force multiplying investments

Houston experts: Diversity is key to venture capital success

Two Houston venture capitalists — Heath Butler and Stephanie Campbell — discussed how diversity and inclusion are force multipliers for investors and factoring that in is increasingly important. Photos courtesy

Venture capital firms across the board have a goal of driving a return on their investments, but getting a good ROI and factoring in diversity and inclusion into the equation are not mutually exclusive.

In fact, on a panel at the HX Venture Fund's recent conference, Venture Houston, two investors focused on diversity and inclusion made the point that diversity is a key ingredient to successful investing. The panel, hosted by Michael Lipe, managing director at Insperity, consisted of Stephanie Campbell of The Artemis Fund and the Houston Angel Network and Heath Butler of Urban Capital Network and Mercury Fund.

"If you don't believe that diversity outperforms or that having diverse perspectives coming to the table helps your business outperform, then you probably have not been exposed to diverse thought," Campbell says on the panel.

And, as she continues, the proof is in the data "that diversity does outperform and can be a real force multiplier for your portfolio."

"In terms of returns, the Kauffman Fellows found that women-led teams generate 35 percent higher returns on investment than all-male-led teams," Campbell sites. "Pitchbook and All Raise found that women-led teams exit faster and at higher multiples than their all-male counterparts."

Butler recognizes that there's an emotional side of the discussion of diversity and inclusion — especially in this day and age — and that's nothing to disregard. But, he says, building onto that, VC is about discovering new opportunities — it's what VC funds' limited partners are expecting.

"From a more tangible perspective, we are in the business of finding untapped markets and opportunities to invest in and I believe our LPs expect us to leave no stone unturned," he says. "Ultimately you have to recognize that the hockey puck is moving in a direction where your LPs will require you to be looking under every stone to deliver a superior return."

Butler gives Mercury Fund as an example. At its founding, the team saw the middle of America as an untapped opportunity. The challenge is that investors tend to gravitate to ideas and people they know.

"So much of investing in early-stage innovation is intuitive, and investors will usually invest in what they know and resonates with them," Butler says. "But we have to recognize that there's a natural inefficiency in trying to relate intuitively to someone who's different from you."

The key is creating a team and mission with a clear intent and focus on measuring the impact. This goes down to hiring the right people with in your VC team as well as setting up a culture for diversity to succeed.

"If two hiring managers with similar needs," Butler says, "and one has a naturally inclusive mindset and the other feels pressure to meet a diversity quota — in the long run, which team will truly leverage and profit from a diverse perspective?"

Campbell says now is the time to invest in diversity — especially in Houston. During the pandemic, overall seed funding went up but funding for female founders reached a three-year low. Houston has a population doesn't have a racial majority — and that's what the entire country will look like in 2055, Campbell says.

"The opportunity we have in Houston to capitalize on diverse talent can really be a great opportunity to show the nation what can be done with that diverse talent pool," she says.

Houston also has an opportunity to support and invest in women or people of color who have been overlooked but have innovative solutions for society's most urgent problems.

"The more that we invest in diverse perspectives and diverse founders the more solutions, products, and services are going to come into the market for a broader populations and empower those economies to solve some of our deepest problems," Campbell says.

Both experts end on a call to action for their fellow investors: take inventory of the impact you have now and make intentional moves toward inclusion and equity — otherwise you're leaving money and talent on the table.

"If you don't have a diverse team, you don't have a diverse perspective, which means you have an incomplete perspective," Butler says. "You're missing out on opportunity to connect with people, purchasing power, and ultimately profits."

Trending News

Building Houston

 
 

Cheers Health has expanded its product line as it evolves as a wellness-focused brand. Photo courtesy of Cheers

Houston-based startup Cheers first got a wave of brand devotees after it was passed over by investors on Shark Tank in 2018. In the years since, Cheers secured an impressive investment, launched new products, and became a staple hangover cure for customers. When the COVID-19 pandemic disrupted businesses, the company rose to the occasion and experienced its first profitable year as drinking and wellness habits changed across America.

Cheers initially started its company under the name Thrive+ with a hangover-friendly pill that promised to minimize the not-so-fun side effects that come after a night out. The capsules support the liver by replacing lost vitamins, reduce GABAa rebound and lower the alcohol-induced acetaldehyde toxicity levels in the body. The company's legacy product complemented social calendars and nights on the town, providing next day relief.

With COVID-19 lockdowns and social distancing measures, the days of pub crawls and social events were numbered. Cheers founder Brooks Powell saw the massive behavior change in people consuming alcohol, and leaned into his vision of becoming more than just a hangover cure but an "alcohol-related health company," he says.

