Subscribed Podcast: Nikhil Basu Trivedi on D2C Subscription Businesses

December 10, 2017

Select Excerpts from Subscribed Podcast with Nikhil Basu Trivedi

Nikhil Basu Trivedi is Partner at Shasta Ventures, leading investments in a variety of consumer-oriented businesses. He also has a strong interest in industries that have yet to be transformed for the better by mobile and web technology, including healthcare, education, energy, and the life sciences. Nikhil has co-sponsored many of Shasta’s investments since joining the team in 2012. In 2015, he was named to Forbes Magazine’s 30 Under 30 list for Venture Capital.

Select Excerpts:

We see many D2C industries such as retail and the media being completely transformed with new technologies and the subscription business model (music, apparel). There’s also the “Am I competing with Amazon now?” angle. As a VC focused on consumer-oriented businesses, what are the trends you’re seeing?
First of all, I think everyone, both on the consumer side, and on the enterprise side is competing with Amazon. When you look at in e-commerce, when you look at AWS, when you look at what they’re doing in hardware, it’s kind of amazing what that company has achieved and will continue to achieve. It’s mind-blowing.

At Shasta, there are several different consumer trends that we’re investing behind, and we invest in everything from social networks, the marketplace businesses, to consumer finance, to direct-to-consumer brands. There’s a shadow of the big companies like Amazon in every single category, but we do this because we believe that a new company can get started and effectively build a business and compete by focusing on something and doing it really well against the incumbents. If we didn’t believe that, then we wouldn’t be doing this, and entrepreneurs wouldn’t be starting great businesses all the time. We have to realize that those threats are out there, but also be hopeful that new companies can go build really compelling businesses.

Let’s talk about one key trend that I’m focused on at the moment which is the massive transformation that’s happening in retail. The fundamental trend here is that the traditional retail model is just not working for many people. More and more consumer spend is obviously moving online. I think the stats around this year’s Cyber Monday was that there was over $6 billion spent online. That was up 16 or 17% from last year. That kind of growth at scale is pretty staggering.

E-commerce, online retail is still under 10% of total retail spend in the US. When we look to the future, we think that number’s going to just increase and that this trend of more and more spend moving online, more and more spend moving away from the traditional retail experience is going to lead to new retailers and new brands getting creative. And I think we’re still in the first innings of that and of the value creation that can happen in this world.

You’ve attributed the success of Dollar Shave Club to the subscription business model. What makes that attractive to you as a VC? Why is this new business model the one to bet on?
Dollar Shave Club is a company that we were lucky to back at Shasta. It did a lot of things and is still doing a lot of things really, really well. They created an amazing brand – it stood for something, it really resonated with its set of customers. A lot of people remember the video. But underlying a lot of the great work that they did, I think the power of the subscription model is what has helped them be so successful. When you get it leads to magical things. It enables a business to have the potential for a long-term relationship with the customer. It enables you to better predict how you spend on marketing, and how you buy products and hold inventory. It enables you to add new products and services to the existing customer base over time. So Dollar Shave Club started off with razor blades, then they added wipes, and shaving cream, and other things over time to get more and more spend from this set of consumers that were religiously subscribing to them.

Is the predictable revenue part of the calculus for you as well?
For sure. It’s also valued by public investors. When you’re going public and you’re doing earnings, being able to predict, and meet, and hopefully beat expectations is really important. And you’re able to do that much more effectively with a subscription characteristic to your business.

What subscription metrics do you most care about for D2C companies? Is it churn or retention or usage metrics? What are your favorites?
It’s an interplay between all of these metrics, but something that is super important is having steady retention, and not having churn in the outer months. I think a lot of companies think about monthly churn, and they think about retention at month 6 and month 12, but it’s equally if not more important to think about retention at month 24, month 36, month 48, and the very best subscription businesses have that really long-term customer relationship and retention where customers are sticking around with them for 4, 5, 6, 7, 10, 20 years. Think about Netflix and Amazon Prime and how long those relationships can be for those companies.

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