The Spotlight Winter '23 - Startup CPG

Coming into 2023, there has been a great deal of pessimism around the state of fundraising. With a surge of CPG innovation in a murky economy, there is a palpable feeling that the supply of interested investors is minute next to the overwhelming demand for cash. But founders shouldn’t lose hope. This edition aims to be a beacon for the cash-strapped and — let’s face it — perhaps a bit desperate: a resource to unlock the mysteries that plague the fundraising landscape.

In this edition, you’ll learn from CPG investors, investing experts and founders of successful raises, and gain insights into the art of investor relations; alternative crowdfunding platforms; what investors are looking for in 2023, and much more. Plus, we dig into two popular ingredients that face unique challenges in CPG: functional mushrooms and CBD.

As always, I hope you find something in this edition that helps you along your journey, reminds you why you are in this special industry, or simply speaks to you. If you have any questions, comments, stories to share or ideas for a future edition of The Spotlight, please email me at jenna@startupcpg.com.

Cheers, Jenna

Managing Editor, The Spotlight

Jenna is the Editor of The Spotlight magazine and works on Startup CPG’s marketing team. She is passionate about emerging CPG, also working as a publicist for Knack PR and a freelance copywriter for several CPG brands.

EDITOR'S LETTER DEAR STARTUP CPG COMMUNITY,

THE SPOTLIGHT

EDITORIAL TEAM

Jenna Movsowitz Managing Editor, The Spotlight

Annie Wang Staff Writer

Grace Kennedy Staff Writer

Tamara Romčević Designer

MEET THE STARTUP CPGER:

STAFF WRITER GRACE KENNEDY

1 TELL US ABOUT YOUR BACKGROUND IN 3 SENTENCES. My I studied theater as an undergrad but pretty quickly transitioned to freelance writing post-grad. As I built up my freelance writing roster, I worked as a chef at a few restaurants and spent a year making sourdough bread at a bakery. Now I am full-time freelance and writing for Startup CPG, but I still love baking and cooking at home :)

2

3

WHAT ARE YOU PASSIONATE ABOUT (IN 5 WORDS OR FEWER)? Knowing my farmers & reading good books.

WHAT’S BEEN THE MOST REWARDING PART OF BEING PART OF THE STARTUP CPG COMMUNITY?

I have been so inspired by all of the CPG founders I’ve interviewed for the Spotlight mag. They are some of the most hardworking and passionate people I’ve ever met. Also, trying all of the new CPG products I’ve discovered via startup CPG has been so fun — I even gifted my Dad a box of Lexington Bakes’ brownies for Christmas this year.

4

FAVORITE SNEAK-INTO-THE-KITCHEN-IN-THE-MIDDLE-OF-THE-NIGHT SNACK? Popcorn with lots of nutritional yeast, olive oil, and salt.

5 A CPG BRAND YOU EAT/DRINK EVERY DAY?

Bjorn Qorn and Something & Nothing Yuzu Seltzer.

6 FAVORITE PODCAST OR REGULAR CLUBHOUSE TO TUNE INTO? On Being with Krista Tippett.

7

MOST INTERESTING THING YOU'VE LEARNED ABOUT THE CPG INDUSTRY?

I recently wrote an article about alternative crowdfunding options for CPGers and learned SO much about the process — I had never even heard of equity crowdfunding before and was fascinated to learn about all of the different platforms founders can use that go beyond the familiar Kickstarter.

By Grace Kennedy

FUNCTIONAL MUSHROOMS ARE EVERYWHERE, BUT WHAT ARE THEY?

Four CPG brands give their perspective on this rapidly growing industry that shows no signs of slowing down

If you’ve perused the aisles of Whole Foods (or any health food store) over the last year, you’ve likely encountered the latest trend in wellness: functional mushrooms. But what actually *are* functional mushrooms? And how are they different from the shiitakes you cooked for dinner last night?

Functional mushrooms such as reishi, chaga, cordyceps, and lion’s mane, are neither the button mushrooms you buy at the grocery store nor the “magic mushrooms” (aka psilocybin) your once-hippie Dad still waxes poetically about. Functional mushrooms, though related to their more well-known cousins, are of the medicinal variety and bring with them a long list of purported health benefits such as reduced stress, more energy, greater focus, and stronger immunity.

Interest in the healing powers of mushrooms is nothing new — traditional Chinese medicine has used mushrooms medicinally for centuries — but it is relatively new to western consumers. As the Western world has become increasingly aware of mushrooms’ many benefits, there has been an explosion of mushroom products on the market. So much so that the functional mushroom market share is expected to reach(86 billion) USD by 2028.

To better understand this rapidly expanding industry, we spoke to four CPG brands in the mushroom market — offering products from supplements to gelato to sparkling teas — and asked what they think the future of functional mushrooms looks like.

CONSUMERS ARE GETTING SMARTER, BUT MORE EDUCATION IS STILL NEEDED

As more and more people become interested in functional mushrooms, both the opportunity and the challenge will be to ensure consumers are educated and supported as they explore how mushrooms might play a role in their wellness.

Kailey Donewald, the founder of Sacred Serve, a vegan gelato brand, explains that “most people have at least heard of these functional ingredients,” and consumers seem to be more educated than when she founded her business in 2016. However, education levels can vary between premium and conventional consumers — Kathy from Iowa may have heard of lion’s mane mushrooms once from her niece in Brooklyn, but she is still pretty sure it will send her off on a trip she did not pack for. More than one founder shared that they frequently need to assure customers their product is not a “magic” mushroom: no, it will *not* make you high and yes, it is legal to ship. Furthermore, not all mushrooms are created equal, which can lead to a good deal of customer confusion: reishi is different from chaga, which is different from turkey tail, which is differ-

ent from cordyceps. So how are functional mushroom brands working to fill in some of these gaps in consumer education?

Umbo, founded by advocate Del Jolly and former pro-athletes Jake Plummer and Rashad Evans, uses the branding of each of their tinctures to demarcate its health benefits: the Lions Mane tincture has a picture of a brain, Turkey Tail has a gut, and so on. Immorel, a sparkling mushroom tea company founded by Hayley Kats and Charlotte Rogg, uses playful names for each drink to inform customers of its purpose: “Wake the Eff Up” is a coffee alternative, “Feed Your Focus” is for those mid-afternoon slumps, and “Slow Your Roll” helps customers relax.