When the pandemic first hit, Powell and his team noticed an immediate dip in sales — a relatable story for businesses in the grips of COVID-19.

"There is a three day period where we went from having the best month in company history to the worst month in company history, over a 72 hour stretch," he remarks.

He soon called an emergency board meeting and rattled off worst-case "doomsday" scenarios, he says.

"Thankfully, we never had to do any of these strategies because, ultimately, the team was able to rally around the new positioning for the brand which was far more focused on alcohol-related health," he says.

"We found that a lot less people were getting hangovers during 2020, because generally when you binge drink, you tend to binge drink with other people," he explains.

He noticed that health became an important focus for people, some who began to drink less due to the lack of social gatherings. On the contrary, some consumers began to drink more to fill the idle time.

According to a JAMA Network report, there was a 54 percent increase in national sales of alcohol for the week stay-at-home orders began last March, as compared to the year prior.

"All of a sudden, you have all of these people who probably aren't binge drinking but they're just frequently consuming alcohol. Their drinks per week are shooting up, and they're worried about liver health," explains Powell.

Outside of day-after support, Cheers leaned into its long-term health products to help drinkers consume alcohol in a healthier way. Cheers Restore, a dissolvable powder consumers can mix into their water, rehydrates the body by optimizing sodium and glucose molecules.

For continued support, Cheers Protect is a daily supplement designed to increase glutathione — an antioxidant that plays a key role in liver detoxification — and support overall liver health. Cheers Protect, which was launched in 2019, became a focus for the company as they pivoted its brand strategy and marketing to accommodate consumer behavior.

"The Cheers brand is just trying to reflect the mission statement, which is bringing people together through promoting fun, responsible and health-conscious alcohol consumption," says Powell. "It fits with our vision statement, which is a world where everyone can enjoy alcohol throughout a long, healthy and happy lifetime,."

At the close of 2020, Cheers had generated $10.4 million in revenue and over $1.7m in profit — its first profitable year since launch.

During the brand's mission to stay afloat during the pandemic, the Cheers team was also laying the groundwork for its entry into the retail space. When Powell launched the company during his junior year at Princeton University, bringing Cheers to brick-and-mortar stores had always been a goal. He envisioned liquor and grocery stores where Cheers was sold next to alcohol as a complementary item. "It's like getting sunscreen before going to the beach, they kind of go hand in hand," he says.

"When we spoke with retailers, specifically bars and liquor stores, what we learned is that a lot of these places were hesitant to put pills near alcohol," he says. Wanting an attractive and accessible mode of alcohol-support, the Cheers team created the Cheers Restore beverage.

Utilizing the technology Cheers developed with Princeton University researchers, the Cheers Restore beverage incorporates the benefits of the pill in a liquid, sugar-free form. The company states that its in-vivo study found that the drink is up to 19 times more bioavailable than pure dihydromyricetin (DHM), a Japanese raisin tree extract found in Cheers products and other hangover-related cures.

"What we figured out is that if you combine DHM — our main ingredient — with something called capric acid, which is an extract from coconut oil, the bioavailability shoots way up," says Powell. He notes the unique taste profile and the "creaminess" capric acid provides. "Now you have this lightly carbonated, zero-sugar, lemon sherbert, essentially liver support, hangover beverage that tastes great in 12 ounces and can mix with alcohol," he explains.

The Cheers Restore beverage is already hitting the Houston-area, where its found a home on menus at Present Company. The company has also run promotions with Houston hangouts like Memorial Trail Ice House, Drift, and The Powder Keg.

Currently, the beverage is only available in retail capacity and cannot be ordered on the Cheers website. As Powell focuses on expanding Cheers Restore beverage presence in the region, he welcomes the idea of expanding nationally in the future to come. While eager customers await the drink's national availability, they can actively invest in Cheers through the company's recently-launched online public offering.

Though repivoting a company and launching a new product is exciting, the process did not come without its caveats and stressors. While Cheers profited as a business in 2020, the staff and its founder weren't immune to the struggles of COVID-19.

"I think 2020 was the first year that it really became real for me that Cheers is far more than just some sort of alcohol-related health brand and its products," says Powell. "Cheers is really its employees and everything that goes into being a successful, durable company that people essentially bet their careers on and their family's well-being on and so forth," he continues.

"It really does weigh on you in a different way that it's never weighed on you before," says Powell, describing the stress of the pandemic. The experience was "enlightening," he says, and he wants others to know it's not embarrassing to need help.

"There is no lack of great leaders out there that at long periods of their life they needed help in some way," he says. "For me that was 2020 and being in the grinder and feeling the stress of the unknown and all of that, but it could happen to anyone," he continues.

Trending News