By Polina Marinova
October 10, 2018

This article originally ran in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.

Felix Capital founder Frederic Court likes to invest in founders long before their ventures are considered real businesses. The London-based venture firm backs “digital lifestyle” companies with a customer base that exhibits cult-like loyalty to the brand.

“We’ve backed quite a few companies that have started as accidental businesses,” Court told Term Sheet. “The key is customer love. In today’s world, it’s easy to measure how people are interacting with the brand or product. The emergence of a close-knit community early on is something that we look at very closely.”

Felix Capital has invested in companies including FarFetch (which just IPOed), Peloton, Mejuri, Highsnobiety — and the one I’m personally most intrigued by — Goop.

Goop encapsulates the firm’s investment thesis perfectly — it began as a newsletter of recommendations curated by Paltrow in 2008. Today, it’s a venture-backed lifestyle empire valued at $250 million. Court invested three years ago, and he now sits on Goop’s board and considers Paltrow a visionary entrepreneur.

In this Q&A, Term Sheet spoke with Court about his investments, using Instagram for dealflow, and the rise of the aspirational wellness movement.

TERM SHEET: You use Instagram for dealflow. What exactly do you look for and how do you approach reaching out to potential founders?

COURT: We have been looking at a number of categories through Instagram, and one of those categories is jewelry. There are more and more brands popping up for millennials, and in particular, millennial women. Jewelry was one of the categories where there was a need for a more engaging, authentic brand for younger female customers. Instagram is how we found the founder of Mejuri. Our team got in touch with her, and over two years, we developed a relationship. We saw the company’s numbers grow, and we developed an interest in the brand. So when it came to a point when they wanted to raise a round, we were in a perfect position to invest because we had a relationship of trust and they understood we could help in many ways. That came directly through our proactive research on Instagram.

Highsnobiety is another brand we backed where I just reached out to the founder on LinkedIn and asked if we could talk. It was luckily the time when the founder was thinking about potentially bringing a partner on board, so we started talking and we ended up in investing.

When it came to FarFetch, I subscribed to their first newsletter in October of 2008, and it took me a year to connect with the founder and ask for a meeting. There are so many times when investment opportunities are directly in front of us, and we just don’t see them. So I think a key trait for VCs is to be curious and do some research and decide whether it’s something that could be a potential investment even if the founder isn’t there yet. A lot of what we do is proactive where we reach out regularly to people.

It sounds like you’ve invested in quite a few companies that began as newsletters. Is it the loyalty of the subscribers that was most appealing?

COURT: When we talk about brands, what we are very interested in is a strong community. A good example is the community that Fortune’s built at the Brainstorm Tech conference. It’s a strong community and people are happy to pay money to be a part of it. It’s exactly what we’re looking for. A few of the companies we’ve backed — especially ones that have a media component — have an experiential component, like Goop’s wellness events. Customers want to experience the brand.

You were an early investor in Goop, and you sit on the company’s board. Why did you invest, and what did you see in Gwyneth as a founder?

COURT: I was familiar with Goop because I had been reading the newsletter to get travel recommendations. Gwyneth sent the first Goop newsletter from her kitchen 10 years ago in September 2008. To this day, Goop is very much a curation, and Gwyneth is the tastemaker. When we launched Felix, we got a call from Tony Florence at NEA who thought we would be good partners to Goop. I saw that Gwyneth had tremendous brand equity, but the business was still very small at the time.

Since we invested three years ago, she’s built a tremendous community and a very strong brand. The model was essentially content, but there was clearly a lot of content around products and commerce so there was purchase intent. So when she moved back to L.A, Gwyneth decided that Goop would be her thing. She clearly had opportunities to do more movies, but she really had a passion to work on Goop full-time. When we invested, she was not the CEO, but we had a conviction around her as the founder and the creative force. She is one of the best entrepreneurs I’ve ever had the chance to work with, and she continues to grow with the business.

