Transcript: Why Consumer Is a Venture Play Again — Nicole Priel on B2C in the AI Era

Eyal David: [00:00] Hey, welcome to Product Builder. I'm Eyal, and I just had to talk again with Nicole Priel, co-founder of Kinetic Capital, and Israel's go-to person for B2C, We're going to talk about B2C. So Nicole, it's wonderful to dig into B2C. Listen. Hi Nicole, welcome.

Nicole Priel: [00:27] How are you? I'm good, how are you? I'm good.

Eyal David: [03:00] So? Yeah. Why did I bring you on for this? Well, I don't love reaching out to anyone else,

Nicole Priel: [03:06] there's a reason I already love all the entrepreneurs, but B2C looks like there's real action, like there's sure demand, that people move through, and it looks — it's just cool, that there's such huge activity, and it just moves. So, the way we think about it, is that there are basically three pillars that make it work. One, benefits and benefits. One is that consumer is squarely a venture play. There are low capital requirements for consumer businesses, they're highly scalable, and there's fast time to money. So you can put a product out there and within weeks you can have paying customers. It's very different from certain other areas that have seen investment in recent years. At the same time, some of the biggest venture-backed outcomes came from the mobile generation — it gave us Waze and Candy Crush and DoorDash and Instagram, and then the revolution before that, the internet revolution, gave us Google and a whole host of other businesses that are just ubiquitous today. Today, we're on the cusp of the third technological shift of the last 30 years.

Eyal David: [04:22] So when you think about B2C in Israel, and the age of AI — how many companies are you meeting, how many companies are out there

Nicole Priel: [04:33] as far as you can see? Yeah, so, on the topic of Israel, there's a whole wave of companies — lots of companies at every stage that are sticking around, chosen on their own merits, building companies out of nothing, iterating on them and creating new things. So we're seeing a lot of new things happening. And until now, there really weren't that many new ones, code, one way or another, to build them out. And that's one of the big things this month.

Eyal David: [05:09] That's how you see it. Yeah, and that's another thing, I think. You see — I don't know specifically about B2C, but you see more and more, with code or whatever, that all of this now — like, how it's gotten a bit easier, huh? So what are you actually seeing with these companies you come across? Anything on the ideas side, you know?

Nicole Priel: [05:30] Yeah, many things. I think, before, what people thought about starting companies, on the one hand, was: wow, I need to build all the features, I need to write all the code, and how am I going to make the best comparisons? That was a very daunting thought, until now — where people can now with great confidence go out and start to build and tinker with things on their own, let them catch wind, and go from there. So the resources required are much lower, which is reducing the barriers to entry for folks, and they're coming at various stages. Some of them are, you know, still just with the deck, others have prototypes and others have, you know, their first thousand paying customers and are growing quickly. Some have raised minimal amounts of capital and others are waiting until they reach genuine

Eyal David: [06:21] levels of traction before they go out to the market to raise. So it's a little bit of everything. So that's interesting as well. Basically the idea right now, as I see it, is the quickness you need to move with, right? It's not like it was a year ago, even two years ago — and me as a product person, as a founder, whatever. The phase of discovery, for example, of understanding whether there's viability for my business, is quite shortened, right, compared to how it used to be. So do you even look at people with just a presentation, just a presentation or just wireframes, you know?

Nicole Priel: [06:56] Yeah, I mean, it's legitimate. It's legitimate. We love to engage with founders at any scale. So sometimes they're still in ideation or working at their companies and they're thinking about entrepreneurship. So it's never too early to talk to early stage investors like ourselves. Nowadays, there is somewhat of a higher expectation that, hey, come with some data. We want to do some degree of cohort analysis. So you're in a very different position from a fundraising perspective if you have six months' worth of data versus none at all. And nowadays, it's especially in consumer where you can spin up campaigns and validate very, very quickly and even build products quicker than ever before. So the expectation is that you can get there in a reasonable time frame.

Eyal David: [07:47] Plus, again, as a founder, I guess, if I had to think about my ROI to start planning for investment and working on that versus building my product as quickly as I can, I would probably choose the latter, right? So I also ask that because there's a different level of service that you need to provide for those different needs, right? So what's your focus right now? Like, where do you think you and Amir can shine best across those segments?