There is only so much branding can do, however, and Nick Murray, the founder of Wake, likens the consumer learning curve to that of the CBD boom ten years ago. At first, many people wouldn't touch CBD because it was connected to marijuana, and it took around ten years for most people to understand it was not psychoactive and could be applied in a variety of ways. “People are getting smarter,” he says, but fully educating consumers on functional mushrooms is “probably going to take ten years, too.” In the meantime, brands should prepare to do a bit of hand-holding, which could be anything from in-person pop-ups and educational events to maintaining and updating a robust FAQ section, as consumers begin their journey into the world of mushrooms.

There are also barriers to education based on FDA regulations. Brands cannot explicitly say that chaga, for example, is a powerful antioxidant that will regulate your immune system, and instead can only vaguely imply its benefits. For the most part, however, brands can work around these regulations with careful wording. “We avoid declaratives,” explains Kats of Immorel, and instead rely on “can, could, and may” in their product descriptions to communicate efficacy without violating regulations. Brands hoping to break into the functional mushroom industry will need to work within these regulations as they educate consumers.

FUNCTIONAL MUSHROOMS ARE NOT AN OVERNIGHT FIX

Each founder also emphasized the need for brands to communicate to consumers that functional mushrooms, as potent as they might be, are not an overnight fix. Jolly encourages consumers to “treat [functional mushrooms] like vegetables.” We don't eat one salad and expect to see immediate changes to our health — we start to feel the effects after we’ve eaten a salad every day for a month or two.

With functional ingredients, brands emphasize a slow and steady approach. Start with one product and check in to see how you feel after a week or two. Just like getting proper sleep and eating enough greens, functional mushrooms are merely another element to include in a healthy lifestyle, not a one-stop-shop

cure-all. Donewald elaborates, saying, “Functional mushrooms are extremely powerful, but I think people don't recognize that because they're expecting something to happen really quickly. The industry’s challenge is communicating to consumers that no one pill or food is going to work like magic. Health is the culmination of a lot of different things.”

MAINTAINING QUALITY AS THE INDUSTRY GROWS

Beyond educating consumers, many brands mentioned concerns around quality control as new products flood the market. As it stands now, there are very few regulations on functional mushrooms, and the quality of each product is reliant on the standards of the brands that make them and the retailers that stock them. There are some requirements when it comes to labeling — brands must distinguish whether the product is made of fruiting body or mycelium — but these requirements are not always enforced.

“There's a lot of junk in the industry,” explains Murray. There is no universally required testing for things such as heavy metals, and such a lack of regulation can make it challenging for consumers to trust the safety and efficacy of the brands on the market. To alleviate these concerns, Wake, which grows all of its mushrooms on a farm in Jamaica, is working to get to the point where each supplement they sell has a QR code displaying which batch the mushrooms came from, when they were picked, and when they were dried.

Over the last few years, there has been a growing call from consumers for brand transparency across industries, and this is especially true for products that purport to make us better. Consumers do not want to go on a wild goose chase just to figure out what they are putting into their bodies, and as more and more mushroom products come to market, they will only get more selective. To break ahead of the pack, it will be important for brands to take ownership of all aspects of their product — from sourcing to packaging, and any external partners they work with — no matter if the industry at large requires it or not.

BREAKING INTO RETAIL

Many retailers have taken it upon themselves to review functional ingredients and put standards in place regarding what they are willing to stock. As Sacred Serve expands into a new, larger retailer, Donewald has had to remove chaga from one of their ice cream flavors. Chaga does not yet have a Generally Recognized as Safe (GRAS) filing, and this retailer requires it. Applying for a GRAS filing can be a time-consuming and expensive endeavor — it can take up to six months to hear back from the FDA and brands must submit comprehensive research on the efficacy of the ingredient, research which can be costly to acquire. A small, up-and-coming brand like Sacred Serve cannot support such a

consuming process and would rather focus its efforts on getting its products into as many hands as possible. Donewald hopes that a larger brand with more resources will eventually apply for a GRAS filing for chaga but, until then, they will have to do without the ingredient.

It’s important to note such requirements differ for food products as opposed to supplements or tinctures, but brands should consider the availability of GRAS filings for each ingredient they plan to incorporate if they are hoping to release a functional mushroom food product.

Furthermore, each retailer brands work with will likely have different standards and requirements. Umbo has found greater success with smaller, more forward-thinking retailers like MOM’s Organic Market, whereas some big-box stores have had more apprehension about bringing in new mushroom brands and products. That being said, Donewald encourages brands not to wait for the larger public to catch up and rather to focus on the mission of their brand and the product they’re creating.

As Sacred Serve has grown and worked alongside investors and larger retailers, she has found that those who have chosen to get involved did so because they “genuinely believed in the mission.” Donewald explains that their conversations with external partners “tend to be about performance and metrics, and proving our success, and less so the ingredients we're working with.”

Functional mushrooms may be a new ingredient to some, but as with any CPG product, retailers and investors are ultimately interested in the quality of your product and the cold hard metrics it can to produce once it hits the market.

ARE MUSHROOMS THE FUTURE OF WELLNESS?

Despite fears around quality control and educational gaps, the functional mushroom brands we spoke to are mostly just “excited people are excited about mushrooms.” The community of worldwide fungi fanatics is expanding rapidly: from athletes to doctors, to your crunchy aunt who forages each spring, people from all walks of life are beginning to get behind this ancient ingredient, and brands are thrilled to guide both new and old mushroom enthusiasts along the way.

So where will the industry go from here? Jolly and others hope to cultivate a spirit of “collaboration over competition.” Murray echoed this sentiment, encouraging functional mushroom companies to “leverage the community and iterate quickly. If new products fail, who cares? Just keep testing.” Rising tides raise all ships, and the more “crap we can get off the shelves and replace with healthier alternatives” the better.

Whether this trend urges more people to buy mushrooms from the farmer's market, experiment with psilocybin, or implement functional mushrooms into their wellness arsenal, there is a strong case to be made that mushrooms, in all of their iterations, are the future of wellness.

