It’s safe to say that Frederic Court, managing partner and founder of VC fund Felix Capital, has a good feel for fashion and beauty’s direction. Since 2010, he’s been building out an investment portfolio that now reads like a who’s who of industry leaders. Among included companies are luxury marketplace Farfetch and wellness empire Goop.

Heading into 2020, Court shared his predictions for retail and explained why “a shakeup” is coming to brands that have been flooded with capital.

Last year when we talked, you showed a lot of interest in the beauty industry. Has that changed?
Today, we’re putting beauty into the realm of wellness. There is an overall wellness trend, and beauty is one answer to it, but it’s also what you eat, your mental health. One of the companies we invested in this year is in the mental health space, Unmind. It is a B2B solution where it’s a tool for the modern enterprise that needs to attract and retain younger, millennial employees; a CEO can choose to offer a tool to employees to manage stress and all the pressures of modern life. That’s part of our investment in wellness. We’ve invested in a farm-to-table food company, clean beauty with Goop, fitness with Peloton. Wellness continues to be a very important investment area for us. 

What predictions do you have for retail in 2020?
Everybody is going into retail. You can see this happening in SoHo [NYC], which I call the live lab. Thriving, growing brands were born online, and now they’re expanding into physical retail. You can’t exist as a lifestyle retailer today without a physical presence. Expect to see more stores, from the Allbirds and the Caspers of the world to the Anine Bings and Mejuris of the world. Brands need to get in front of consumers in different ways; online is not the only way. They can use stores to build a community. This year, with Anine Bing, we opened six or seven stores. At each opening, Anine was in the store, and all the fans come. Retail is far from being dead. Boring retail will die, but there is a whole new generation of exciting retail that’s happening. People still need to go out and be with their friends and be inspired and be outside.

Can we expect more huge valuations and mega funding rounds in the new year?
Quite a few of the brands in our portfolio are profitable or on a very strong path to profitability, and they have the ability to manage their profitability, and that’s the way it should be; companies ought to be profitable. One of the themes going forward is going to be profitable growth. Eventually, it’s not just about top line, but it’s about the bottom line — so there’s going to be a shakeup. Those brands that are being fueled by a lot of capital but don’t have the community and don’t have strength of product will struggle. For us, a company’s team and founders are the No. 1 criterion [when making an investment], but when we start looking at a company from the outside, we look at the strength and engagement of its audience and the quality of the product. If you have low cost of customer acquisition and high margin, and good retention, then you have the attributes to grow in a healthy way over time. 

What do the brands in your portfolio have in common?
They’ve built beautifully crafted communities in a very authentic and organic way, driven by passion and with a unique point of view that connects people to a way of looking at things, of doing things. People of different geographies and backgrounds just connect around these brands. It’s really exciting for us to see that you can start from a point of view, a community, and then build a business on that. It’s so hard to create that magic in a capital efficient way, and even if you throw a lot of money at something, you might not succeed. We work with many brands that combine the magic and the logic. 

What do modern consumers want in a brand?
A good product is essential, and then storytelling is key. Storytelling just means putting things in context and explaining why, and creating the desire just by elevating the product over other products that are just convenient. Convenience is a very hard bucket to win. It requires a lot of money, it’s about speed, it’s about efficiency — there’s no space for emotion. What we’re looking for is on the other side of that equation: an emotional component. When people feel connected to a brand, that makes a brand more relevant.