Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Gus Tai was recorded in September 2014.
Gus Tai, General Partner at Trinity Ventures, discusses their investment thesis around e-commerce over the years – from BlueNile in 1999, to Zulily, Dot, and Bo, and Callisto Media more recently, and what he anticipates for the future.
Sramana Mitra: An outrageous e-commerce business that Gus and the firm invested in is a company called Blue Nile way back in 1999.
Gus Tai: Yes, we made the initial investment in 1999.
Sramana Mitra: The concept was to sell diamonds online. Who would have thought? Those of you who have not been around in the industry in 1999 cannot imagine what the industry was like. What drew your attention to Blue Nile? How did you determine that this was worth investing in?
Gus Tai: First off, you being the entrepreneur and I being a partner for entrepreneurs, you recognize that it’s the entrepreneur who really drives things and makes things happen. I’m fortunate to align myself with great people who are doing these things. In the case of Blue Nile, the idea came from a good friend of mine, Mark Vadon, who subsequently co-founded Zulily.
You may know that Zulily is one of the fastest venture-backed company in history. Mark had called me from a pay phone. He had this idea to sell diamonds over the internet. Mark is a business mode genius. He could look at any business and quickly understand what are the key levers to make it successful. He was calling me to chat and hear my thoughts to augment his thinking behind it. In short, we had a thesis here. This would be the intellectual capital contribution that we brought to the table.
Prior to speaking to Mark, we were thinking about how consumers shop on the Internet. The way they’ll shop is, they’ll use the Internet to do research and then make intentional purchases. When will consumers do research? It’s around life event changes; major things that are transformative will cause a person to want to do research and check with his or her friends. On the Internet back in the late 90’s, it was expensive to track down customers.
If you could intercept them when they’re doing research, you can be a little bit more efficient. If you could get them to make big purchases, then those purchases will have the gross margin dollars to cover the cost of customer acquisition. We had that in mind. Mark called me up and said he wanted to sell diamond rings. Particularly, engagement rings. He highlighted that men wanted to get a good value and that diamonds are actually a commodity product. There might be value of services around the retailers to make it a semi-commodity, but it’s a commodity no different than a PC.
IBM had a price umbrella and Dell and Gateway sold underneath that. I thought about it. Back then, it was a great opportunity to be a retailer of commodity products that consumers view as a semi-commodity but upon research realize that they just want to have a great price. A diamond falls into that category. Folks were saying, “Why would you spend $5,000, sight unseen, on the Internet for something you can’t touch and feel?” I was like, “Dell is a billion-dollar company. You buy computers sight unseen. How is this different?” That was the pattern we saw. So we pulled the trigger.