By Jenna Movsowitz

How + When TO CROWDFUND

Quokka Brew’s Top Tips From Their Game-Changing Campaign

“I wouldn’t change a thing,” says George Passantino, co-founder and co-CEO of Quokka Brew on their 2020 crowdfunding campaign. It’s easy to look back on this experience so positively – Quokka Brew is now one of the top five highest crowdfunded beverages, with over 1,100 individual backers. But at one point in time, George and his co-founder Ofek Arush were just two college students with an idea – and absolutely zero experience in fundraising.

In this article, we break down the origins of this buzzy (not to be confused with “jittery”) brand and learn their top tips for crowdfunding.

BUILDING THE BREW

The idea for jitterless, ready-to-drink coffee was first brewed in a college library. Ofek and George couldn’t help but notice their friends at UC Berkeley struggling to make it through finals week. They saw their peers increase their caffeine consumption – and then experience its subsequent jitters and crash. As aspiring entrepreneurs, Ofek and George knew this problem needed a solution, but they had yet to find it on the market. So while their friends spent their summers readjusting their circadian rhythms, Ofek and George got to work researching a crashless solution to fuel finals.

The two worked with food scientists and chemists to create the perfect blend of organic amino acids and nootropics

to infuse into cold brew, eliminating the jitters and crash from caffeine without sacrificing energy or focus – and Quokka Brew was born. Throughout Quokka’s early stages, they focused on getting samples of the product into consumers hands. As a product that required consumer education, the co-founders knew that early feedback would shape their brand.

So, they trekked across California college campuses, sampling the product to as many students as they could.

As the team grew and its mission spread across campuses, Ofek and George quickly realized they would need more cash to continue. They were due for their first production run – a minimum of 30,000 cans – and bootstrapping simply

wouldn’t cut it. “We needed money for the flywheel to start spinning.”

Crowdfunding would be their biggest challenge yet. And as first-time founders, they were dedicated to setting themselves up for success. They reached out to founders of brands with the most successful campaigns ever conducted and “frankensteined” their ideas together to build the best beverage campaign possible.

BEHIND THE SCENES OF CROWDFUNDING: QUOKKA BREW’S TOP TIPS

Radical transparency

Ofek and George found that crowdfunding was not the time to “fake it ‘til you make it.” Crowdfunding supporters do not have equity in your brand, so their incentive to put their dollar towards your brand has nothing to do with their impending return. Instead, the messaging around the campaign should be radically transparent, making it clear that contributors are supporting founders who genuinely need every dollar.

George reflects, “We really stressed that we needed support to keep Quokka going. We didn't go light on explaining the gravity of the situation.” This made each supporter feel that their dollar could really make an impact.

A pre-launch survey

Many months prior to launching their campaign, the Quokka team crafted a survey asking respondents for their feedback on can design options and shared it with their networks (~10,000 people combined). They received around 3,000 responses – aka 3,000 unique contacts who weren’t just email addresses, but individuals who already felt bought-into and heard by the brand. When Quokka Brew ultimately launched their crowdfunding campaign, they reached out to the survey participants and shared that the team had implemented their feedback, and now are counting on their continued support.

From that outreach alone, Quokka Brew raised $25,000 in the first 24 hours of their campaign.

People > product

“Crowdfunding isn’t about supporting the company,” says George. “It’s supporting the people behind the company.” Unlike later stages of fundraising, crowdfunding isn’t about proving traction. It’s about providing a reason for someone to put their money towards your goals – in other words, it’s largely about being likable. “We worked hard to have people really feel like they knew the team, and that they were supporting their friends.” In practice, this looked like frequent personalized outreach and behind-thescenes footage on their social media accounts.

Perks beyond the product

“Crowdfunding is essentially a pre-order campaign on steroids,” explains George. In other words, backers still have an expectation of receiving something in exchange for their support. Though many of their backers had sampled the product already, many others were simply backing the idea – making other incentives a key piece of the campaign. George and Ofek saw this as an opportunity to further showcase the brand’s personality, offering perks from t-shirts to Quokka Brew branded shot glasses and even plaques proclaiming “Quokka Brew Early Supporter”. Each supporter who purchased a 24-pack also gained lifetime early access to samples of all new flavor launches.

Most importantly, be ready to pivot

Even having completed all the “right” prework, they still hit bumps in the road. Two days before their Kickstarter campaign was supposed to launch, the Kickstarter team reached out to say that they could not launch the product on their platform – they had mislisted it as an energy drink and would not permit them to launch.

Never underestimate the power of word-of-mouth

A common saying in startups is to “do things that don’t scale in the early days” – and Ofek and George took this task seriously. Their team texted every single early backer from their personal phone numbers, thanking them for their support and encouraging them to share the link, again emphasizing how much it would mean to them. Referrals ended up playing a huge role in the success of the campaign, with $10-15K coming directly from referrals; Ofek and George believe this was a direct result of taking time to personalize every single message.

Ofek and George immediately pivoted. They reached out to the founders of Indiegogo to see if it was possible to launch the campaign on their platform in two days – and their wish was granted. On Quokka’s Instagram, Ofek and George remained transparent about the pivot and used this challenge as an opportunity to show the behind-the-scenes stressors of founder life.

When the Indiegogo went live, the Quokka team and ambassadors immediately did what they do best: texted everyone they knew. Less than 24 hours into their crowdfunding campaign, Quokka Brew surpassed their fundraising goal for the entire month – by $10,000. By the end of the campaign, they were one of the highest crowdfunded beverages in the industry.

You can try Quokka Brew at https:// www.quokkabrew.com/ and follow along with Ofek, George, and their team @quokkabrew on Instagram.

CROWDFUNDING ISN’T ABOUT SUPPORTING THE COMPANY. IT’S SUPPORTING THE PEOPLE BEHIND THE COMPANY.

By Annie Wang

3 CPG INVESTORS ON THE STATE OF FUNDRAISING Meet the Investors

Founders across the world know the struggle of stretching a dollar like it’s taffy and producing gold. After the past few years of COVID and now an impending recession, fundraising is top of mind. But what do investors want? We spoke to a few investors to learn what they are looking for in founders, the hurdles most often faced by those founders, and how they will be shifting their investment strategies in the coming year

Startup CPG WHAT ARE THE HURDLES YOU SEE CPG FOUNDERS FACE MOST OFTEN? HOW CAN INVESTORS HELP FOUNDERS OVERCOME THESE CHALLENGES?