Nicole Priel: [08:20] Yeah, so we're really hands-on investors and we have been our whole careers. So we're used to partnering with founders from really inception, from the earliest stages, and helping them with everything from finding their first office to hiring their first employees to registering a U.S. company and so on and so forth. So we get involved in all those aspects, and Amir's a marketing whiz. So he's super hands-on with everything user acquisition. We love getting involved with marketing and branding, first hires and so on. So it really spans the whole gamut.

Eyal David: [08:57] Just before we continue, click the link to the Product Builder WhatsApp group in the episode description and join the community. There you can continue the discussion, ask questions, and be the first to get updates on new hands-on episodes. We're waiting for you there. And now, back to the episode. Tell me a bit more about the community you call B2C Believers.

Nicole Priel: [09:19] I'm part of the community, but tell me about it. Yeah, so I think it was summer. So 12 months ago, I think about 70% of my deal flow was coming from cyber. Cyber and AI, or AI and cyber. And that got me thinking a bit about where our community stands. I said it's kind of wild that there's $300 million of deal flow and nobody's focused on it. But our whole ecosystem is focused on the tech scene. It's all focused on the tech scene. And it's not so much that the tech ecosystem is fixated on one sector, which is cyber. It's just where our deal flow happens to be. And we run the tech scene as if that's all we have. And you have to compete with Silicon Valley and with other ecosystems. And all the while, I keep looking at consumer companies. And I wonder why I don't see more consumer. Why is it only a small slice of the deal flow that I see. First, I thought, okay, let's build a community around ideation. We'll sit together, get in a room and talk about how a consumer company can collaborate on ideation. And there was already a community there. And it came from the heart, okay, let's build a community. Because there are certain dynamics, there are certain dynamics that happen today in B2B. So if you come out of one deal or another, there's a whole playbook for how you go about it with angel investors, and how you meet funds and meet the players in the space. That doesn't happen today in B2C. And that's what people are coming for. And it all comes together with that first idea in B2C. That was our inaugural event. I wanted to bring together the founders and operators based in Israel. I put the word out, and they were already interested and told me, they were sure about what we could do. So at that point, I said I'd see how many would come. I thought maybe 30 or 40 people would show up, because finally someone was talking about B2C, in Israel. I just put it out on a mailing list, and I was awake and then went to sleep. And within 24 hours, I had 200 registrants. We were overbooked and we had to move to a larger venue to accommodate the crowd. It ended up being a tremendously successful event. We got really great feedback. Now we're planning our next event coming up in a couple of weeks, and we have one on the docket for the fall as well. So we're really seeing our vision come to life, trying to be the heart of the B2C community in Israel, but also globally. Yeah, I love that.

Eyal David: [12:25] And do you see this — do you see this same reality in the venture world, in the venture world as well?

Nicole Priel: [12:32] In the venture world it's about the B2C community specifically, right, at your firm. Yeah, absolutely, of course. It's a really big question, and especially given the confluence, this moment, where all the stars are aligning for consumer to break out over the next decade. Especially — if you look at the data — before, 1% of all the venture dollars in the industry went to consumer. Today, it's about 5% or 6%. So as we're already moving into consumer, consumer is calling. But that's the market dislocation that we love, and that's the market dislocation we're going after now with Kinetic Capital. Amir, the gap is very big, it's here, but nobody sees it. So the same trends we see in Israel line up with what we see in consumer globally, of course. What do you think — as I look at consumer — but what do you think about why consumer was overlooked? That's the connection over the last 10 years, over the last 10 years, and it's not the same thing that we saw here, given this change that happened this decade. There are a couple of theories. One is that the last revolution, the last technological revolution — the mobile revolution — spawned many, many, many consumer businesses. So a lot of capital went into those sorts of businesses. Once that fanfare died down, capital naturally shifted. I agree, exactly. The other explanation is possible too, and I think that a lot of the recent funds got stuck in their portfolios. So, if you think about Bird and Rent the Runway, a lot of them are companies that couldn't scale the way the returns needed. So I think that dampened enthusiasm for consumer for a while, but like all kinds of markets, these are just cycles, and now it looks like it's the best time for it. And I think that... you know, we see this as a very, very big opportunity — we think there are big things ahead, but right now, at the very first opportunity, this huge opportunity, the simple one, is what excites us.

