Invest Like The Best #110 Ryan Caldbeck – Quant in Private Markets

  • Circle Up created a product called Helio: Helio is a machine learning platform that identifies, classifies, and evaluates early-stage consumer and retail companies. Today Helio tracks 1.4 million consumer and retail companies.

  • How Ryan came up with the idea for Circle Up: I was working in consumer-focused private equity. I would be handed a list of 400-500 companies. I would have to figure out which ones we should reach out to. I’d have to google and gather information about the brand, distribution, etc. After doing thousands of these I’d realized you could make a decision in 30 seconds and be 85% right. I thought a computer should do this instead.

  • The opportunity for Circle Up: Private markets are a lot less efficient than public markets. It will never be close to as efficient as public markets. We try to systematize that process.

  • Why is consumer and retail an interesting space to apply this quant methodology? Two things (1) In consumer the business models are all basically the same. You make a product and you sell it. (2) There is a ton of data in the consumer and retail industry. You can find out where products are sold, how many SKUs they have. You can find info on pricing. You can find out what the end-user thinks of the product. If you track all of this data you can see how all these things change every month. You can see how the company compares to every other company in the category. That data is the building blocks of success for that company.

  • Unexpected things learned from analyzing all this data: RX bar raised $10,000. It sold for $600 million. It has clean, minimalistic packaging. We tracked 2,000-3,000 other snack bars. We noticed an inverse correlation between the number of words on the package and revenue growth. More words = less growth.

  • The antidote to copy cat mentality: A thesis we have been able to prove with this data is differentiation matters. Uniqueness matters.

  • Rent is the new customer acquisition cost: I think direct-to-consumer is an amazing channel to A/B test a product. But to scale a business the customer acquisition cost online is just brutal for these companies.

  • How to spot an opportunity with data: Categories where a stale incumbent dominates a high percentage of the category offers opportunities to new companies.

  • One of the biggest challenges to running Circle Up: Attracting and retaining people. Circle Up is composed of two sets of people, business folks and engineers. Other firms have a lot of money and could poach our business folks. On the engineering side, it is a bloodbath. Nothing will convince you more that we need to change our educational system in the US than trying to hire engineers and data scientists right now. The supply and demand imbalance is absurd. 

  • Why investors use Circle Up: Allowing people to invest in the earliest stages of consumer companies is a huge untapped opportunity. In consumer large brands are losing market share to small brands. Large brands are getting slaughtered by small brands. The only way to play this trend is to work with Circle Up. 

  • Reduce the amount of benefits you are trying to convey to the customer: Halo Top [an ice cream company] used to have a list of benefits on the package: gluten-free, sugar-free, etc... They changed the package to focus on one benefit [you can eat the whole pint since it is low calorie] and growth took off.

  • Full podcast here.