Dickinson Many founders struggle to process the financial implications of channel and product decisions they make early on in the business. Whether it’s pushing on DTC for too long, expanding SKUs too quickly or overcommitting to retailers, the unit economics and cash flow dynamics of CPG are tricky. The best investors help these founders see around corners and make these key decisions with more clarity.

Brown The largest hurdle I see CPG founders face most often is access to industry connections and expertise. Founders often find themselves running into walls that can be easily overcome by others in the industry who have faced

them before. Without that network, those issues can feel impenetrable. Providing access to this network is where investors can help. Vanterra Capital reviews hundreds of deals every year and we understand the histories of our portfolio companies. While founders are the true visionaries for their brand, investors’ industry knowledge and connections can help position companies for future fundraising opportunities, retail expansion, and marketing optimizations.

Additionally, investors can help with prioritization of time and resources. Founders are expected to wear so many different hats and every piece of the business needs attention early on. Investors can identify speed bumps, open doors, and share best practices given their ability to see the whole market.

Fowler Two things an early-stage CPG company has to juggle are growth and the ability to fundraise. For growth, scale

matters. You aren’t going to get to your highest level of profitability until you're at scale, and you're not going to get to that scale without growth. In terms of fundraising, a lot of liquidity has disappeared in early stage CPG. What you have now is a lot of people focused on getting profitable. It’s true that profitability is the goal of business, but at early stage, you have to burn capital to grow. If you don't have that fundraising gene, if you don't have the ability to tell your simple story and why you’re worth the capital burn, then fundraising is going to be really difficult. Investors can work with founders to understand how much of an iterative numbers game fundraising is. No means no right now, not no forever. Investors can help founders generate the muscles to go out and do the long term marathon that is multiple rounds of fundraising.

SCPG HOW ARE YOU SHIFTING YOUR INVESTMENT STRATEGIES GOING FROM COVID NOW TO AN IMPENDING RECESSION?

D Consumers are still looking for healthier products and aren’t looking to cut back their spending at the grocery store. That said, they are certainly not shopping online as often as they were in 2020 and are harder to reach through social advertising. So we’re more focused on retail traction now than before.

B We’re focusing on the fundamentals. Meaning, we’re backing businesses with stellar management teams, authentic

missions, and clear competitive differentiation. While growth continues to be important, the businesses we expect to last will maintain strong margins, deploy capital efficiently, and hold strong repeat rates no matter the market conditions.

F We’re looking at later stage companies. And if we are going to invest in early stage companies, we need to be convinced that the cap table has staying in power. In addition to focusing on later stage companies, we’ve become pickier on valuation.

SCPG WHAT CHARACTERISTICS DO YOU LOOK FOR IN A FOUNDER / WHEN MAKING A DECISION ON INVESTMENT?

D The most important thing is a deep clarity on the consumer problem they’re trying to solve, and a credible reason for why they’re the one to solve it. That can be the result of personal experience. Our portfolio has a non-drinker that launched a non-alcoholic wine, a caffeine-addict who launched a coffee alternative and a pet parent who launched a cleaner line of dog supplements. What needs to be there is clarity of vision and a passion to solve their identified problem. From there, we look for the same operational leadership qualities that you would want in any CEO.

B I look for a talented entrepreneur who is passionate yet rational. Most founders who are taking a risk to launch their own company have an innate drive and unwavering dedication to make their

business successful. But it’s also important that these founders demonstrate a willingness to listen and adapt their strategies when consumer preferences and market dynamics change.

F Number one is the ability to communicate the value proposition. At the very least I want to know why the founder thinks consumers are buying their product. Second, the founders that are taking the time to provide written updates, phone calls, etc. that don’t always have an ask attached to them, stand out among the rest. That's everything, especially in times when everybody needs money.

SCPG IS THERE A SPECIFIC CATEGORY OF CPG THAT MOST INTERESTS YOU FOR 2023 IN TERMS OF INVESTMENT OPPORTUNITIES?

D We continued to be excited about the opportunity to provide more education and clarity to the vitamins and supplements space. Combining superior efficacy with simpler messaging can overhaul a massive but intimidating market that is still not fully meeting consumer needs.

B I’m very excited by the clinically focused beauty space. With the rise of 'Skintellectuals', consumers are educating themselves about the efficacy of certain beauty products. Since clinically backed beauty products have proven effectiveness, I believe they will better retain customers, experience organic acquisition flywheels, and ultimately be more

sustainable long-term businesses with attractive acquisition opportunities.

F We really liked beverage, but it may be difficult in 2023-24 since the category requires such a high capital burn. We might also look more at food and pet products. The American consumer has demonstrated such an affinity towards pet that even in a recessionary environment, I don't think they cut back on the on the extras — the higher quality food, toys, and care.

SCPG

HOW DO YOU FIND NEW INVESTMENT OPPORTUNITIES?

D We try to always be learning from thought leaders and media sources across the industry to inform where to seek out new disruptors. Our favorites are Bevnet/ NOSH and Fitt Insider.

B Some of my favorite online resources for sourcing new investment opportunities include CPG Wire, CPGD, Exploding Topics, Spate Trends, Celebrity Packaged Goods, Beauty Independent, and Glossy.

I also carve out time each weekend to walk through a retailer (Whole Foods, Sephora, Target, etc.) to see what trends are being promoted in-store. There is no better way to see what CPG brand excites you than viewing it on a shelf beside its closest competitors.

F I spend a lot of time in retail to focus on what's selling the most and what consumers find most valuable. Then I talk to those companies.

SCPG WHAT IS THE FUTURE OF

Elizabeth Brown is an Investor at Vanterra Ventures. Brown is responsible for supporting deal sourcing, diligence, and post-close value-add.

Carlton Fowler is a founding partner at Goat Rodeo Capital. He is an alcohol and beverage industry expert.

Kiva Dickinson is a Managing Partner at Selva Ventures. He leads all deal sourcing and execution efforts and works closely with portfolio brands.

DTC AND RETAIL?

D DTC should be about building proof, testing and learning, retail should be about scaling the business profitably. That has always been the case, but somewhere along the way our industry got excited about DTC as an identity rather than a channel.

B In today's market of rising customer acquisition costs, I believe the importance of an omnichannel presence for CPG brands will continue to grow. However, DTC still provides a powerful channel for brands to educate new consumers and to prove product-market fit to investors and retailers. DTC traction in the form of growing revenues, strong repeat purchase rates, and capital efficient unit economics can provide the proof of concept for emerging brands to enter retail. Once in retail, we find brands who prioritize high velocities in anchor accounts are more successful than those who say yes to every available retail door.