Eyal David: [15:01] So I want to ask about the consumers you're thinking of targeting — we'll get to that, but do you think this also traces back, regarding the pandemic, and people working from home — like, during the pandemic, all I needed was Amazon, maybe Wolt, but that's about it, right? That's true, but then, regarding what — do you think that worked against,

Nicole Priel: [15:25] like, against, or did it actually drive consumer? I think, A, yes, but B, I think that, you know, the consumers I work with, their customers, started working from home, and those consumers need, like, a digital solution, like, from their providers, and I think there's a lot happening in consumer, and that's another thing, regarding consumer becoming so big now — I don't know, sympathy. Right,

Eyal David: [15:55] you know, right,

Nicole Priel: [16:57] ultimately, but we know — we think those who will know what becomes whatever — who the iconic companies of the next decade are going to be — because they're being built right now. But I can just share with you some of the trends that we're observing that I find quite interesting. One is the short-form sector. And now everything is very, very short-form, and there are startups doing exactly that.

Eyal David: [17:37] What do you think about dating, psychology, you know, all the human interaction stuff, X — what do you think about that space?

Nicole Priel: [17:44] Wow, it's really important that you brought that up, because one of the things we've observed is tech having the ability to take down barriers in what were once taboo subjects and making them mainstream. Probably the best example is online dating. So I remember when JDate and — I guess it was OkCupid — and ChristianSingles.com were all launched as .com websites. People used them, but they were embarrassed to admit that they actually did. Until Tinder came along and made it cool and made it swipeable and made it something that the young generation could get into. And now it's perfectly acceptable to meet your spouse on an app. And we've seen that carry on into other areas of relationships and wellness. So if you look at HIMS or Flow Health, which are multi-billion dollar companies in the U.S. tackling subjects such as hair loss, erectile dysfunction, and female menstruation. These are subjects that no one really wanted to talk about, but now they've become mainstream. And my investment in Aria is similar. I actually heard a conversation with the CPO of Duolingo and he said that they're looking at getting into dating, because they already know quite a lot about their users and matching, etc.

Eyal David: [19:06] So that's interesting. I'm going to ask you also about business models, right? So in B2C, in consumer apps, there's usually a subscription model that's usually hard to pull off. For example, Duolingo, which we just mentioned, they struggled with it for over a decade, as far as I understand. What do you think about that? Do you think the monetization is going to remain the same? Is it going to be different? What do you project? So it's a really great question.

Nicole Priel: [19:38] And I look at the gaming industry for inspiration there. Because Duolingo, like other companies — if you think about Headspace and so on — they've incorporated so many best practices from the gaming industry to tackle exactly that. So this whole idea of streaks that people are obsessed with in Duolingo comes from the gaming industry. And the spin wheel where you can win a prize in some e-commerce shops today — that also comes from the gaming industry. In-app purchases and in-app advertising are all different elements and mechanisms that we're seeing spread from gaming into other areas within consumer businesses. So yeah, subscription is one model. It makes sense for a personal finance app, for instance. Maybe it makes sense for certain AI coaches and things like that. For others, it could be on demand. The model is definitely very much based on the business need and what makes sense for the user. I recently met a company that was trying to facilitate second-hand car purchases in some way. That's something you can't charge a subscription for, right? That's a purchase a customer makes once every few years at best. So it's an entirely different model. Yeah, it opens up a lot of questions about what the best monetization and pricing tactics are

Eyal David: [21:08] for different businesses. And I want to say that I interview quite a lot of gaming founders, product people, et cetera, here. And now they look back on Duolingo and they actually copycat them. But I do want to say that I think that in the era of many products — of AI that generates great products, maybe great disposable products, and we can touch on that as well if you'd like — but I do think that the models, the pricing models, are going to be different, the business model. I do think that maybe one day it will work as a success matrix. If you actually help me — if I'm learning with Duolingo and I've been learning for X days and I haven't learned that much and I still can't talk to anyone, but I use AppX and it helped me speak Portuguese fluently — I think it's going to go there,

