• Sun. Apr 21st, 2024

Vice Ventures raises $25M to fund startups in ‘bad’ industries

Bynewsmagzines

Apr 20, 2023
Vice Ventures raises $25M to fund startups in 'bad' industries

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Vice Ventures has closed a $25 million second fund to finance “bad” industries that cater to human vices.

Following up on Vice Ventures’ first fund, the new firm will in non-traditional venture verticals such as cannabis, alcohol, sextech and wellness, esports, gambling, caffeine, nicotine, psychedelics, addiction recovery, and yet to be known vices, said Catharine Dockery, founding partner of Vice Ventures, in an interview with VentureBeat.

During tough times, it’s a countercyclical strategy that could pay off, in Dockery’s opinion. The fund is sure to cause some controversy, but Dockery is used to it and she points out the hypocrisy of people supporting harmful products like big oil, guns or polluting industries.

On top of that, she said these industries are superficially “bad,” as they “don’t harm other people” and she draws a line between the bad and the really bad industries. Of course, it may be debatable whether or not the products can be harmful to those who use them.

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But Dockery started the original $25 million fund in 2019 and didn’t shy away from the controversy back then. In fact, she challenges the social stigma around vices.

A different path

Green Run is a sports better firm in South America.

In college, she studied a combination of neuroscience and finance.

“My first job out of college was a high yield trading desk, which I hated, and I literally hated my life,” she said. “I realized my brain was dying and I couldn’t do that job anymore. The whole time I was there, I was like, ‘How do I get out?’”

She interviewed for venture capital jobs and she continually brushed against restrictive vice clauses in investment pitches, with this friction culminating in the idea for Vice Ventures.

“All of them seemed like they had the same exact thesis. They’re all momentum investing like whatever Sequoia is able to relate to me as the big deal. I was like, ‘This is stupid money.’”

She made her way into finance jobs that culminated in a position doing M&A at Walmart. For her first fund, she found investors who were willing to put their personal money into Vice Ventures.

Ethical investing?

Vice Ventures Fund II will be a $25 million fund.

Speaking further on her views, she said, “There are so many laws in our country that just don’t make any any sense. And I strongly believe this. If you go into any single person’s equity portfolio, you do not have to look far and wide to find a socially unacceptable investment. Some big companies created products that caused cancer for millions of people. Every oil company has had huge oil spills or engaged in fracking. Tech platforms have used data incorrectly.

“There is the concept of ‘Don’t be evil,’” she said. But what does that even mean here? I think we need ESG for every single investment category.”

By redefining the notion of what was a “bad” company, she also found many of these “bad” companies had strong economics and were profitable within two years.

“I’m really proud of the portfolio,” Dockery said. “I love our founders.”

Fund II

Catharine Dockery is founder of Vice Ventures.

The new investment management firm will look to develop approximately 30 best-in-class early-stage domestic and international companies in various vice industries.

Vice Ventures sees itself as the premier partner for early-stage companies operating in vice categories, from seed to exit. Dockery said the firm has had success from a hyper-focus on a section of the venture capital market that is often overlooked by other funds.

Vice Ventures was an early backer of some of the leading companies in the vice category, including Recess, Black Buffalo, Qnovia (a vaping solution) and Parade. With its second fund, the firm will focus on founders and companies challenging the social stigmas around vices, championing harm-reduction products, and modernizing the political discourse around these topics.

“We’re ecstatic to be launching our second fund and aim to provide superior and uncorrelated returns in what is unquestionably a challenging environment for venture capital as a whole,” said Dockery. “Vices are some of the best examples of inelastic demand in our society: products that form deep connections with consumers, see strong demand in all market environments, and rarely are sold at a discount. In a time of mounting inflation and an unsure macroeconomic landscape, we’re betting on our exceptional deal flow and product expertise to bring differentiated returns in a responsible manner.”

Many other venture funds are completely excluded from vice investments by restrictive vice clauses, in which a fund’s partners pledge not to invest in specific fields (frequently alcohol, cannabis, nicotine, sex and/or gambling).

Vice Ventures believes that these clauses, while often well-intentioned, create a market opportunity for an unconstrained fund to build extensive domain expertise and invest in moral and conscientious operators.

High-profile investors in the fund include Marc Andreessen, Chris Dixon, and Bradley Tusk, the latter of whom is a regulatory expert and an adviser to the fund. Other fund investors are largely high-net-worth individuals, successful founders (including several from Fund I), hedge fund managers, and vice industry insiders.

In founding Vice Ventures, Dockery drew upon her experience at Walmart’s M&A team and as chief of staff for a founder, managing a large portfolio of public and private investments and post-acquisition finances. Dockery started her career in the sales and trading division of Citigroup. The firm is not related to Vice Media.

Vice Ventures wants to deliver outsized returns in neglected fields by finding the best operators in these capital-starved verticals and building a community of ethical and driven founders around them. Vice Ventures strongly believes in the power of personal decision-making and feels that informed adults should be entrusted with decisions around their happiness, well-being, and substance consumption.

The firm said it cares deeply about harm reduction, addiction management, and safe consumption, and seek clearance and evenly enforced government policy to achieve these goals in conjunction with clear communication from vice industries. We recognize that these fields are often contentious and seek to find top-quality operators who can transcend state regulations and build lasting enterprises.

As for the line for ethical investing, Dockery said, “If the product is meant to harm someone else, we would never invest in it. We all consider that to be the vice we consider to be violent. We consider guns to be violent as well. But in terms of social responsibility, you don’t have to look far in our portfolio to see that everything we invest in us has a harm reduction option. Everything is somewhat sustainable.”

She noted the Qnovia device reduces nicotine in vaping. Proper Wild is a high-caffeine drink. Green Run handles sports betting in South America.

Vice Ventures invested in Qnovia.

“In reality, our principles are so rooted in harm reduction,” She said.

For instance, she has lobbied vaping companies to get rid of devices that put things like lithium ion batteries into the environment. Other conclusions are surprising. For instance, she believes that sex toys often won’t sell well because friends don’t tell other friends about their sex toys, and so those sex toys don’t easily go viral. She also thinks people won’t pay for porn, and she believe making the Web3 of Only Fans is likely to be a losing proposition. She also believes the porn sites have huge liability problem because they don’t have the right tech to reject anyone underage from uploading a porn video.

“I think we’re very unlikely to do any sex toys,” she said.

She looks for good returns. Green Run, which handles sports betting in South America, is another bet.

“I’m really convinced that the best venture capitalists are very open minded,” she said.

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