F DTC and e-commerce are going to become increasingly more important. Between 2017 and 2021 a lot of compa-

nies were given extra investment to use DTC and e-commerce to appear national and drive top line growth — even though that top line growth was unsustainable. Now that tactic will not be possible. Now you’ll see more companies finding ways to make DTC breakeven and more of a marketing channel, especially for heavier products where shipping is an issue.

SCPG WHAT ADVICE WOULD YOU GIVE TO FIRST TIME FOUNDERS SEEKING INVESTMENT?

D Clarity and succinctness. Don’t talk about your brand until you’ve convinced the investor that there’s a problem worth solving. Don’t talk about traction until you’ve convinced the investor that your brand solves that problem. There’s a tendency to over-explain and overshare, but there are truthfully very few concepts and data points that ultimately matter in getting an investor to yes. When you do receive a no, don’t be defensive or try to talk them into re-considering — use it as an opportunity for candid feedback. If

that investor is thinking it there’s a good chance others are feeling (but not saying) the same thing.

B Come to the table with plenty of proof points of your product-market fit. You need to show why your product solves a consumer’s needs better than any other on the market. You should also show that your economics can grow sustainably. Proof of community, strong reviews, and repeat rates are critical. Furthermore, you should be able to show if you can expand beyond the early adopters. Give investors clear priorities on what you will use the capital for and how that will drive the business.

F The right investors are more important than the right valuation. For first time founders at very early stages, you need to go out and find angels and institutional funds who really believe in your value proposition and vision. Those are the people who are going to introduce you to additional sources of capital and, potentially, become follow on sources of capital. That's the whole game right now.

Two years ago, Startup CPG launched the first ever Shelfies Awards with the goal of giving exceptional small CPG brands the recognition they deserve. As the first and only awards program specifically for emerging CPG brands, the Shelfies eliminate the typical hurdles involved in awards applications and create opportunity for brands in their earliest stages. For the past two years, we’ve recognized + celebrated the next-level innovations, the stories that inspired us, and packaging that stopped us in our tracks.

To submit your product to the Shelfies:

1. Take 10 minutes to fill out our brand database form:

2. Set a reminder on your calendar to send samples during your category’s respective month.

3. When your category’s month arrives, ship product samples to two locations, found at the end of the form, to share with our Shelfies judges. We will accept samples from the first through the last day of each month.*

4. Stay tuned (aka, check your email + the Startup CPG Slack channel) for more information on our award ceremony in August 2023.

YOU WON’T WANT TO MISS OUT ON THIS INCREDIBLE OPPORTUNITY TO TURN YOUR EMERGING BRAND INTO A MOONSHOT.

By Jenna Movsowitz

MASTERING THE ART OF INVESTOR RELATIONS

When it comes to fundraising, many founders understand the basics. They can speak to their numbers, craft a path to profitability, and convey clear confidence in their vision. They can find resources galore on building the most captivating pitch deck and recite past Shark Tank negotiations by heart. But for many founders, the mystery of fundraising lies beyond the transaction itself. For many founders, the greatest challenge is the one they least expected: relationship building.

We spoke to founders of successful raises – Cason Crane of Explorer Cold Brew, Paul Voge of Aura Bora, and Griffin Spolansky of Mezcla – as well as Mike Gelb, host of The Consumer VC Podcast, and other experts from The Startup CPG Podcast, on how to best approach building and maintaining relationships with potential investors.

INITIAL OUTREACH Be genuinely personable

Founders often hear that it is valuable to build a network of potential investors before you actually have an ask. But what

does that mean in practice?

Many consumer investors have become thought leaders in the space and are sharing their perspectives through their content. Gelb suggests that you get to know them as “experts” first before “investors.” “Listen to podcasts they were guests on,

follow them on LinkedIn and Twitter and read their posts, and demonstrate that you value their thought leadership,” he says. For instance, he suggests that you engage with their content on its native platform or send them an email with commentary or questions about something they’ve shared. “Do your research on the investor as a human being. Learn how they think about the future of consumer, and nurture a relationship that isn’t attached to an ask.”

“If you ask for money, you get advice. If you ask for advice, you might get money.”

Get specific with connecting

“A lot of people ask their connections, ‘can you introduce me to other investors?’ And usually the response is ‘let me give it some thought’ and you never hear from them again,” says Paul Voge. He suggests getting extra specific with asks to avoid this block. For instance, try saying something like: “can you introduce me to someone named Samantha in Cincinnati?” This specific ask now makes them think “Do I know someone named Samantha in Cincinnati?”

“For us, this looked like saying, ‘hey, I totally understand if we aren’t the right fit. Do you know anyone with a beverage background on the west coast who I could talk to?’” recalls Voge. “All of the sudden, someone came to mind and an intro was made.”

Always offer a “forwardable email.”

Apart from getting specific, the best way to secure an intro is by taking the burden off of the middleman. Instead of asking someone to draft an intro on your behalf, reframe the question to allow for double opt-in. Gelb suggests that you prepare a “forwardable email” that your current contact can easily pass along to the potential connection – with zero effort or stake in the game. All they have to do is forward your pre-written email to their connection with the subject line “Interested?”

This also gives you control over how your company is framed and provides an opportunity to make the email personal; you can actually speak directly to the final recipient in the email before you are formally connected to them.

Make it ridiculously easy

Investors are taking meetings all the time. One of the ways you can differentiate yourself from the crowd is by making it ridiculously easy to connect with you. Be open to meeting an investor wherever and however they want. If you know they go on daily walks, offer to walk with them. Go beyond the typical “grab a coffee” to fit more seamlessly into their existing routine.

Be persistent

Founders often struggle to tow the line between “persistent” and “annoying,”

and err on the side of silence. But Gelb suggests an in-between – aiming for persistence without a direct ask. In the same way that you should initially nurture your relationship with investors sans ask, he suggests regularly following up, with genuine interest. “Follow up with a reason – an update on your brand, commentary on an article the investor was featured in, etc. – make it conversational, and you will set yourself apart.” A common fallacy is thinking that the key to setting yourself apart is by playing it cool; in reality, most founders are falling off after initial outreach. The key to setting yourself apart is by remaining visible and persistent.

