A Q&A with Matt Jung, founder of Orange Dot Ventures LLC
At the end of 2019, Comfort Research LLC co-CEO Matt Jung began preparing to step away from the company he had led for 26 years with business partner and co-founder Chip George.
A consummate entrepreneur, Jung recognized that hiring a new top executive for Comfort Research, a Grand Rapids-based maker and marketer of bean bag seats and pool and patio furniture, would leave him with newfound time and energy to dedicate to other ventures.
Jung used the early days of the COVID-19 pandemic to figure out his next chapter. He “ended up dabbling” in venture capital, private equity and participating as an investor in private companies for about 18 months.
“None of them were very fulfilling for me, so it wasn’t very fun,” Jung told MiBiz. “I had this business coach that I was talking to and he really pushed me to say, ‘Why don’t you start by writing down what you don’t want?’”
That process led Jung on a journey that helped hone his focus for what would become Orange Dot Ventures LLC, a fundless private equity firm he formed to invest in scalable direct-to-consumer products companies.
After securing backing from 10 West Michigan investors and injecting some of his own capital, Jung closed Aug. 1 on deals for Wilma Schurmann, a mid- to high-end skincare line, and Simplesa Nutrition, a maker of nutritional supplements for people with ALS and Parkinson’s.
Terms of the deals, which involved one Miami-based seller, were not disclosed. Grand Rapids-based law firm Miller, Johnson, Snell & Cummisky PLC and accounting firm Echelbarger, Himebaugh, Tamm & Co. PC advised on the deal.
Jung spoke to MiBiz about his entrepreneurial approach to private equity investing and his strategy to create a broader platform of consumer products companies.
After you narrowed your investment focus, how did you go about sourcing deals?
You’re going to laugh at this: The way I started getting deal flow is I put together a brochure. I wrote down exactly what I was looking for and I sent it out to every darn broker that I could find, brokers I had talked to years ago and new ones as well. Once I started doing that, it created some deal flow for me.
I got to look at a lot of businesses that fit that criteria and ended up finding these two businesses, which actually had the same owner. He had purchased both of the companies over the years, one back in ’97, the other one back in 2015, and had been running them out of Miami.
How many prospects did you look at before you got serious about these companies?
I had four letters of intent that were accepted and put out a dozen, maybe 15 letters of intent. I looked at hundreds and hundreds and hundreds of businesses to get there.
What common barriers emerged with some of those prospects?
Certainly, some of it is expectations on valuation. Some of it is while they would be direct-to-consumer product companies, perhaps they didn’t fit my model as well as I would like. Some of it was brand orientation. Some of it was product orientation. As you dig a little bit deeper into the product: Is there any defensible moat? Do they really have something that’s good? What is the age of the business? So many of these direct-to-consumer product companies have only been around for two or three years, so sometimes it’s very hard to judge. Did they just ride a wave of COVID as people moved more and more to the internet, or do they really have something unique and special that people are seeking?
Are you planning to move any of these operations to West Michigan?
I’m really looking to have virtual companies. Wherever I am with a laptop, that’s where the company is. Everybody works from home or their home offices, or some have their own small offices if it’s a third-party partner that we’re working with. Over time, I want to build out a small operating team that’s going to be doing the operations because I’m looking to stack additional direct-to-consumer product companies on top of this in the future.
It doesn’t really matter if it’s electronics, skin care, cosmetics, supplements or whatever it may be: Creating product and selling product is all the same, especially when you’re working in this direct-to-consumer space. Your supply chain, your operations, your marketing people, your customer service team, your accounting team: All of these can be shared resources, which brings the cost down for all of them.
Why did you take the approach of finding investors for these specific deals instead of raising a fund to help build a direct-to-consumer products platform?
I have not raised a fund and that was my strategy with these first two. I wanted to get these right, get these going, and then over time, I would look to potentially raise a fund. I have no idea if I would ever do that; it all depends on what makes sense. But to start with, I didn’t want to be beholden or feel pressured to put this money to work. I’m looking to take it slow. I don’t have any pressure on me other than my own to do additional deals.
Looking ahead, what sort of deal flow are you hoping to reach with Orange Dot?
This past spring, I set a goal to have three to five of these direct-to-consumer products companies under management over the next 18 months. This has given me a nice start in that direction. I’m very excited to get after it from the marketing and product development standpoint. That’s what really fills my bucket in a big way and that’s the exciting thing about business: trying new ideas, coming up with new products that people love, that people enjoy, that people use.