Investing in the cool kids: Gen Z-centric startups

Just as you thought you learned how to spot a consumer startup that will thrive well among peeps born between 1981 and 1996, it turns out the Millennials hype is over. Gen Z, our younger relatives and cooler friends,  aged 22 and under, is stealing the limelight — and the investment dollars.

By 2020, Gen Z will account for 40% of US consumers. Already today, Gen Z spends $44 billion a year, and influence another $600 billion in household spending.

So, how do you win the heart — and short attention span (eight seconds to be exact) — of a Z? Rather than stereotyping the young generation too much (my own generation have had enough of that!) I’ll explore a few characteristics that well-performing Gen Z-centric companies , specifically among retail and media startups, have in common.

Cross-platform

Whether consuming content or interacting with a brand, Gen Z expects digital experiences to be frictionless and cohesive across platforms, not to be isolated within silos.

In retail, cross-platform does not only mean a seamless experience across online and physical stores or between desktop and mobile, but also across social media channels like WhatsApp, WeChat, Instagram, and Facebook’s Messenger. An example of a company doing this well is Threads , the social first luxury fashion destination making sales directly over mobile chat.

“At Threads, we believe the customer should be able to stay in their environment of choice and that as a retailer it is our job to provide a full retail experience wherever that may be. Today, Millennials and Gen Z get a large part of their inspiration from social media and find direct messaging extremely convenient for purchasing so for now these are our focus,” says Sophie Hill, founder and CEO of Threads.

The same is true across verticals, from banking to gaming. In the finance space Cleo, the AI money manager, serves as a prime example, leveraging Facebook to give its users financial advice. In gaming, the cross-platform approach is a key factor to the success of video game Fortnite, which draws in more than 125 million players. Fortnite allows a player to start a game on their mobile, then continue on their laptop or any other device, having content and progress travelling with them. It also allows people playing on mobile, Mac, Windows or game consoles to play with one another.

Capitalising on Z’s entrepreneurial spirit

Allegedly, 80% of today’s teenagers say they want to express themselves creatively, 25% post original videos weekly, and 72% want to start a business some day — considering these stats it’s no surprise that startups that incorporate elements of co-creation are doing well with Generation Z.

In retail, participatory commerce is on the rise with teens building little retail empires from their bedrooms. Companies such as About You  —  one of Europe’s fastest growing e-commerce startups  —  sells products by having shoppers act as curators and distributors with their own product pages.

Others, such as auction app Depop (54% of users are aged 14–24) have Zs queuing up outside streetwear stores like Supreme and Yeezy to then resell the hyped products at a higher price on their (uber cool) marketplace. Some sellers make a few grand a month, especially those that have a personal following they can monetise.

James Wise, a board member and early investor in Depop, argues that “marketplaces can empower individuals more effectively than corporates,” and that marketplaces exhibiting this trait will continue to grow with Gen Z.

My deal pipeline and I would have to agree, as we’ve seen an exciting amount of peer-to-peer marketplaces targeted at teenagers with an Etsy-esque angle to them lately. To name a few, YZ is a pre-launch Gen Z peer-to-peer QVC style marketplace for micro-entrepreneurs. Yeay is another video shopping app where teens upload videos of their style and earn a commission when users purchase the pieces of clothing they’re wearing. firstminute’s latest investment decision (a digital manufacturing platform for micro-entrepreneurs starting personal care brands – a “shopify of contract manufacturing” – still in stealth) is another prime example of a company capitalising on the entrepreneurial zeitgeist.

Personality-led

Today’s business environment is sometimes referred to as an “Influencer Economy,” with people launching entire careers, businesses, and products through personal social reach.

In retail, Kylie Cosmetics is the ultimate example of what personality-led commerce can look like. Leveraging her 115 million instagram followers, 21 year old Kylie Jenner made $900 million in sales in less than three years. Other retailers are creating product drops around a multitude of micro influencers who then use their social channels to drive traffic to the retailer. An example of the latter is quickly growing NA-KD.com.

Associating a brand with a personality is a clever customer acquisition strategy, but also allows companies to create hyper relevant products for hyper targeted audiences via social prediction (i.e. analyzing the influencer’s followers’ accounts to predict what products that will resonate).

A personality-fronted brand also has an unfair advantage in communicating what the brand stands for as the brand is looked at as an extension of the founder(s) values, a fact that brands such as Pop & Suki —a d2c accessories brand co-founded by the best friend pair Poppy Jamie (tv-presenter and entrepreneur) and Suki Waterhouse (model and actress)— are leveraging to their advantage.

“For Gen Z, we’ve discovered that our founding story is as impactful as our product. . . Gen Z is a generation that is fascinated as much by the story behind how and why a brand was founded as they are by the product offering. We’ve always made sure to highlight the journey and the genuine best friendship of the Pop & Suki founders throughout the entire process,” says Leo Seigal, the third co-founder and CEO of Pop & Suki.

Leo claims that a contributing factor to why Gen Z are interested in entrepreneurship in general, and the founders of the companies they buy from in particular, is the fact that social media has democratised who can start a d2c brand, making the career path seem attainable.

“Having founders who are somewhat in the public eye enabled us to use social media to give a deeper look into the inner workings of our startup, allowing us to create an even deeper connection with our community,” Leo continues.

Community-driven

In retail, the lines between community, content, and commerce are increasingly blurry (something I write about here) with “social commerce” — a broad term for combining social interactions with e-commerce — growing as a segment. Glossier, for example, is building its own version of a social media and shopping mashup; a destination to discuss, review, and buy beauty products.

Along the same line, James Wise points out that ‘historically companies sought centralised control over their PR message, while companies that want to resonate with a younger demographic today crowdsource their PR strategy by giving voice to the community they build around their brand.’

Investors with Zest for Z…

firstminute portfolio company Kyra TV, a media company often described as the “Disney of Generation Z,” casts ordinary teens and turns them into brand endorsing superstars on Youtube. It’s a perfect example of how to resonate with Gen Z. Kyra’s shows are consumable on the platforms where kids already hang out, personality led, acting as a hybrid between media and commerce with a cult-like following and an engaged community.

What’s the Zeitgeist of Z? We’re banking on tech that’s frictionless and allows consumers to interact with a company from the device or platform of their choice; where the company is an extension of the founders and the fans of the brand; and that’s capitalising on Gen Z’s entrepreneurial spirit by involving them in creation and distribution.

Picture courtesy of Kyra TV