PITCHING PROCESS

Upgrade your tech stack

If you can’t set up time with an investor, or have to virtually share your deck, consider including a Loom video. Loom is a great tool that allows you to add person-

ality to an otherwise stagnant deck, and showcase the human behind the brand.

“Using Loom, you can walk someone through your deck in 5 minutes,” says Marcia Dawood, Chair of the Board of the Angel Capital Association, on the Startup CPG Podcast. “You're never going to give them all the information in five minutes – and that's not the point. The point is to give people enough information to want to sit down and learn more.”

Docsend is a well-loved tool by fundraisers. All you have to do is upload your pitch deck to Docsend, and it creates a unique, secure link for sharing. Docsend tracks every single person who opens your pitch deck and captures their email. And beyond capturing this data, you can use this email list to program automated outreach.

Gelb shared that he once saw a brand set up their Docsend to automatically send an email to whomever opened their deck. This email shared a quick highlight of the main exciting points in the deck in 4-5 bullets, and had a link to the found-

er’s Calendly for “any further questions.” At the end of the email, the founder encouraged the recipient to forward the deck to anyone they thought may be interested.

This process took all of the effort off the recipient’s plate – and turned a pitch deck into a word-of-mouth machine.

Don’t bury the lead

“Saving the best for last” should not apply when it comes to pitching. Investors may only be dedicating a few minutes of time to your pitch, and are looking to be hooked immediately. “Start with the hottest things happening, and then get to the details,” says Dawood.

Iterate

“Take notes of every question that investors are asking, and iterate your deck to answer those questions for the next pitch,” says Gelb. “Your deck should be getting better and better throughout the

MOST FOUNDERS ARE FALLING OFF AFTER INITIAL OUTREACH. THE KEY TO SETTING YOURSELF APART IS BY REMAINING VISIBLE AND PERSISTENT

process – which is also why I suggest that you meet with the investors that you’re most excited about towards the end of your process. Both your deck and presentation will get more polished in time, and you’ll be answering questions before they even come up.”

Asking for feedback

“You’ll often hear something like ‘we’re not interested, but we’re rooting for you from the sidelines,’” Gelb recalls. “Ask these investors for feedback. Send them an email after the pitch, and mention that you really value their perspective and appreciate their support. Ask if they have any advice for improving your pitch, and actually take this advice into account.”

STAYING IN TOUCH

Be extremely organized

Gelb emphasizes that investor outreach should never feel like “a meeting here and there.” Rather, it should be a strategic process.

“Think through every single system you have in place,” echoes Cason Crane, founder of Explorer Cold Brew. This includes how you’re capturing notes from every meeting and keeping track of every single follow up. “If you’re not personally organized, utilize someone on your team who is,” he suggests. “Guide them to call you after every investor meeting they see on your calendar and ask you for the readout and next steps. Have them then schedule all next steps in your calendar while you’re still on the call.”

Keep a running draft

Every month, start a new email draft to send to potential investors, current investors, and friends of the brand. Throughout the month, add updates to it as they come up, instead of waiting until the end of the month to pull it all together.

Whether you were written about in an article, received an award, or spoke on a panel, make sure you are sharing every single milestone with your investor network. Consistency gives the sense of “buzziness” and makes the recipient feel

like they are seeing your brand everywhere.

It’s easy to get strung along by investors, and many brands I spoke to felt frustrated by a lack of closure. As important as it is to stay optimistic throughout the process, it’s equally important not to waste your own time – so it’s worth going into the process with a grain of realism.

“We had close to 100 meetings over the course of a year – VCs, family offices, angels, family and friend investors,” reports Crane. “VCs want constant deal flow, which means that they may take meetings even if they aren’t interested or aren’t actively deploying capital. They have no incentive to give you a hard ‘no.’”

“They will often say things like, ‘it’s just a little early for us right now, but keep us in the loop,’ or ‘when you raise your next round, we want to be part of it,’” he recalls. “Ultimately, the business could be thriving in a year, and they want to leave the door open to come back. Founders are in a disadvantaged position – it’s a climb with no actual summit, because investors aren’t incentivized to share their honest opinions.”

“At first, I thought everyone who took a call with me about investing was interested and excited about the opportunity,” says Griffin Spolansky, co-founder and CEO of Mezcla. “I would talk to the same investors for weeks, and make little traction. Looking back, I would urge my younger self to be upfront with investors on intention. I would ask ‘are you interested in investing now? If not, no worries, I'm happy to have the conversation anyway, but it’s helpful for me to know what to expect.”

Crane reiterates this, suggesting that founders ask for transparency when appropriate. Time is a founder’s greatest asset, and it’s worth knowing when to stop investing time for the false promise of financial investment.

Remain transparent, too

When you’re raising, your business is already capital constrained. On top of this, your own time is split as you attempt

to run the business and raise simultaneously. It’s challenging to take on growth projects. Don’t have much to report? “Be upfront,” says Crane. “When you’re lacking additional data or updates, share that your current constraints may be hindering quarter over quarter growth. And the sooner you close the raise, the sooner you can get back to demonstrating growth.”

CLOSING THE DEAL Remember that this is a two-way street

As Spolansky progressed through three rounds of fundraising for Mezcla, he began to change the way he approached meetings: “I went from being super eager to close a deal in every meeting, to focusing more so on vetting potential investors as partners,” he reflects. “Our numbers are strong and we have a great product. Just as much as we want to raise money, investors want to get into deals that can be lucrative for them.”

He reminds us that the wrong investors on your cap table can cause more harm than good. “Thinking about entering relationships with potential investors as partnerships has been extremely helpful for me in my approach to fundraising.”

Set clear expectations

Fundraising is often compared to dating – which makes your relationship with locked-in investors analogous to marriage. Though the courting period is over, the most critical phase of communication is just beginning.

On the Startup CPG Podcast, Wayne Wu of VMG Partners explains that the most important thing you can do post-investment is establish what a “win” looks like: “Defining success with your investor is really important because it impacts how you think about resources and strategy moving forward.”

Gelb echoes this sentiment: “Know what their expectations are, what their core competencies are, and what they believe your brand could be. If they pitched themselves as a hands-on investor, hold them to it. If they mentioned that they could intro you to XYZ buyers, hold them to it.”

