DFN Ventures

Beauty deals are coming!

How painful is a down round for founders? EXTREMELY painful, especially considering the nature of anti-dilution provisions you have agreed to in previous rounds. Unfortunately I’ve been hearing about down rounds from investors and founders continuously for the past year. For my portfolio, we have only experienced 1 priced down round and like most down rounds, the founder took a bigger brunt of the dilution than the investors due to the anti-dilution provisions of the rounds we invested into. What is anti-dilution provision? Simply put, if the price of the next round is lower than the current round, the investors get the lower price or some form of a lower price. Let me provide a simple example: Series A was priced at $2/share Series B is priced at $1/share In a fully ratcheted anti-dilution provision, the investors in the Series A round now get $1/share or essentially that round had double the amount of dilution than originally planned and the dilution typically hits the common shareholders which is what the founders hold. What can you do about this? - Review what kind of anti-dilution provisions you have now and make sure you are aware of them in future rounds - If you have raised at a price much higher than current valuations, try to avoid raising until you recapture that value - Be very careful ramping up valuation in any round or it can do the opposite of what you’re trying to achieve which is limiting dilution #cpg #venturecapital #startups #downround

What is that unique element of a brand I look for when investing? Simple, brands that don’t need my capital but want my support! With over 25 years of experience as a founder, service provider, operator and investor supporting the worlds top CPG brands, I look at investing a little different than most. I view investing as a privilege in joining the ride with founders as much as it is a responsibility to drive value for my limited partners. And so it’s those great brands that are executing well, with opportunity & challenges in front of them, that are looking for my support as they continue to navigate brand building that excites me most. And it’s not simply ego, these brands typically are my most successful investments because I’m partnering with great founders, and what makes them great is their ability to avoid mistakes. Getting help from those who have been on the journey many times before helps them avoid those very costly mistakes, which many times is the difference betweeen an amazing out come for the brand or not. On the flip side, those brands that only want cash and not really interested in leveraging experience don’t tented to fit well in our model. #cpg #venturecapital #brandbuilding

VC capital down 97%!!!! 😱😱😱 Is CPG venture capital dead? Not yet, but there is no doubt a big shake up is in the works. We are not just seeing brands go bankrupt, but there will be a large number of CPG venture capital firms move out of the space or close up completely. Let’s look at how we got here. Prior to 2010, the venture capital market for CPG did not exist. Most of the capital for brand development came from friends & families, and it wasn’t until brands grew to the magical PE threshold of $10m in revenue or $2m in EBITDA were brands able to access institutional capital. Then came the rise of digital marketing (DTC) and online based corporate infrastructure platform applications (quickbooks online, online banking, etc) in early 2010s that started leveling the playing field for consumer startups. The ability to bypass retailers and market directly to consumers reduced the impact of the large strategic stranglehold on brick & mortar distribution. Also, productivity gains through a distributed corporate infrastructure allowed for more professional manage without the traditional fully burden cost of a InHouse team all located in a single location. This rise tigger hypegrowth for that first cohort of brands, leading to a wave of strategic M&A from 2015 - 2019, first in big food & beverage and then followed by the diversitied groups such as P&G and Unilever. However, cracks were already showing. Most brands acquired during this time failed and strategics started changing there M&A strategy model, requiring brands to be larger before acquisition. The next phase brought the beauty and personal care wave, with food & beverage VCs diversifying into other categories. While this was happening, the amount of capital flowing into the market continued to accelerate. Then COVID hit… Instead of slowing the momentum, COVID super charged the capital flowing into consumer, with the early stage seeing a true bubble. COVID trends distorted and already distorted view of reality, as growth was unnaturally charged with capital in digital marketing without real customers being created, and it all hit reality with two major market changes. IOS change in May 21 and the increasing interest rate environment / quantum tightening reducing the investor liquidity for private capital. Fast forward to today, the venture capital dollars for CPG is back to where we were in 2010, practically zero. So what’s next? Over the past 10+ years there have been a massive infrastructure build to support early stage CPG that continues to allow for efficient brand development. There has also been a number of successful firms that have proven smart investors that can truly be value add can propel brands. So while the competition for capital is going to be fierce for years, those groups that do have deployable dollars will more than likely increase the probability of success for their portfolio companies. #cpg #venturecapital #cpginvesting

My friends out there, looking for an amazing CMO in the woman’s personal care industry, perferrably a consumer healthcare background with experience in omnichannel brands! DM if you have a good name! #consumerhealthcare #womanswellness #personalcare

Sad!

I’m happy to share that I’m starting a new position as Founder at DFN Ventures!