DFN Ventures reposted this
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
Too many people invested without sector knowledge and expertise.
I am hoping this time around founders will genuinely mind the fundamentals: gross margins and profitability, build a truly great and differentiated product that actively improves consumers lives, and nurture loyalty (not just “buy” trial and pray they buy again).
I’m excited for this next era. Thanks for sharing. Hype dies, healthy businesses stay.
Or is it the other way around, I’m hearing the same from founders in CPG that they do not have the interest in VC money and are more interested in bootstrapping or finding the right PE partners that believe in the business.
The reality is, outside of supplements, CPG margins aren’t aligned with most VC expectations, especially when compared to SaaS. Great CPGs will continue to grow, but they will have to do so much slower, as they have to stay focused on margin as opposed to growth.
this is where crowdfunding comes in! It's a great alternative way to raise capital while marketing your brand
Looks like there needs to be more young leaders stepping up to raise rounds with LPs that are sector focused
The flow of efforts into digital marketing without finding expertise in operations and finance really took a toll on brands who likely would have benefited from slower/more controlled growth
Many VCs invested in a college degree and less about experience. Their arrogance has hopefully taught them that being 22 and having graduated from Stamford doesn’t qualify you to be a CEO….
Director of Business Development
3moI'd say an important dynamic that was also altered during COVID was the disposable income shifted from Vacations, Flights and Restaurants being routed to Consumer Goods. This dynamic inflated growth; which in turn brought more interest to the beauty segment. At some point the market became saturated and very few realized. . Imho great VCs will have to build significant subject matter expertise, large networks of people with access to unique industry specific resources/skillsets (patents, ideas/insights, supply chains, molds, machinery). The more coordinated and deep this network is; the more benefits they'll generate to the brands in their portfolio. Investing money and providing some general/strategic business guidance will not suffice. Otherwise smart money will be destined to become dumb.