“Maybe in the future” probably means “no”

SAN DIEGO COMMUITY FEATURE

SIPWELL WINE COMPANY

Hilary Sipwell, the Founder and “Chief Go Getter” of Sipwell

Sipwell Wine Company was founded in 2021 on a mission to bring premium wines to a single serving format. Hilary Cocalis – the Founder and “Chief Go Getter” of Sipwell – wanted to drink less, but wasn’t happy with the quality of wines available in sustainable, single servings. She saw an opportunity to innovate with premium wine in a can, and Sipwell was born.

Today, Sipwell offers four award-winning canned wines, sourced from organic and sustainably farmed vineyards in California's Central Coast. With wines from lesser-known wine regions, unsung varietals, and interesting production methods, Sipwell is determined to make wines that are different from what you can typically find on shelf. Plus, their sparkling wines are can-conditioned –meaning the bubbles are created right in the can.

Besides being the perfect single serving, their cans were the most sustainable choice: cans have a 45% lower carbon footprint than wine in bottles (they weigh far less than shipping glass), and they can be recycled infinitely. The Sipwell team also prides themselves in shipping their wines directly in 100% recyclable, plastic-free packaging.

Most importantly, Sipwell is on a mission to create a more positive, mindful approach to drinking. What does that mean? “For one, we're about celebrating, not coping,” says Cocalis. That’s why their wines have celebratory names like “Tiny Victories" and "Go Getter." Second, we support moderation, not over-consumption; our 250mL can is the perfect single serving.

Can by can, Sipwell is making wine more approachable, more sustainable, and more fun for the future of wine lovers.

Sipwell Wines are available for shipping nationwide on their website and at Southern California retailers.

By Grace Kennedy

THERE IS MORE TO CROWDFUNDING THAN KICKSTARTER AND INDIEGOGO

For small, early-stage brands, fundraising is often the first thing they think of when they wake up and the last thing they think of when they go to sleep. The problem is, at such early stages, many of the traditional funding avenues are not yet viable. A small brand may not have the revenue to qualify for a loan, feel ready to pitch investors or have friends and family they feel comfortable asking for a seed round.

All businesses need cash, and even more so in the early days. So what can you do when most of the traditional fundraising pathways just lead to a dead end? The answer, for many brands, is crowdfunding.

“So like Kickstarter or Indiegogo?”

Not exactly.

While Kickstarter and Indiegogo are two of the most famous crowdfunding platforms, they are not the “only” platforms available. And what’s more, these huge platforms can often bring more problems than they are worth for small brands. Luckily there has been an explosion of crowdfunding alternatives over the last few years, and founders have a wealth of riches to choose from.

So what are some of these alternatives and how can brands know which crowdfunding platform is right for them? To investigate, we spoke to three CPG brands that have successfully run campaigns on two (relatively) new crowdfunding platforms: Republic and NuMarket.

HOW DO THEY WORK?

Republic is an equity crowdfunding platform similar to Wefunder or StartEngine. Rather than investing to receive a reward like on Kickstarter, individuals invest in companies they believe in and, in return, receive a share of the company. It has a base of over 1 million investors, is available to all US-based C-corps and LLCs, and has a campaign success rate of a whopping 90%.

NuMarket is a smaller food and beverage-focused crowdfunding company that operates on credits rather than securities. For every dollar spent, contributors receive 20% back in credits to use at the business they helped fund. With NuMarket, consumers can support food and beverage brands directly in a mutually beneficial exchange of funding for credits.

CHOOSING THE RIGHT PLATFORM FOR YOUR BRAND

Republic and NuMarket are just two of the many crowdfunding options brands can choose from, and each platform has its own rules, regulations, and idiosyncrasies that founders will have to navigate. Brands will need to consider who they hope to reach, what they can take on, and how big of a risk they want to take.

The founder of NuMarket, Ross Chanowski, and his team schedule phone calls with each brand considering their platform to ensure they are the right fit. He encourages all founders to talk to as many people as possible and get clear on what they’re looking for before starting a crowdfund. Who do you want to invest in your business? Do you want investors with deep wallets? Or customers who you might run into at your next pop-up? Furthermore, Alex Bayer, the founder of Genius Juice recommends choosing a platform that is aligned with your product and target audience. Genius Juice used Wefunder in the past but moved to Republic as Bayer felt the site attracted more CPG-specific investors.

It is also worth considering what your brand has the capacity to take on logistically. For example, to do equity crowdfunding on a platform like Republic, brands will need to allocate time and money to manage the legalities and due diligence process — the most expensive part of Genius Juice’s Republic campaign was the legal paperwork. Elena Guberman, the co-CEO of TBH, which just ran a successful campaign on Republic, echoed the substantial legal/tax fees associated with their campaign and emphasized the importance of staying organized throughout the process and consulting with your legal team if possible.

Larger sites like Republic will also require brands to create a wealth of new content and a robust marketing plan to break through the noise of competing campaigns and entice investors. The TBH

Here is how to pick the alternative crowdfunding platform that’s right for you

team “wrote out a skeleton of all the different sections of our Republic page and collaborated on what each part should be. We read it 1000 times, edited 1000 times, and then finally put it up.” Bayer and his team spent “four to five months” before the campaign launched preparing their marketing materials, including videos introducing their new product, and graphics that displayed their top line and margin expansion, online sales growth, plans to scale distribution, and more. Despite some of this heavy lifting, both

Bayer and Guberman are vocal in recommending Republic to other CPG brands. In fact, Genius Juice’s first campaign on Republic in 2021 was so successful that Bayer and his team are currently running a second crowdfund to launch their line of wellness shots. Running a campaign on Republic is “a marathon, not a sprint,” says Guberman, but with proper preparation, “all of the challenges are completely surmountable.”

For a solopreneur like Tiffany Wang (founder of Ting’s Jackfruit Chips),

however, running a marathon did not seem feasible while she was deep in the weeds of a rebrand and working through supply chain issues. But like any business, she still needed funding. So when she received a newsletter from Droplet, another small, woman-owned CPG brand, announcing they were doing a crowdfund via Numarket, her interest was piqued. “If it's good enough for Droplet, it's good enough for me,” she thought, and she inquired with the platform immediately. For the most part, crowdfunding on

NuMarket is largely logistic-free for founders, which was one of the goals Chanowski set out with when he started the platform. Brands submit three photos, answer three prompts, and NuMarket does the rest. As soon as the campaign ends, NuMarket sends the brands all of the funds they raised (minus a processing fee) no matter if they reached their goal or not. NuMarket also handles the credits, releasing them in increments once a month until the contributor has received the entirety of what they’re owed.

