The other day, enthused that Coke competitor, Liquid Death had raised $67M and was worth $1.4B, the Global Managing Editor of Tech Crunch asked, “What's the deal with VCs investing in beverage companies? This isn't really tech in any way, shape, or form. It's a capital-intensive industry built entirely around branding and distribution.” Um, yeah. That’s kinda the point.
+++
It’s easy to think that VCs are ever-tinkering, chance-takers looking to hit more doubles than singles. The truth is that’s not the truth. The folks who give other people’s money to other people hate to look stupid more than they hate to lose money. If you need to put that into a memo to someone with Global in his or her title, say they, “Eschew risk and obfuscate the mundane.”
So, why does a guy who covers the startup scene forget investing’s golden rule and the history of venture?
Because the venture world lives in the perpetual motion bubble of disruption-as-a-solution that VCs tell us will lead to flying cars and better lives but no amount of patents, feel-good stories, or FDA approvals that hope to help people with PTSD make founders and funders friends if their apps don’t manufacture users, make revenues, and get momentum that leads to exits. Whew.
Chalk this up to him being more of an Xbox me being more an Atari. Always have been. I was an Atari guy before I was a teenager. My dad brought the now-iconic 2600 gaming console back from a business trip to Chicago. That was before they sold them in Canada. For all I know, I may have had the first cartridge gaming system in Canada. That made me popular. Well, it made my parent’s basement the place to be long before parent’s basements were in vogue. Atari changed home electronics.
Most people don’t know that Atari is the start of modern venture capital. Before the 2600, Atari made cabinets that went in arcades that housed a game called Pong. Nolan Bushnell made Atari. It was 1972. Success came quickly. Bushnell drove a Rolls. He named products after hot girls on the assembly line. Journalists who covered Atari did coke in hot hubs with the assembly line girls. Impressive but still short of Keith Moon, a stick of dynamite, a five-tiered birthday cake, an exploded toilet, and driving a Lincoln Continental into a Holiday Inn swimming pool. Rock and roll!
Three years later, Bushnell had a certified double-platinum hit. Bushnell wanted to make a little box that played Pong on the TV in your living room.
The money had to come from somewhere. It came from Don Valentine. In 1975, he had started the first modern venture fund, Seqouia.
We want to believe the pitch went something like, “We’re going to bring gaming into the home. Atari will catalyze cartridge-based video games to disrupt the TV watching market and synergize hypercubes.”
Really, it was far more benign. Bushnell had negotiated a deal with Sears. Sears would sell the new home Pong units nationally… IF he could manufacture enough units. He just needed money to buy enough parts. A production loan backed by a contact with the country’s biggest retailer. Bore meet ring.
Bushnell, knew the economics from the cabinet pongs, “I figured out that I could build ’em for about 350 bucks. I priced them at $910. And I figured out this financing model where the manufacturing would self-fund. I negotiated 30 to 60 days from our vendors, and if we could build the machines and ship them in less than a week, the company would operate in positive cash flow.” Self-fund? Payment terms? Positive cash flow?
Atari went on become the then fastest-growing company in American history. A year later, Warner bought Atari for $28M. Sequoia cashed out. Don Valentine met two developers at Atari named Steve. One was Jobs. The other Wozniak. They pitched Don on their idea to, “Bring the computer into the home. Apple will change the way we interact with technology and synergize the next cube.” I mean, I wasn’t there, but that sounds about right.
Sequioa went on to be early investors in Cisco, Google, Nvidia, Airbnb, YouTube, ByteDance (owners of TikTok. For now), Stripe, WhatsApp… I could go on but I think you get the idea.
Today, we love VC’s rock-and-roll ethos and live it. We forget how Bushnell explained how it really works, “People talk about the party atmosphere, but what they don’t realize is that it was all based on hitting quotas.”
Which brings us all the way back to Liquid Death. “Liquid Death hit $263 million in retail scanned sales through registers in 2023 and expanded to 113,000 retail doors across the US and UK. The company achieved over triple-digit growth for the third consecutive year, becoming the fastest-growing top water and top iced tea brand.” Manufacture users, make revenues, and get momentum that leads to exits. What does a VC really want? Liquidity. When do they want it? Now.
Right now, the brand’s 7.9 million followers across TikTok and Instagram are pouring themselves a 19.2oz tall boy can of water and living liquidity.