Weekly Thoughts


Weekly Thoughts: Sophie la Girafe and Metrics

Here are two things that caught our eye this week:

Sophie la Girafe

This week, we were introduced to Sophie la Girafe, which is likely a familiar item for the new parents on our distribution list. At first glance, Sophie seems to be a commoditized, giraffe-shaped infant teether. However, upon deeper inspection, Sophie represents a fascinating business story in her own right.

Created in 1961 by French toy manufacturer Vulli, Sophie quickly became a national must-have with sales regularly matching or surpassing annual French birth rates (in 2010 there were a reported 816,000 Sophies sold in France and an estimated 796,000 live births). However, in just the past decade, Sophie has gained international popularity outside of France largely due to the efforts of one expat, Hélène Dumoulin-Montgomery, who began importing the teether in 2001 after being unable to find one for her daughter.

After years of negligible sales (retailers such as Toys ‘R Us and FAO Schwarz deemed the teether to be too expensive), Dumoulin-Montgomery got a break in 2004 when she met the owner of Elegant Child, a high-end Beverly Hills children’s store. This highly price insensitive vendor (which sells $500 infant dresses) thought Sophie would be a good addition to their custom gift baskets, which proved to be a hit with celebrity clientele. Popularity with “celebri-babies” sustained Sophie until sales took off in 2007 when toymaker Mattel recalled millions of lead-tainted, Chinese-made toys (Sophie is made of natural rubber and, according to Quartz, “each giraffe spends three months curing on a tray in the factory in Rumilly, France—and is then embellished with food-grade paint”). Since then, Sophie’s sales have skyrocketed, with distribution reaching almost 75 countries and annual sales covering about 40% of the birth rate in Canada (~165,000) and 12% of the birth rate in the US (~500,000).

Sophie’s popularity is somewhat puzzling since it seems she should be a commodity product. As Quartz opines, “Sophie doesn’t make children smarter or improve cognitive development or any other benefit more high-tech toys promise. It’s just a rubber teether, distinguished from the thousands of other animal-shaped rubber teethers on the market primarily by its $24.99 retail price. In contrast, a perfectly serviceable set of Nuby teething keys—another baby favorite—is $4.99 at BabiesRUs.”

Sophie’s popularity seems to be due to a thoughtful combination of product quality, savvy pricing, and product placement. While her price point is undoubtedly high relative to comps, Sophie is positioned as a so-called affordable luxury. As the owner of Elegant Child noted “People with very little money are willing to spend money on this thing…It isn’t a $1,000 stroller. For $20, they can have what the movie stars have.” As a result, the teether falls into “prime baby shower gift territory,” as evidenced by its ranking as the 10th most popular baby item on Amazon.

The key point is that Sophie’s cost is relatively small as a percentage of the overall new baby budget. Even as much as $25 for a plastic giraffe seems insignificant in the context of the thousands of dollars new parents spend preparing for their newborn (the USDA estimates the average family will spend $12,000 on child-related expenses in their baby’s first year of life).

This dynamic is one that we observe at several of the small businesses we review. We’re always looking for companies that have defensible market positions and one way that a small player can compete is by providing a highly desirable or mission critical service or product that comprises a small portion of the customers’ overall budget. Sophie is a good reminder even seemingly commoditized products can provide interesting niches with the right market positioning.

Quartz, Slate



As we’ve focused our attention on opportunities in smaller cities, our interest was piqued by a recent blog post by venture capitalist Fred Wilson, in which he discussed venture capital investment dynamics across so-called first, second, and third-tier cities. In the post, Wilson categorizes San Francisco/Silicon Valley as first-tier cities, where an investor could “ignore every other part of the US and the world and do just fine.” Second-tier cities include New York, Los Angeles, and Boston (which account for one-third of start-ups and investment capital), followed by third-tier cities such as Seattle, Chicago, Atlanta, D.C., Boulder, and Austin.

Wilson’s ranking of Seattle as a third-tier investment city drew ire from Seattle enthusiasts who were quick to point out many Emerald City-based success stories (i.e., Zillow, Tableau, Microsoft, Amazon, Expedia, etc.). Although from a pure capital allocation standpoint (i.e., number of startups funded or capital invested), Wilson’s ranking is fair, the reaction brings up the point that measurement metrics matter. For instance, if Wilson were to focus on investment returns instead of total allocated capital, he’d have very different results. Accordingly, and upon reflection, Wilson noted “the companies that have come out of Seattle over the past thirty years put NYC and LA and probably even Boston to shame. So on a dollars in/dollars out, Seattle outperforms. By a lot.

Digging deeper, Pitchbook.com did some follow-on analysis on geographic rankings based on return multiples, and found a different picture altogether. By looking at cities with at least 30 companies who have had a full exit in the last 10 years and at least $500,000 in VC funding, they were able to rank geographies by an average Multiple of Invested Capital (i.e., exit value/total VC raised), as shown in the graph below:

Pitchbook.com commented that “The results are a bit surprising, with cities like Washington, D.C., and Chicago ranking ahead of the Bay Area and NYC. That said, there are many ways to cut the data that may give alternative results.” For us, this work is an important reminder to identify the metrics that matter to us, those that are reflective of results over long periods of time, and to not be distracted by large headline numbers or misleading calculations.

PitchBook, AVC


Have a great week,

Your Chenmark Capital Team

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