Nicole Priel: [22:03] that's what I think. Yeah, it's interesting. If you help me score above a 1500 on my SATs, I'll pay you this much. There are similar pricing buckets in enterprise, right? Like tiered pricing based on usage or seats or the value that can be derived from the product. So it could make sense, but that poses its own challenges around visibility into the business and how sticky the revenue is and what the margins are accordingly. So if you have a product with obviously very infrequent usage, your CAC needs to be in line with that, and that's the challenge. Exactly. This is the enigma I'm working on

Eyal David: [22:42] when I've got free time. I'm not sure how this is going to work, to be honest. I don't think subscriptions will remain as they are right now. Because you know, also in the real world, that's not happening. Like if you don't like a service, you're just going to negotiate about it. You're going to talk to someone. But anyway, that's what I think. Tell me, what do you think about marketing? Let's touch base on that. One of my favorite topics. Yes. Like, I do understand it's a big challenge. If we talk for example about Base 44, right? So this guy Maor killed it, right? Like, I don't know if he even spent a single marketing dollar, but in Israel he went bananas, right? But this is so hard to pull off if you're not the first one to enter a specific niche, a specific market, right? It's going to be harder. So how do you as an investor actually — you know, what are the indicators that guide you when you see a specific investment opportunity?

Nicole Priel: [23:44] How do you approach marketing? Tale as old as time — competition. I actually am of the belief that you don't need to be the first in the market. In fact, I think it can be detrimental to be first to market. But what does that say in terms of marketing, right? Because if you're not the first and there are 50,000 like you, then it gets tricky, right? And expensive. Like, I accept that point. The other side of the argument is that the early entrants can invest in educating the market for you. And then you come in and swoop up the folks who have already been educated, and you come in at a different point in the hype cycle. I'd like to point out the example of cloud security in this instance. Because I think the first EC2 — what was it — no, I think it was the first S3 bucket, I might be wrong on that, that AWS put out — was in 2000, I want to say 2006. I could be wrong. But it was something around that. The cloud was in its infancy back then. You had generations of cloud security companies that emerged as early as, I think, around 2010 — some of the leading cloud security companies. But if you looked 15 years ahead, there were multiple generations and multiple successes of cloud security companies, which culminated most recently in Google's acquisition of Wiz for $32 billion. So in 2020, I myself invested in a cloud security company, and a lot of people passed on the space and passed on the company because they said, why do you need to do that? There are already established players in the market. What's changed? There are constant iterations in technology and workflows and user behavior that demand different products at different points in time. So most of the value that was actually created in cloud security came almost two decades after the cloud was kind of invented.

Eyal David: [25:47] So how does it impact marketing?

Nicole Priel: [25:54] I think you have to be realistic with yourself about who your ICP is and what's really your secret sauce in distribution and go-to-market. Because if you're content-heavy and you're relying on content to drive your business, well, I mean, that can take a long time, right? SEO requires quite a bit of time and investment. Whereas if you're going into performance marketing, the costs upfront might be higher initially, but the payoff can be quicker. I think it's important to test, obviously, different methods and lean into what works as a general rule.

Eyal David: [26:32] Probably the first thing — I guess that's me, but probably you as well — would be looking at the founder, right? Strong marketing instinct and experience. And maybe start from there, by the way, before you actually build anything. What else do you look for in such a founder?

Nicole Priel: [26:53] So yeah, commercial acumen is definitely up there. I think everyone has repeated this so many times, that tech and product does not equal a successful startup. And it's true. It's about having that awareness of the market. And basically, can you sell? Can you put this product into the hands of customers? That's largely the driving force in what determines the ultimate success. So we definitely do look for that. We look for hustle and grit and a lot of curiosity and this relentless need to figure out problems and solve them and be customer-first.

Eyal David: [27:37] And probably move quicker than ever before. I don't know. But also, if we touch back on Base 44, for example, what I liked about this story is that you need to understand where technology is going — but not two years from now, in a limited window, a few months from now — and then you need to ride that wave. And if you miss it, then someone else will catch up to you. So I think a good understanding of where AI is going, what the next model is going to include — that's something I would expect from a founder who comes to me. That's a big win, right?

