah. A lot of the times when the brands are getting into retailers, they do have to spend a lot of money actually marketing [00:33:00] the fact that they're retail. So we give them a little bit of a pass there, but at scale, 30 percent's a good number.


Ben Tregoe: What speaking of kinda these metrics, like what do you think of , there's like the marketing efficiency or mers or whatever, mes where people are like trying to benchmark oh, I'm gonna spend, a set percentage of revenue. Yeah. On marketing or advertising.

And that's always not, hasn't set. I'd be interested in hearing your thoughts, but like my issue with it is like, why would you lock in your margin structure? Shouldn't the goal of your marketing spend to. Getting leverage out of it so you don't have to keep spending 20%.

don't know. 

Krista Moatz: Yeah, sure. Yeah. At scale it should be even less. 

Ben Tregoe: Yeah. Yeah. That's because then you get into all these yeah. So it's I've always found it as a benchmark, like really difficult to find useful because oh, what stage are you? , but what's, sub segment.

What do you do? Then you have like this like spreadsheet that ends up having oh, if you're this stage it should be 25%, but if you're this stage it's 15, you're like this is useless. How do I benchmark against any of that? Yeah. But [00:34:00] I like that you're like holding the line and like you're like, look at 20, it's come on, you gotta do something else.

Right. Right? Yeah. Oh boy. He's . I'm now curious to go back and find out where everybody is. 

Krista Moatz: Yeah. Do that and let me know if you find some . . 

Ben Tregoe: Yeah. What, and where do you like, like the big topic or a big topic today is there's this, like the sky's falling.

It feels Yep. Who knows what's gonna happen and the Bay Area is going to, for people listening, this is like November 16th, so of 22. Twitter firing half the staff meta announced thousand, 11,000 people just seems endless. What do you think is coming in 23 and 24?

Yeah. And what are you guys talking to your portfolio companies about? 

Krista Moatz: I don't think anyone knows exactly what's coming. , but we're telling everyone to prepare for the worst. It was would be our across the board advice. If you don't try to triple revenue in 2023. [00:35:00] Tried to grow nicely, but set a plan that you can get to with your current head count.

Don't go on a huge hiring blitz to get to tripling your revenue. Just, think the saying in the industry right now is default alive, right? So set a plan for the next 24 months with super realistic goals that you can get to with current head count or possibly less. 

Ben Tregoe: Yeah. And do you In your personal opinion, is this like as bad as it's ever been or what does this rank in terms of cycles?

Krista Moatz: I've been through the bust. I've been through the 2008 recession while we were operating pop sugar. All I would say they, they all felt long at the time, , right? They were all, say two or three years before anything really bounced back. I think it's gonna be the same thing. It's gonna feel really long, so heads down, buckle up.

It could last a year, it could last four years. [00:36:00] 

Ben Tregoe: Yeah it's hard to know. Any good news on that horizon? I hate to end here. . Yes. 

Krista Moatz: Yes. I think the good news is these are the times when the best companies are created. Yeah. These are the times when. Operators, investors, everyone really has to buckle in and heads down and every single dollar spent matters.

And so comp operators that can operate companies successfully throughout these next few years are gonna be the next success stories of the next cycle. 

Ben Tregoe: Yeah. You know my, you have one more thing to ask you, cause you. What's been so interesting is like your take on this space is really unique and it seems informed by a lot of looks at it and from different ways.

So at Sugar Capital you get Krista, but like what other, things make sugar capital stand out as an investor as compared to, where other people could 

Krista Moatz: go. [00:37:00] Yeah, I think that our, we were operators for way longer than we've been. I. So I think that really resonates with founders.

, there's four of us and we each have our own areas of expertise. So my area of expertise is much more on the growing teams, planning out orgs, scaling the business from an operations perspective. Then we have Lisa, who sh Lisa Sugar. She was the voice and the vision and really the brand of Pop Sugar.

She led Pop Sugar through all the various evolutions in content. And when we started Pop Sugar, there was no, there was Facebook, but you had to have Email address. . Yeah. There was no Instagram, there was no TikTok. There was, not really even Twitter to the extent that Twitter is out there today.

Her value add to founders is brand building, content creation. How do you maintain your brand and your voice across various platforms? And also just, [00:38:00] she just knows what people want and and how to create a brand that people resonate. . And then there's Will Hawthorne, our fourth partner.

He is a, he was a banker. He was our banker actually that advised us on our sale Pop Sugar to Group nine. Yeah, so he's really good at working with founders on financing strategies, how to get to the next raise. Me key areas that you need to hit on. Key proof points. He's really good at m and a advisory as his background.

So when companies get to that stage, thinking through how that process could work, and then all of the, of course, backend financial diligence that needs to happen. He really takes the lead there. And then Brian. Brian Sugar was the CEO of Pop Sugar. He's been a serial entrepreneur. He started several businesses before Pop Sugar, so he's really a founder mentor, like really working closely with the ceo.

Giving advice, being a, just someone to listen and navigating their way [00:39:00] through the startup journey. He's also, he's a software engineer, so he's a big product guy. He can talk through that, go to market all of that con that kind of stuff. And he also has a pretty decent following on Twitter, and he's been in the investing world for a while, so a lot of the deal flow comes through.


Ben Tregoe: well as Lisa. Yeah. That's a super powerful team and offering. How do you guys, like, how do you get your interests? Do you like 'em warm? Can you know? How do people get in contact with you? Yeah. What's the best way for 

Krista Moatz: founder? We have a contact form on our website. We really Do you 

Ben Tregoe: recommend doing that though,

Krista Moatz: It's probably the hardest way to get in. We do have a bit of a backlog there. But we do check those emails. I just didn't wanna say we don't take cold outreach cause we absolutely do. Warm, A warm intro will probably. Get you there quick, more quickly. Yeah, we actually, Brian actually makes a lot of, gets a lot of intros from Twitter.

Like people that like dms. Yeah, [00:40:00] dms nice. And then our founders are a huge resource or a huge source of deal flow. Any time a lead comes in from a founder, we definitely take a look at that immediately. 

Ben Tregoe: That's a, all right that's the playbook then. Everybody, FairWarning, everybody knows how to do it.

Krista Moatz: Find a founder in our portfolio. Make friends with them and have them introduce you. That's probably the best. Nice. And then also later stage bcs too, that we Oh, yeah. That are too early for them. We get a lot from that as well.

Ben Tregoe: Yeah. Nice. Chris, this has been awesome. I really enjoyed. Thank you so much for joining.

Krista Moatz: Thank you for having me. Happy Thanksgiving. 

Ben Tregoe: Happy Thanksgiving,[00:41:00] .

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