Stage and Sector
Consumer
Cue Ball invests in lifestyle brands and services, restaurants, and specialty retail chains. Lifestyle is used to define consumer brands and services that transcend a single category and often serve as a vehicle through which consumers may express their identity or value system. Our investments in restaurants and specialty retail chains tend to be targeted at mass affluent*, aspirational consumers. We also have a preference for ventures with an IP component to their business model.
The consumer space represents a large market with strong underlying drivers. At over $8 trillion, the consumer market makes up over 70% of the US GNP. Cue Ball’s targeted segments within this space exceed $100 billion and take advantage of the new mass affluent demographic and increased buying power for women (25% US women make more than their husbands).
The consumer segment is also well-suited to our desire to focus on business models that leverage intellectual property such as the licensing of trademarks, brand, or store format. Consumers are becoming increasingly sophisticated, desiring consistency of experience and demanding branded / design conscious goods. We are witnessing the branding of everything from Starbucks coffee in a hotel to top fashion designers and architects developing products for Target. Against such a backdrop, Cue Ball sees opportunity to create a portfolio of differentiated businesses and valuable brand equity.
*The mass affluent is defined as either one-person households with a household income of $80-$149K, or two-or-more person households with an income of $100-$149K. In 2004, there were approximately 25 million people in this group, representing 12 percent of the US population. The mass affluent consumer is aspirational in nature, earning relatively less than their highly affluent counterpart, but often spending relatively more.
Media
Cue Ball invests in social media / commerce and information data services companies. We prefer niche database applications that increase productivity and social media / commerce opportunities that take advantage of rapid community development and user generated content / user generated development.
With over 205M people online in the US and 1B worldwide 1, real time information access has become an integral part of our daily lives – whether at work or at play. Today, nearly 90% of adults ages 18-29 use the internet 2 and blog postings average 1.2M per day 3, or 50,000 per hour. Web usage as a gateway to information is pervasive at home and at work. Between 1992 and 2002, the number of knowledge workers 4 rose at a rate of nearly 5 times the rest of the workforce, and by 2012 will make up 36 percent of the US workforce 5. The amount of information for this knowledge worker base doubles every 6 months. With this influx of information, both professional and user-generated, there is a great demand for businesses and services that ensure relevancy and increased productivity.
Niche media businesses represent an attractive area of focus for Cue Ball. As a partnership, we hold significant experience in building and advising information, online, and media businesses. At scale, our target investments in this area should reap the benefits of margin expansion and increased quality of earnings through repeatable revenue streams.
Lifestyle Brands & Services
We believe that opportunities exist within niche lifestyle brands and services that have yet to reach scale potential. Lifestyle brands and services transcend their traditional business definition by selling an emotional rapport as much as a utilitarian product. They are often driven by cult and community followings that enhance traditional PR and Marketing campaigns. Customer segmentation for lifestyle brands falls along psychographic dimensions, as customers typically seek these brands and services as an expression of the lifestyle and value system to which they aspire.
Our heroes in the lifestyle arena include: Apple, Harley Davidson, Ikea, Ralph Lauren, Martha Stewart, H&M, and Zara. Consumers of these brands wish to be associated with the image and lifestyle the brands stand for. We seek the next generation of such lifestyle brands.
Representative Cue Ball Investment: MiniLuxe
Restaurants & Specialty Retail
We invest in multi-unit specialty retail concepts and food and beverage chains. We seek “Starbucks–like” opportunities in which there is a large, but fragmented market with no scale player or national brand. Our focus on restaurant concepts is driven by the fact that US consumers are time starved and convenience driven: nearly 60% of US adults dine out weekly – nearly 6x their European counterparts. By 2010 it is estimated that more than half of expenditures on food will be spent dining out. Across both specialty retail and restaurants, we seek multi-unit concepts where unit economics fall within the top ten percent of their respective industry. Further, we look for consistency and repeatability of format, experience, and performance across units.
Our heroes in restaurants & specialty retail include: Starbucks, SoGood, Giggle, Blue Tulip, and P.F. Chang’s. The link between specialty retail and lifestyle brands is strong: many lifestyle brands begin as specialty retail chains.
Information Data Services
Information data services represent a $50 billion market that continues to grow. Cue Ball focuses on information services businesses that provide content and tools to increase worker productivity. This generation’s employee base is a knowledge worker one – defined by workers who require information data (e.g. real time data for a broker) or information tools (e.g. software applications) as a critical part of their daily workflow. In the financial, educational, engineering, scientific, healthcare, legal, and government markets – to name a few – employees depend on information and workflow tools to help them make smarter decisions faster. Cue Ball holds deep experience in the B2B information sector and understands how to help these businesses migrate along the value chain from databases to applications to complete workflow solutions.
Our heroes in information data services include: Capital IQ, FactSet, WestLaw, and Bloomberg.
Representative Cue Ball Investment: Knovel
Social Media & Commerce
Social media and commerce are attractive areas for Cue Ball investment. As the Internet evolves to its next generation, there is a greater emphasis on the value of content and community vis a vis media and commerce. Social Media is based on the premise that the power of many can drive relevancy and rich user experiences. In this wave of the internet, the web becomes a platform for more sophisticated web services, user-generated content / publishing, community-driven relevancy (e.g. tagging), richer experiences, and more informed transactions. A case study in the importance and stickiness of these communities is Facebook which boasts over 43 million active users, 50% of whom return to the site daily. In just over three years, digg.com has surpassed nytimes.com and nbc.com as the leading source for news online. This is the first generation of consumers who are growing up as “digital natives” (i.e. who were born with the Internet) and it paves the way for the next generation of social media and commerce opportunities, especially highly focused / vertical applications, in the Business to Consumer (B2C) and Consumer to Consumer (C2C) fronts.
Social Media and Commerce is still young, but those pioneering businesses in the space include: facebook.com, digg.com, wikipedia.org, and pandora.com.