AI is destroying the VC world (not in a bad way). AI-based companies have raised a ton of money. So much so that if we were to group AI into their own little industry it would dwarf all others. One of those “all others” is the Consumer Packaged Goods (CPG) industry. Raising capital there is like breathing underwater without an oxygen tank – won’t happen. Of the tens of thousands of brands currently operating in the U.S. market, only 51 one of those have closed VC deals in Q2 of 2024, a slight decline from the 54 that closed deals in Q1 of 2024. Not only would this turn away founders, but it also shows an insight many people might miss: profitability is key and securing funding sucks nowadays.
When it comes to CPGs specifically, this year hasn’t been the only slow one. Check out the downward trajectory of CPG venture capital over the past three years:
- Q2 2022: $562 million (99 deals)
- Q2 2023: $466 million (81 deals)
- Q2 2024: $295 million (51 deals)
Financial support seems to be slim for the CPG world, underscoring the criteria brands must meet to even attract these investors. It’s now the world we live in: investors prioritize profitability above all else, the bar for venture funding is set exceedingly high.
Key Requirements for Brands to Secure Venture Funding:
If your brand doesn’t meet any one of these criteria, or in some cases all of them, securing funding will be very unlikely in the climate you’d be raising in:
- Outstanding Products: Your product has to stand out. There are new CPG brands coming out day in and day out. One way to help your product stand out is the branding. For example, Poppi rebranded from Mother Beverage which took them from being turned down to raising about $25Mn.
- Best in Class Unit Economics: A lot of financials in the CPG world fall into unit economics which is the revenues, etc. based on a per-unit basis. Show strong margins and cost efficiencies then you’ll be able to raise some mula.
- Mass Market Growth Potential: If you cannot scale rapidly and have the potential to tap into broad market segments, investors will most likely look right over you…
- Ownership Drive to Exit: This is a tip that you can take into any industry. A clear and achievable exit strategy within a reasonable time will help investors understand top to bottom what the game plan is.
Why Missing Out on Venture Funding Might Not Be a Bad Thing
Most CPG companies have the sad situation that most venture capital just isn’t suitable for the industry. Nowadays, VCs are looking for unicorns – those rare brands that can achieve explosive growth and ridiculously high returns. For the majority of founders in the CPG business, venture funding might not be the best path.
The Best Path Forward for Founders: Raise as little outside money as possible…
While this is going to be tough, this path allows founders to control their company’s direction and decisions. In 2024, having options and flexibility matters the most. Rely less on external funding and you can focus on building a sustainable, yet profitable, business without the pressures of becoming the next random unicorn.
Takeaways
In 2024 as a CPG company, raising venture capital is difficult, but it doesn’t mean don’t try. When you focus on the product quality, strong unit economics, and general operations, and raising minimal outside capital, founders can scale at a comfortable rate. At the end of the day, bootstrapping and controlling your own growth internally might end up being more rewarding than raising externally.
