Phillip Sarofim of Trousdale Ventures: “GET TO KNOW THE TEAM”

I am very focused on investments that offer positive societal and environmental outcomes in addition to generating substantial financial returns and I see these outcomes as interdependent. I do believe that by investing in companies solving challenges in health, wellness, productivity and sustainability, we are satisfying and helping to drive consumer demand. And that, I […]

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I am very focused on investments that offer positive societal and environmental outcomes in addition to generating substantial financial returns and I see these outcomes as interdependent. I do believe that by investing in companies solving challenges in health, wellness, productivity and sustainability, we are satisfying and helping to drive consumer demand. And that, I believe will lead to financial success. These companies are offering healthier alternatives for consumers.

As a part of our series about “Social Impact Investors”, I had the pleasure of interviewing Phillip Sarofim, Founder and CEO of Trousdale Ventures. Trousdale Ventures invests in consumer-first, purpose-driven companies that honor a greater mission of self-care, sustainability, and making a positive shift in their respective industries.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

I became a venture investor just like many others. I saw the spark of a great idea in the mind of a talented entrepreneur and got together with friends to support that vision. Throughout the process, I was exposed to many talented individuals that were advancing human progress through their investments. This was at a time in my life that was incredibly difficult. I’d been battling cancer and fighting for my life in a world that was difficult for those trying to make healthy choices. When I tried to minimize inflammation through my diet, there wasn’t a way to do so without sacrificing personal enjoyment. It was through this struggle that I became familiar with the “Better-For-You” space, not as an investor seeking profit, but as a consumer looking for healthy products. That led to my investment thesis: Products that benefit the consumer are inherently worthy, and in a logical world should outperform those that do not.

Can you share a story with us about the most humorous mistakes you made when you were first starting? What lesson or take-away did you learn from that?

It’s not so much a mistake as a humorous learning experience. One of the entertaining things about operating in venture is the ridiculous jargon developed in short periods of time. A colleague once used WYSIWYG (what you see is what you get) in an email, and I admit I was a little bewildered. Recently an entrepreneur described his service to me as a CPAaS (“Communication Platform As a Service”). Now when I hear an acronym I always ask what it means, even if I already know, which is why you will frequently find my team discussing KPIs that drive MRR from ARR driven by our invested AUM. The fun never stops!

Are you able to identify a “tipping point” in your career when you started to see success? Did you start doing anything different? Are there takeaways or lessons that others can learn from that?

Success is a loaded term, as there are so many ways to gauge it. I would say the tipping point for me was when I realized that making money and making a difference could be completely aligned. For example, Super Coffee has removed over five million pounds of sugar from the American diet and is now one of the fastest-growing, privately-held beverage companies in the country. As someone who is working to democratize wellness and improve the collective health of the average consumer, I consider this a great investment. Aligning your investments with your passions can be a powerful formula for success.

None of us are able to achieve success without some help along the way. Is there a particular person or mentor to whom you are grateful who helped get you to where you are? Can you share a story about that?

Honestly, so many people have helped me along the way, and continue to do so, that I don’t think it would be fair for me to single anyone out. I’d want to thank my current team at Trousdale Ventures, for all working to constantly improve one another. The great thing about venture capital is that we get to work with a collection of some of the boldest and most innovative leaders in the world. These are proverbial Davids battling each Goliath. I learn something memorable with every company we meet and learn something profound with every company we invest in. The way our entrepreneurs overcome seemingly insurmountable odds with ingenuity and focus is a thrill that fuels me, especially when I think about the skepticism and career risks founders face; they are in my mind, simply heroic.

You have been blessed with great success in a career path that many have attempted, but eventually gave up on. Do you have any words of advice for others who may want to embark on this career path but are afraid of the prospect of failure?

As Winston Churchill once said, “Failure is not fatal.” We must acknowledge the prospect and likelihood of failing multiple times. It is part of the process in venture investing and it is what you do next that counts. Once you realize that you’re engaging in an endeavor with a high degree of inherent risk, it’s important to invest in a strong network. This obviously includes meeting people, but also giving back. I often look to give rather than to take, as it’s both rewarding and impactful to others, and always creates a memorable interaction. Good networks help provide expertise and resources. Finally, I would advise anyone to stay curious and never stop learning.

Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?

This is a huge topic and an important topic that deserves an answer far beyond what I can give here but it is clear that inequality holds us back as a society. First off, it’s crucial to note that due to issues of systemic inequality, our investment community doesn’t look like the overall population. The solution is also systemic; while we can and should take current steps to promote participation from underrepresented people, such as mandating diversity in partnerships and maintaining compensation parity, we must also examine how the current system in place perpetuates the imbalance we’ve just acknowledged. We should, as a society, encourage and promote STEM education and we must provide female colleagues with workplace flexibility so motherhood doesn’t become burdensome on their careers. This is something I work with my founders on, as startups are often the biggest generators of wealth and give the chance to help correct inequalities.

You are a VC who is focused on investments that are making a positive social impact. Can you share with us a bit about the projects and companies you have focused on, and look to focus on in the future?

I am very focused on investments that offer positive societal and environmental outcomes in addition to generating substantial financial returns and I see these outcomes as interdependent. I do believe that by investing in companies solving challenges in health, wellness, productivity and sustainability, we are satisfying and helping to drive consumer demand. And that, I believe will lead to financial success. These companies are offering healthier alternatives for consumers. An example is Ecovative Design,a company that uses mycelium (the fabric of mushrooms), to create sustainable alternatives to food, textiles and biodegradable packaging. This is a company that will be powering luxury goods companies and alternative meat companies to utilize one of the greenest materials on the planet. In the future, I will focus on these kinds of growth companies that make the biggest positive impact to society and our planet.

What you are doing is not very common. Was there an “Aha Moment” that made you decide that you were going to focus on social impact investing? Can you share the story with us?

The “aha moment” for me was when I realized that companies attempting to drive the betterment of society are often rewarded in the financial markets. In the end, it all comes down to consumer demand. When a consumer demands a quality product that improves their life, the companies that sell more of those goods increase in value. The goal, of course, is to make a return and have a net positive effect on society.

Can you share a story with us about your most successful Angel or VC investment? Or an investment that you are most proud of? What was its lesson?

I’ve tried to be thoughtful about the companies in which I’ve invested. Meyers Manx is the one that was a unique “once in a lifetime” opportunity. It’s an iconic legacy vehicle and lifestyle brand created in Newport Beach, California in 1964 that propelled a powerful pop-culture movement in the 60’s and 70’s that transcended social classes. It became an integral part of California surf culture and beach lifestyle so powerful and popular that it was featured in movies such as “The Thomas Crown Affair,” with Steve McQueen and “Live A Little, Love A Little,” with Elvis Presley. The Meyers Manx lifestyle exploded around the world. It was (and is) about fun, freedom and expression. It shows us that we don’t have to take ourselves too seriously.

The Meyers Manx is the perfect vessel to take us into the future with clean energy and with sustainable solutions. We are developing an all-new electric Meyers Manx and we can’t wait to share it with the world.

Can you share a story of an Angel or VC funding failure of yours? What was its lesson?

There are so many early-stage investing principles that are easy to forget, especially when industry dynamics result in higher valuations and asset price inflation. One that I’m constantly reminded of is the importance of coming up with one’s own sense of what a company is worth. Quite often, we chase popular brands and trending entrepreneurs, but the result is often lower impact and lower investment returns per dollar of invested capital. As the valuation trend continues to zoom higher, I often stop to think about relative value and opportunity, and think about sustaining business models that can grow asymmetrically and for the long term.

Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?

Everyone has these! The one (or ones) that got away, right?! One company that comes to mind is an active company I am pursuing, so let’s keep things on a no-names-basis for now. The company plays in the collectible’s marketplace similar to early eBay, but with a unique twist. I first saw the opportunity when a friend introduced me to the founder, and we quickly learned that we both shared a passion for classic cars. At this point, the company was just getting started and raising at an early seed-staged valuation and I did not jump in. Fast forward a few years and I’m sure you can predict where this story is heading; the company has grown into a leading innovator in what could become an online analog, to a massive offline industry and has attracted some of the biggest investors in the industry.

