At TEN Capital we continue to see a strong flow of consumer product good investments. The shifting landscape in the food and beverage industry brings new opportunities for investors.
Food and beverage predominate but health and beauty products and other categories continue to raise funding. Investors give some sectors more attention than others. The move to “healthier” alcohol is an interesting one in which all natural juices and herbs/spices added to the alcohol command higher exit valuations.
Alternatives to meat and dairy also receive quite a bit of interest from the investors—in particular the strategic corporate investors. Exits in these areas come at 3X to 5X multiples which is in the same league as SAAS-based tech businesses.
I find the CPG space fits the angel investor well. When I led the Central Texas Angel Network for its first two years, I found that almost half the funded deals came from CPG. Investors often found the tech deals were too often “smoke and mirrors” so they had to spend a great deal of technical due diligence to figure out what was real. With CPG, the product is more easily understood and the business model is straightforward.
When I helped launched Incubation Station (now called SKU), I found CPG deals held up longer than most tech startups. Half of the tech startups in an accelerator are dead within a year. CPG companies with a product in the market can carry on for many years as a loyal customer base is the same as a recurring revenue SaaS product.
The key to investing in CPG is being in the right vertical and its ability to build a brand. It’s not hard to check interest with the strategic buyers to see what sectors they are looking for. Brand building can be taught and learned. In the Tech space, branding is an afterthought. In CPG it’s the primary skill.
The basic criteria for most CPG deals is at least a 40% gross margin and a category growth rate of double digits. If the startup seeking funding doesn’t know what a category growth rate is then it probably should be a pass for the investor.
There are many CPG deals to choose from but as the rule of startup investing says – the top 10% will return good money, the next 15% will return some money, and the rest will return no money. It’s best to start with the right sectors and then explore for the best teams from there.
You can learn more about CPG investing with TEN at this link: https://tencapital.group/ten-cpg-syndicate
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.