Maveron Hits Turbulence

News just hit that Eos Airlines (the upstart airline that offered 1st class/business class only flights between New York and London) has filed for chapter 11 bankruptcy.  This is bad news for Seattle-based Maveron, the venture capital firm backed by Starbucks Chairman and CEO Howard Schultz.  Maveron was one of three firms involved in funding Eos with $123 million

For reference, Maveron’s other investments include PinkBerry (a high-flying, quickly expanding, and soon to be out-of-fashion purveyor of delicious-but-overpriced custom-built frozen yoghurt), lucy activewear (a women’s activewear firm, the only real competitor to lululemon athletica), and eBay.

That Maveron has invested in these firms shows that their principals really know how to spot hot young brands that innovate/differentiate themselves into premium niches.  What it doesn’t show is whether they’ll make money doing it.

Perhaps I should wait to pass judgment on Maveron - after all, they are a VC firm, and VC’s are known to strike out half the time, hoping for a big payoff in that one grand-slam they hit every once in a while that will bring their fund into the black.

And Maveron has hit plenty of grand slams: eBay, Shutterfly, Quellos, PeoplePC, Drugstore.com, Cranium (boardgame).

It’s just so easy for me to criticize these guys because I know their strategy so well.  In fact, one of the strategies utilized in my ScarletStorm fund is finding growth candidates that have quickly established a premium brand by differentiating themselves and/or displaying real improvements over competitors’ offerings.  At first glance, both Eos and PinkBerry fit the mold.  The difference between my growth investments and Maveron’s is that I’m a strict value investor: I’ll only bite if the firm’s intrinsic value (as I calculate it) is higher than the price I can acquire a piece for.  That restriction would have prevented me from throwing money at Eos, as they’re not even profitable (hence I’d value the firm at $0).  Obviously, that means I would’ve never invested in Amazon.com, which went public years before it became profitable.  Perhaps to hit home runs, you’ve got to take swings at pitches that don’t appear to be strikes.

I commend Maveron for doing something right.  Perhaps someone over there could sprout some value-seeking sense and hit some solid doubles.

2 Comments to Maveron Hits Turbulence

1. 

   two questions…what types of questions are you asking when you fit a numerical value to a newly created brand name and why would you value the firm at zero?
parksmarts on April 28th, 2008
2. 

   I can’t value a brand name quantitatively.

   I’d value Eos at zero because my valuation metrics rely on FCF, EBITDA, et cetera. The value of a business that loses money is zero, unless its moving towards profitability in a predictable fashion and has a competitive moat that guarantees it will be a viable business 10 years down the road.
Cameron Newland on April 28th, 2008

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