All of this is to say that I am both proud and humbled to have learned some of my biggest lessons in business from missed deals. For starters, no one is perfect and mistakes will happen, and opportunities will be missed. This lesson keeps me curious and hungry to do better the next time and helps me calibrate my gut instincts. I find such learnings to be priceless, and with each mistake, I hope to refine my intuition and make better decisions more quickly. The incredible part of investing is that new technologies, innovations, and opportunities, get bigger each cycle. It is not a zero-sum game.

Lastly, such experiences remind me how integral founders are in the venture ecosystem. While so much attention is paid to the investment activities and forecasting of the check writers, I find it impossible to beat the experience and intuition that a great founder has accrued regarding the future of his or her business and industry; that knowledge is ultimately the biggest difference maker in the success or failure of an investment.

Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why? Please share a story or example for each.

  1. GET TO KNOW THE TEAM. I need to get to know the team. Is the founder special, what is their vision, who have they surrounded themselves with and are they aware of their strengths and weaknesses? I pay a lot of attention to the team dynamics, making sure they complement each other rather than compete against each other.
  2. WHAT IS THE PRODUCT PROPOSITION? Is the product great and is there an established, proven market to sell it to? If not, is this something that consumers will support and can the product fuel its own consumer demand? I look at whether the idea has been attempted already, and if so, why it did not work or how is it different.
  3. INVESTABILITY. I need to see and understand the financial viability of a company. Can the idea, timing and team attract the needed capital? What is the use of acquired funds and will our investment be leveraged in the right way?
  4. IS THE BUSINESS PLAN VIABLE? I need to examine various industry-specific issues that may affect the collective. It has never been more difficult to bring a new product to market. What is the distribution strategy and what will unit economics be? We have seen many businesses that have incredible growth but worsening unit economics as they grow. That isn’t a sustainable model.
  5. PASSION ALIGNMENT There are a lot of great investments but am I passionate about the product, company and founder? How does it benefit the end consumer? And ultimately does it align with my investment thesis?

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

I’m working to advance the mycelium movement in every way possible. I believe that it is the greatest environmental impact product we will encounter in the 21st century. Mycelium harnesses the world of fungus to produce the goods that we need to use every day; meat substitutes, packaging materials, and even synthetic leather. It allows us to replace huge quantities of plastics with biodegradable alternatives and to heavily reduce greenhouse emissions.

If you could tell other young people one thing about why they should consider making a positive impact on our environment or society, like you, what would you tell them?

I believe there’s nothing more fulfilling than seeing the fruit of your labors having a real impact on the lives of people and our environment — it’s the greatest feeling in the world. This life is ultimately about giving back. Every decision, large and small, impacts our world. We must continue to make choices that evolve our social conscience, provide better options to consumers, focus on inclusivity and remember that our future requires all these choices to be made wisely.

You are a VC who is focused on investments that are making a positive social impact. Can you share with us a bit about the projects and companies you have focused on, and look to focus on in the future?

We have companies like Brightside that make clinically validated mental healthcare available to more consumers in an affordable way. Another company we have recently invested in is Preamble. They provide a platform for ethical AI by offering an algorithm to social networks that helps prevent amplification of harmful content. Finally, we have one moonshot investment in a company called Ostendo Technologies, which has built the world’s first quantum photonic chip (combining a vertically stacked microled, pixel level optics, and an image processor), and is getting ready to scale it’s business to power the transition to wearable displays.

We are very blessed that a lot of amazing founders and social impact organizations read this column. Is there a person in the world with whom you’d like to have a private breakfast or lunch with, and why? He or she might just see this. 🙂

There are many inspiring founders I am lucky enough to get to work with. One whom I would love to meet is Yvon Chouinard who founded Patagonia. He set the standard for being a transformational leader who built a hugely successful business. Patagonia has made some hugely admirable steps in teaching us how to build a business. They set aside a percentage of their sales for environmental groups, offer child-care to their workers, offer healthy eating options in their staff cafeterias and support and encourage their employees to be actively involved in socially conscious endeavors. Yvon is a pioneer of socially responsible investing, and overall he’s just been incredibly successful, while exemplifying the do-good-and-do-well ethos that I aspire to.

Thank you so much for this. This was very inspirational, and we wish you only continued success!

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