Memo: The Digital Country Club

When 2PM Executive Member and CPG investor Magdalena Kala first explained Bored Ape Yacht Club as a social signal, I balked. That was months ago and she was right. The key ingredient to any social club is FOMO and FOMO is exactly what many consumers feel right now – me included. Who needs a Country Club membership to signal upward mobility when your Twitter avatar does that for you. Look at this recent tweet by Shopify App entrepreneur Dennis Hegstad, for instance. Hegstad’s satirical tweet highlights the levels of FOMO observed around the NFT market. A year ago, few of us would be able to conceptualize this. The “social signal” class of Non-Fungible Tokens is one that you’re going to want to study. Not only will its social impact have an effect on the burgeoning world of online community (ahem, the metaverse) but it will play a substantial role in brand retail.

There is a chance that your favorite brands will build NTF-based social circles of their own and these tokens will be the buy-in. This strategy won’t just be for the traditional brands, Shopify recently enabled NFT sales on its platform to much praise from the cryptocurrency community. The timing couldn’t have been better as brands look for new ways to foster community (and revenue) amidst supply chain and COVID disruptions. I explained as such in The Digital Supply Chain.

NFTs have always been tied to access. The purchase of a digital good mystifies some who don’t understand the real-life value of an old YouTube video or NBA clip. It makes more sense when you think about NFTs as gateways to digital communities steeped in exclusivity. Today’s feature report explains the idea of the NFT boom facilitating the era of the “digital country club”.

​​People are buying community. People are buying access to events and experiences. The most successful projects have been about creating a community. Think of it like a digital country club. The price of admission is the cost of the NFT. And that’s a one-time cost.

Country clubs have always been places where members can flaunt status and mingle among a select group. NFTs are making that possible for an internet-bound generation. That’s playing out across platforms in a number of ways. CryptoPunks, a collection of unique character avatars on the Ethereum blockchain, is now allowing users to rent out their avatars, essentially opening up a revenue stream while granting access for a limited time to newcomers. The idea that NFTs were crashing as an asset class is beyond laughable at this point.

NFTs will continue to underscore the exclusivity and accessibility of the community while giving outsiders a glimpse inside the world they’re now vying to enter. There are a number of retail applications, here. As mentioned above, there’s also a clear tie-in to luxury brands, whose value is steeped in exclusivity. Burberry and Louis Vuitton have both recently launched NFTs in gaming worlds where insiders are in the know and outsiders don’t get it. Within these digital worlds, status blooms when you can buy a digital luxury skin.

Through these NFT plays, access can be teased and played with. New experiences will unfold only for NFT holders. This will become a sign of brand loyalty, a new meaning for VIPs. Shopify’s recent move will open up NFTs to more mainstream merchants, but there’s still a level of knowledge, resources and commitment one must have to get involved. From there, fear of missing out unfolds.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy 

Member Brief: Spiritual Opium and gCommerce

No one actually knows what the metaverse is. While the spirit of Neal Stephenson’s 1992 ideal remains “a collectively shared virtual space,” it’s difficult to pinpoint what that means or how that ideal will materialize. There are frameworks that guide today’s business titans, however. Mark Zuckerberg reads Matthew Ball’s voluminous essays on the topic and is influenced by them. Ball’s writing has a consistent framework that steadies his rhetoric. He focuses on hardware, computing power, networking, virtual platforms, interchange standards, content, and payment services. His metaverse primer is 33,000 words of intellectual curiosity.

This member brief is designed exclusively for Executive Members, to make membership easy, you can click below and gain access to hundreds of reports, our DTC Power List, and other tools to help you make high level decisions.

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Memo: Anatomy of a DTC Acquisition

We strive to have a rhythmic and healthy heart. Athletes push for lung capacity. The consumer packaged goods industrial complex champions the importance of one’s gut health. And here we are, ashamed of the way our own brains work.

There is a pang that I feel when I allude to my own mental health struggles in public. There is a stigma associated, an acknowledgment that none of us are as strong or as tough or as sound as we believe ourselves to be. Ten years ago, I would have thought it was a failure to express any thoughts on the matter, publicly or privately. Five years ago, I would have burdened my best friend for help at the risk of an intensity in responsibility that isn’t healthy to distribute or accept. But today, I try to communicate to those who listen that it’s just a part of being a human being, a creator, a parent, an entrepreneur, and a soul.

I have had dozens of head injuries and resulting neurological issues. I suffered from post traumatic stress, crippling social anxiety, and a depth of depression that I wouldn’t wish on my worst foe. Many young women and men are taught to train to peak physical performance and to ignore any signs of mental or emotional weakness. Some coaches say things like, “Silence the brain.” Imagine thinking this way for three decades. It is, above all else, an acknowledgment of our failures as a society that the body adapts to work and rest and nutrition. This is all changing and it will continue to in the years to come.

