Dan Levitan on Maveron’s Bay Area Expansion, Its Latest Stealth Startup, and His First Starbucks
Seattle-based venture capital firm Maveron has been in the news a lot this month. There have been reports about its latest stealth startup, which is a new type of e-commerce play. Another report from VentureWire said Maveron will be selling its shares in Motley Fool—a deal that will generate cash for Maveron, which led a $26.5 million financing of the online investing website in 1999. And then, just yesterday, I got a press release about Maveron expanding to San Francisco and Silicon Valley.
The VC firm, co-founded by Howard Schultz of Starbucks fame, is used to this sort of attention. But the San Francisco news was a bit confusing to me, because Maveron has been active in the Bay Area for a long time. As usual, the interesting stuff is in the follow-up. I had a chance to connect yesterday with Dan Levitan, a fellow co-founder of Maveron and the mastermind of the firm’s consumer-focused investment strategy. Besides the new San Francisco office, I also asked Levitan about the Seattle e-commerce startup his team is currently building; his outlook and themes in the consumer tech space; and his first fateful meeting with Schultz back in the early 1990s.
First, some basic stats. Maveron was founded in 1998 by Levitan and Schultz, and is best known for its early investments in eBay, drugstore.com, Shutterfly, and Cranium. Its current portfolio companies—there are 22 active around the U.S.—include Potbelly Sandwich Works, Pinkberry, LiveMocha, and Altius Education. The venture firm has about $750 million under management.
Levitan explained that opening Maveron’s San Francisco office has been a two-year process, but it doesn’t signify any shift in the firm’s geographic focus. “I don’t see this announcement as anything more than opening an office where we’ve already done business,” he said. “We’re one firm with two offices.”
The San Francisco office is headed by Amy Errett, a veteran of Olivia.com and E*Trade, who was announced as a Maveron partner last year. She is joined by new principal Ben Choi, who was previously with Storm Ventures, In-Q-Tel, and RRE Ventures. As Levitan puts it, instead of Errett flying up to Seattle four times a month, she’ll fly up three times a month (and the Seattle team will fly down the fourth week).
But Levitan emphasized that he’s looking in his own backyard for new investments as much as ever. “Seattle is an economy and region that’s very rich with groundbreaking, innovative consumer companies,” he said, pointing out obvious examples like Starbucks, Nordstrom, Amazon, and Costco. One less obvious company he mentioned was online real estate broker Redfin, which isn’t in Maveron’s portfolio. “They’re gaining share because of their value orientation,” Levitan said. “One of the great things about the Internet is it is a ‘disintermediator’ of things. We’re focused on Web-enabled consumer services.”
I took this to mean there is still plenty of opportunity for lean, mean startups to solve real problems for consumers by cutting out middlemen and other inefficiencies. But with all the doom and gloom around consumer Internet sites and online ad sales, I wondered how Levitan sees things shaking out in the recession.
Not surprisingly, he is cautious but optimistic. “There’s little doubt that the psychology of the consumer has shifted radically. Perhaps more radically in the last 12-18 months than in our lifetimes,” Levitan, 52, said. “The shift is more toward value.” That means people are focusing inward on things like family, friends, and pets, and they are staying away from public indulgence and excess—things like private jets and high-end wines at restaurants, he said.
But Levitan also pointed out that historically, consumer spending has been about two-thirds of the U.S. gross domestic product. In the past decade, that figure shot up to 72 percent. Now it has dropped a little below 70 percent, he said, but it’s “still above historical norms, and a huge percentage.”
I asked whether consumer companies, particularly on the Internet, need to be focused on a particular niche or vertical market, now more than ever. Levitan pointed out that Amazon became known for selling books before it went deep into other markets. He said Jeff Bezos has been “brilliant” about balancing the cash flow and profitability of Amazon’s core categories while expanding into adjacent areas. “Companies have to be known for something in retail, and have a clear brand image and value proposition,” Levitan said. Successful ones, he added, “have a psychological contract that brings consumers back on a repeat basis. We try to find consumer businesses that integrate into people’s lives.”
That brings us to the latest startup Maveron is funding, which has been getting some buzz lately. (The funding amount is undisclosed, and the stealth company is still unnamed, at least publicly). Levitan is helping build the new e-commerce company with Mark Vadon and Darrell Cavens from Blue Nile, the online diamond seller. “They’ve done an incredible job of creating trust and confidence in consumers,” Levitan said. “They understand the world of e-commerce. Their experience is very relevant.”
Back in the day, Levitan passed on investing in Blue Nile twice. He says he “underestimated the grit, determination, and resourcefulness” of that startup, and won’t do that again. Of the new venture, he stressed “it’s early, early days” and wouldn’t give any specifics just yet. (But separately, he did mention social shopping as an area that’s taking off, so one could speculate that it’s in that general space.)
Lastly, I asked Levitan about how he first met Howard Schultz, his business partner at Maveron for the past dozen years. It was in Seattle in August 1991, and Levitan, who was working at an investment bank, flew up from Los Angeles to meet with the Starbucks coffee entrepreneur. “I was a little disappointed he didn’t let me talk. He sold me about how passionate he was about his business, and about how powerful the business model was,” Levitan said. “What was unique was how he talked about his people. His people first, and customers second.”
Levitan said that going into the meeting, he “didn’t think there was a big growth business around coffee.” But he landed in Seattle, and asked the cab driver what his favorite coffee was. Starbucks was the answer. At his hotel, he asked the desk person for a coffee recommendation. Starbucks again. So he walked over to his first Starbucks, in the City Centre tower. “People were lining up for coffee. I was blown away by that,” he said. The following year, his bank was part of Starbucks’ IPO.
All in all, it’s a lot to digest. But probably the most surprising thing Levitan told me was that he recently downloaded a book, on his Kindle, by University of North Carolina basketball coach Roy Williams. That’s almost unthinkable, because Levitan is a die-hard fan (and alum) of the Duke Blue Devils, UNC’s archrival—he’s traveling to one of their games this week. But Levitan says he’s been gaining respect for Coach Williams and his recruiting prowess. Now that’s innovative thinking.