CRV’s Vivian Cheng: Why Consumer Companies Often Have the Largest Outcomes

ABSTRACT

KEY POINTS FROM VIVIAN CHENG'S POV

Why is consumer investing  such an important category moving forward?

• There are large opportunities across the consumer investing space, especially as new generations, changing preferences, and a digital-first world drive an expanding market. “Some of the largest outcomes in technology have been consumer companies given how large the market size truly is,” says Cheng. Areas especially ripe for disruption are “high on consumer demand, low on satisfaction,” such as the intersection of industries like financial services and healthcare, and even social media.

What are the business models, applications, and use cases that might be attached to this category?

• AI/ML can help reshape consumer products by ‘supercharging the consumer experience’ and lowering cost curves. “A great example is applications in interior design with new advances in generative AI. Interior designers gain AI-enabled superpowers in creating designs faster during the brainstorming process. While I don’t believe that humans will ever be entirely cut out of the loop, AI is going to shape the way we shop, learn, and create. All of these fields are ripe for disruption,” says Cheng. While many consumer services companies have traded poorly since going public, enabling better margins, speed to product, and personalization may help new entrants gain market share.
• A growing population of climate-conscious consumers and environmental subsidies will create new focus areas. “With 1 in 4 Americans wanting an electric vehicle, this profound shift in consumer taste will drive massive value creation and companies. EV and solar penetration is sub 3% for both categories,” says Cheng.
• Marketplaces 3.0. “I’m intrigued by how token incentives can bootstrap liquidity and solve the marketplace chicken and egg problem. While no one has done this correctly yet, the speed to scale is unprecedented with token-based marketplaces and may provide real world utility for crypto.”

What are some of the potential roadblocks?

• Cracking distribution will distinguish the winners from losers. With rising D2C acquisitions costs and ad privacy changes, finding a “distribution cheat code” will be critical. “Companies have to move beyond paid CAC dependency to ensure growth beyond paid channels. I’ve seen a lot of companies successfully navigate B2B2C or underserved channels like TikTok,” says Cheng.
• Competitive differentiation is challenging, and often requires leveraging network effects. “The most important metric of all is whether or not the business has a sufficient moat, hopefully through network effects that make marketplace businesses today so desirable,” she says. Companies need to 10x the product experience, not just make it slightly better.

VISUAL: COMPARING THE LARGEST ENTERPRISE AND CONSUMER EXITS

IN THE INVESTOR’S OWN WORDS

As a consumer investor, my thesis involves identifying the companies that will impact how we live fundamentally as human beings — how we eat, learn, spend, communicate, take care of our health — anything that shapes the way we live. I divide this world into two categories.

The first addresses fundamental consumer needs: areas that generate very little of a consumer's  satisfaction, but draw a large portion of their spending. I love founders working to 10x the consumer experience in meaty verticals where there is incredibly low NPS. This is reflective in so many categories: fintech, healthcare, housing, education, home services, transportation, and energy.

The second addresses culture & entertainment: how we enjoy spending our time, whether IRL or online. While the consumer experience is often highly optimized here, I’m continuously surprised by the ingenuity of founders in this area and continue to look for places of extreme consumer product love and fresh ideas.

MORE Q&A

Q: What do other market participants or observers misunderstand about these categories?

A: Value creation in consumer is often driven by large outliers, which account for more than the sum of a plethora of enterprise companies in any given year. For example, consider Roblox, Airbnb, Twitter, Facebook, WhatsApp, Uber, and Nubank. The path is hard, but the prize is the largest.

WHAT ELSE TO WATCH FOR

• Gen Z and Generation Alpha’s relationship with the internet will have a tremendous impact on the consumer investing space. “They live in Discord and Roblox, stream on TikTok and Twitch, and are pseudonymous. The next big thing will look a little strange, and there is no doubt that value creation will occur around and on top of these platforms,” says Cheng. “I’m very excited about the growing wallet share of GenZ and the coming of age of Generation Alpha. There will be generational companies built on changing consumer preferences here as kids grow up in an ever changing digital-first world,” she says.