Your brain deserves the same attention as the rest of your organs and the world is finally catching up to the fact that it can be as injured or as malfunctioning as any outwardly visible muscle, bone, ligament, or tendon. Enter one of the quiet but meaningful acquisitions of the past year: Hyperice’s deal with Core Meditation. For the first time in an industry overcrowded by health and wellness devices, one company chose to marry physical recovery with mental improvement. From the acquisition announcement:

Core is designed to help people find calm, improve focus and inner strength. Unlike other meditation apps, Core is both an app and a handheld meditation device designed to track heart rate and stress levels

Sarah McDevitt, CEO and co-founder of Core, is a friend of mine. The 5’11” guard and former New York University basketball player is one of those quiet and steady stoic types who rarely wears her weaknesses on her sleeve. Over the few years that we’ve known one another, I have observed how she’s handled her own pressures. She must have been under incredible stress for a time. Her growth plans were halted by a once in a century pandemic. Her team turned over. And the conversation around the importance of meditation was on the fringes of the health and wellness industry. Few took it seriously before recently.

Core was incubated within the walls of Bolt VC in San Francisco (also an early believer in Tonal) by co-founder Brian Bolze and McDevitt. The value of Bolt’s early involvement was priceless: the access to facilities, technical designers, and developers helped to establish Core as an entrant into a field rarely pursued by independent operators. In a 2019 memo, I covered the prospect of her success:

Core is launching a meditation device that actively measures its effects by tracking HRV, a measure that allows consumers to quantitatively measure the strain on their central nervous system. Entrepreneurs and other high risk professionals have used this measure to discuss their levels of stress and depression for a time; however, HRV’s interest is growing quickly in non-athletic spaces.

But adoption was always going to be a problem without tens of millions in capital to spend on demand generation. She simply didn’t have that. She also didn’t have much luck. Her meditation trainer was well-designed and well-received, winning an honor at 2020’s CES convention. But the question has long been: how does Core compete with meditation apps and less capable but wider-known physical devices? The antidote for anonymity is usually the highest visibility partnerships you can purchase, which is buy-in from professional athletes and entertainers. It is not customary for venture firms (outside of perhaps A16Z) to be able to provide such introductions. And at a certain point, there isn’t a venture raise that can fund a company’s way into the world of professional sports. At just $4 million raised since 2016, the company was undercapitalized and underappreciated. But on occasion, luck and timing do begin to work in your favor.

The Luck and Timing of Now

By the time that Naomi Osaka had announced her decision to sit out at Wimbledon, McDevitt and team were already in conversation with Hyperice CEO Jim Huether. Another fortuitous connection would emerge. Jason Stein of SC Holdings is a fierce advocate and board member at Hyperice. He’s also an NYU basketball alum. Sometimes, luck swings in your favor and the shared experience between the McDevitt and Stein certainly helped.

In many ways, Osaka jump-started the current national conversation around mental health when she announced in May that she would not participate in mandatory press conferences ahead of the French Open. She later withdrew from the tournament, explaining that “I am not a natural public speaker and get huge waves of anxiety before I speak to the world’s media” and that she had faced “long bouts of depression” since 2018. [1]

Several weeks later, Simone Biles announced that she would be bowing out of her upcoming events at the 2020 Olympics, shocking fans and citing the need to prioritize her mental health. In one statement, she disappointed many of those observers simply by doing what was right for her. The online chatter around both Osaka’s and Biles’s personal decisions was insatiable: cable news hosts lamented them as figures with poor character. Trolling was even more relentless from gentlemen who might have once scored a single basket or remembered catching a single, JV touchdown pass back in high school.

But what these very public displays of defiance represented was a shift away from the shame of mental health concerns. Two of the strongest and most accomplished athletes in sports chose to mend the invisible scars. Just a decade prior, it would have been unlikely to see athletes make these decisions at the tops of their games. Now here we are, with mental health atop the list of athletic concerns. And as the national conversation continues to develop, Core has a new resource in Hyperice to bridge the divide between the mental and physical. More importantly, Hyperice and Jason Stein offer access to elite athletes and entertainers. Just a year ago, Stein’s SC Holdings invested in Mav Carter and Lebron James in Springhill Company, for instance.

When I was notified of the company’s decision to join Hyperice, I was ecstatic. Not only for Sarah McDevitt and team, her previous investors, and her new business partners but for the message made to the greater athletic community. The timing of the marriage between physical and mental health disciplines are long overdue. The shame around it is still dissipating; you can still sense the hesitancy in athletes. A recent statement by Aaron Rodgers:

The mental side of it is so important for all of us athletes. I don’t think it’s talked about enough. But taking time to work on yourself is, I think, the best gift any of us can give ourselves.

In three years’ time, athletes like Rodgers will no longer tip-toe around the anguish of depression, anxiety, and post-traumatic stress. He will give a full-throated analysis of his mental health, no differently than he’d discuss a strained MCL or tendinosis. The commercialization of mental healthcare will be viewed as before and after its stigma and 2021 will be a pivotal year in that story. The Hyperice acquisition of Core will be remembered as a part of that change. A little company with $4 million in funding and fewer than 10 employees lived up to its original goal of impacting a greater industry. Its original investors and supporters should be proud that the Core team set aside the ego and thought big enough to partner with one of the prominent and well-connected companies in athletics. It’s a category that will be redefined.

By Web Smith | Editor: Hilary Milnes