Clearly we’re onto something with Goop as it’s about creating a new model. It’s a consumer brand that creates contextual commerce where we’re selling a curated list of products — some of which are our own — while creating a lot of content related to issues relevant to a female audience.

Goop has been criticized for peddling pseudo-science. [Goop just agreed to pay $145,000 in a settlement over unsubstantiated claims about vaginal eggs]. As an investor, do you have any personal qualms about the company giving an unfiltered platform to healers, psychics, and mediums?

COURT: Not at all. Obviously, there are some things where, like most startups, we don’t always get it right, but Goop has always been at the forefront of innovation when it comes to well-being. It was early to meditation and early to the benefits of eating less gluten or no gluten, and all these various things. So in the grand scheme of things, Goop is learning as it goes, and the company continues to offer people new well-being propositions.

When we look at the level of demand for the content, people want to understand themselves better and learn to lead a better life, and that’s where Goop can be a tool for a certain audience. But of course, it’s definitely not for everybody. Gwyneth has a point of view — there will be some people who love the point of view, some who don’t mind it, and some who hate it. As investors, we ourselves have a point of view, and we are very bullish on the Goop opportunity.

So you’re saying that as long as there’s demand, it’s acceptable for a company to promote unsubstantiated claims?

COURT: I stand by the company’s public statement on the matter. I understand why people may not relate to the aesthetic and the content, and that’s fine, as long as there are people who do find it relevant. Of course, it goes without saying that you need to respect the law, and that’s what Goop always aims to do. As you grow a startup, you make mistakes, you learn, you iterate, and then make sure it doesn’t happen again. We are fully behind the company’s position on this.

You were the first investor in FarFetch, a London-based luxury online marketplace, that just went public. Can you share what return you made on your initial investment?

COURT: Rather than give you an exact number, I’ll say it’s more than a 100x return.

When you first decided to invest, your biggest challenge was convincing your partners the company could be big enough. What did you see in it that gave you the conviction to go ahead and invest anyway?

COURT: At the time, I was very interested in marketplaces. I noticed that in Europe, in particular, the best success stories at that time in digital were essentially around commerce, like travel, fast fashion, or luxury. So I thought there would be an opportunity to come up with a new model. When I met [founder] José [Neves], I was like ‘That’s it.’

And before I was a VC, I was an entrepreneur and I started an online marketplace for the textile industry that ended up being way too early for its time. It was 1999. That experience gave me a good understanding of the fashion industry, so when I saw FarFetch, I knew it was a genius business model and it gave me conviction around José. I already had an interest in the category, so I was able to see the opportunity early on.

Many of your portfolio companies like FarFetch, Peloton, and Goop sell expensive products. Is indulging in this aspirational wellness movement only for people who are affluent?

COURT: The answer is technically no. But there is a direct correlation between affluence and education generally, especially when it comes to wellness. Goop, for instance, has a lot of content around clean beauty and eating well. That content is available for free and it’s a great resource, but not everyone has that level of awareness or curiosity to learn about it.

If you go to Goop, a lot of the products are generally premium offerings but all the content is free so you can experience the brand that way. With FarFetch, it’s a platform for luxury fashion. And Peloton has a premium offering, so there’s no doubt that it’s a luxury fashion proposition for sure.

But at the same time, we’ve also invested in The Food Assembly, which connects farmers and producers to consumers, and it’s a very affordable proposition. We have also backed Shine Media, which is a free app with a lot of content for well being.

What are some trends in the digital wellness market that Term Sheet readers should know about?

COURT: The big thing to know is that there’s a massive trend especially from the younger generation around wellness and well-being. One trend that we’re very interested in is related to food because you are what you eat. We’ve definitely seen a rise in plant-based eating.

Another one is around clean beauty. Younger people want to know what the ingredients in products are, and you can’t hide behind a complex label anymore. These are two key trends.

We see a growing need for people to be educated around wellness, which is not something that’s taught at home or at school. The success comes when you combine the product with education, which is what Goop does. We see more and more people investing in themselves.

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