Nicole Priel: [28:20] Yeah, but no one knows. What's peak technology today is different from what it'll be two weeks from now. So I don't think you can put too many eggs in one basket and assume that that's going to be the be-all and end-all. You have to be extremely iterative and on your toes all the time, now more than ever. So that means don't over-optimize on anything, really, because you have to be extremely nimble. I think just on the note of Base 44 — you want to know something interesting that I was talking about with someone over lunch today when it comes to Base 44? It's that we remarked on the outcome — that the $80 million acquisition, sorry, was basically equivalent to a billion dollar acquisition for the founder. A billion dollar acquisition. That's 100%, of course. Yeah, a billion dollar acquisition today usually means the founder has been diluted to maybe 10%, and probably a decade of long, hard slog. So an $80 million exit as a solo entrepreneur with a short time frame is the equivalent of a billion dollar acquisition in a more traditional venture sense.

Eyal David: [29:37] For sure, that's amazing. Also, if we touch back again on the marketing aspect — that's a big challenge that he probably didn't want to face. And so selling was a good exit point as well, in that sense too, I think.

Nicole Priel: [29:50] Yeah, he totally nailed founder-led marketing, which so many people talk to me about today, because they've woken up perhaps a little bit late to the power of using social media to help drive your business — not only on the customer side, but also on the employee side. And it can be an extremely, extremely powerful tool. And when used right, with a CAC of zero.

Eyal David: [30:14] I also want to ask you, how do you actually prioritize your investments across all those different industries that we talked about, all those opportunities? What are you actually looking for when you're evaluating a company? Yeah.

Nicole Priel: [30:27] So we have our areas of interest and theses, but we never want that to get in the way of making a good investment. So I really love when a founder comes with an idea that I hadn't even thought of, and shows me a market dislocation or an opportunity that's a screaming buy — why no one's doing it and they're going to do it better, or people are doing it and they're going to do it better. So I like to come in completely open-minded, without any preconceived notions or biases, and just hear about why someone is excited about an opportunity and why they're going to be the ones to crush it. So if they can get me excited, that's all I need to get on board. And I will put my blood, sweat and tears into making that happen alongside them, because I bought in from day one. I've always discussed with fellow investors that if you need to diligence your way to a yes to make an investment decision, it's probably not a good investment decision. And that doesn't mean invest from your gut. It means having just a very good sense for people and a sense for opportunities. Many factors need to come together to culminate in getting to that yes, but usually, like in any kind of relationship, you know quite early on if it's going to be a match, and then you lean into that. But if you're struggling to get to that point where you're saying yes, it makes it a little bit more difficult. We're human.

Eyal David: [32:00] So if a founder wants to connect with you, what would be the best way? I'm on LinkedIn as Nicole Priel,

Nicole Priel: [32:07] and my email address is in my profile, but it's also simple — Nicole at kineticcapital.vc. And my phone number is — just kidding. And also, regarding the community that you founded —

Eyal David: [32:22] if people want to join in, is there still space? Is it possible? Yeah, absolutely. The more the merrier. Ping me.

Nicole Priel: [32:30] You can put the link, actually, if you'd like to. Perfect, yeah. The B2C Believers are having our next event in a couple of weeks in July.

Eyal David: [32:38] We'd love to have anyone and everyone there. I'm really happy that you managed to find the time to come back to the podcast. And I hope that next year, when you're here, you'll have plenty of interesting case studies to share with us. So what do you wish for yourself in a year?

Nicole Priel: [32:59] Wow, a year from now, I would love to be sitting with you here in this room recording a podcast, talking about all of our incredible investments and how different the world is then than it is today. Because if the world's different, we've made progress. And at the rate at which things are changing today, I'm pretty optimistic that that's going to be the case.

Eyal David: [33:20] Me too. Okay, Nicole, thank you so much. It was a pleasure. Thanks, Eyal. Thanks, bye bye, everyone. Bye. Hey, friends, thanks for listening. If you found this podcast valuable, you can subscribe and follow us, of course, for more episodes on Spotify, Apple Podcasts, and any other app. And of course, if you didn't find us on some app, I'd love for you to write to us. We'd really appreciate five stars on every platform, and that you follow us so that more listeners can discover us and find the podcast. You can also find previous episodes on any app or on the YouTube channel — we have links in the description. Until next time — come on, be productive, and bye bye.