The ease of NuMarket was exactly what Wang needed at the time: “A fundraising method that didn’t take away from what I had to do on a day-to-day basis for my business.” Furthermore, as a first-time crowd-funder, Tiffany was grateful for NuMarket’s hands-on approach. “I felt a lot more comfortable working with a smaller platform that was able to give me the attention and assistance I needed to successfully carry out the campaign. I could ping Ross or his team when I needed resources or had a question and they would get back to me immediately.”

Brands should also consider the level of risk they are willing to take. Republic is a high-risk high-reward crowdfunding option. Fundraising on their site is all or nothing, and though 90% of the brands that raise with Republic are successful, you will not receive any of the funds if you fall into the 10% that is not. In this case, Republic will not take a commission, but brands should keep this in mind when considering the platform they’d like to choose. Do you have the capacity to successfully execute on Republic? Or do you need something with lower stakes and a lower barrier to entry like NuMarket? It may not have as large of a reach as Republic, but brands can be sure they will see every cent they raise at the end of the process.

No matter what you decide, be sure to thoroughly research all of your options before committing to one crowdfunding platform. “We are humans behind this,” Chanowski explains, “and we want this to be a mutually beneficial relationship.” Talk to the team at each platform you’re considering to ensure they are able to

meet your needs. The crowdfunding process can feel daunting and overwhelming, and it is crucial to work with a platform you trust.

GEARING UP FOR LAUNCH DAY

Once you’ve decided which platform to use and the launch date is set, it is time to start preparing. “You can’t just sit back and expect to raise money,” remarks Bayer. He likens crowdfunding to running a campaign for President, “You have to get out there and talk to everyone.”

A few months before your campaign launches, begin reaching out to your network and the communities of people who might be willing to support your business. At TBH, Guberman organized this process by making four contact lists and tailoring personal outreaches to each type of connection:

l Friends, family, and loved ones send personalized emails and/or texts to loved ones.

l Current or potential investors reach out to anyone who has expressed investing in your business in the past, even if they did not end up doing so.

l People who can amplify this list will include those who might not be able to invest monetarily but could amplify the campaign via social media or other platforms.

l Your community if you are a part of any communities for startups or business owners (like Startup CPG) reach out to these groups and ask for contributions. Don’t forget to return the favor when it is their turn to do a crowdfund.

Social media can also play a huge role in the success of your campaign. After the initial burst of donations at the start of her campaign, Whitney saw her contributions slow to a trickle, but she continued to post on social media every day nonetheless. A few days before her campaign was slated to end, Ting’s Jackfruit Chips was only around halfway funded. Howev-

er, at the 11th hour, someone discovered her brand on social media and swooped in to fulfill the rest of her funding goal.

Persistence pays off in crowdfunding, and you never know who will find your brand and when. Start getting the word out as soon as possible, and don’t stop until the campaign is closed the money is in your pocket — the last 48hrs of a crowdfund are often the most successful.

CROWDFUNDING GOES BEYOND MONEY

Crowdfunding levels the playing field for small businesses seeking to raise money. “It is hard to raise institutional capital,” explains Bayer, “and it is even harder now with the tightening market. Crowdfunding allows us to grow our business without banging our heads against the wall.” But the benefits of crowdfunding go beyond money alone.

Crowdfunding, whether via NuMarket, Republic, or any other platform, provides brands with the unique opportunity to turn “customers into investors” says Bayer. Crowdfunding brings customers along as active participants in the brand’s journey, and the relationship evolves from something transactional to personal. If a contributor to Ting’s crowdfund brings their Jackfruit Chips to the picnic, they are not bringing a random snack they picked up from the store, but rather a product they personally helped fund.

The process of preparing for a crowdfunding campaign also requires brands to get clear and get loud on their long-term vision. There are no private meetings or closed doors in crowdfunding, and businesses cannot be shy about their hopes and dreams if they want to run a successful campaign. Wang explained that one of the most useful aspects of crowdfunding was that it forced her to put aside the excel sheets and to-do lists and consider the big picture of her business. “What am I trying to achieve and how am I going to do it? Asking people for money is a serious thing. If I’m going to do it, I want to be able to put my money where my mouth is.”

by Jenna Movsowitz

Red lights in a green rush

THE UNIQUE CHALLENGES OF CBD X CPG

As the average consumer becomes more and more aware of the link between diet and the oh-so coveted state of “wellness,” more and more food and beverage companies are advertising products that claim "function." And thanks to the hectic state of modern life, chief among the functional CPG category are products specifically focused on relaxation and stress reduction. CBD, or cannabidiol, a non-psychoactive chemical compound found in the cannabis plant, is one of many ingredients making this claim. Yet the use of CBD in food and beverage products is a relatively new phenomenon — and the legal landscape surrounding it is still evolving.

For CPG brands containing CBD, this evolving state has led to a set of unique hurdles stunting their growth. In this article, we will unpack these hurdles, their origins, and explore how innovative brands are overcoming them.

THE CBD “GREEN RUSH”

In 2018, the US Farm Bill legalized the cultivation and sale of hemp. This deemed CBD legal and federally

de-scheduled it from the Controlled Substances Act. Suddenly, CBD was in the hands of the FDA instead of the DEA. This legalization paved the way for the widespread use of CBD in a variety of products, including food and beverages.

The market became oversaturated with CBD companies in response. “The industry went from a handful of rebellious little players pre-2018 to thousands of brands, all going after a trendy ingredient, but one that was still unlearned,” says Jeff Henretig, former CFO of Lord Jones. Though the ingredient was technically in the hands of the FDA, the agency provided little oversight — leaving the industry unregulated and the general public uneducated.

“This quickly created a reputation of ‘snake oiliness’ around CBD,” says James Reina, founder of Jibby Coffee, a CBD coffee and matcha company. “There were a lot of bad players out the gate. In trying to be opportunistic on a new ingredient, these cash-grab brands opted for lower quality ingredients and put out bad product.”

Distributors began taking on these products left and right without thoughtfulness, and slowly began to witness them underperform — leaving both retailers and consumers with a negative percep-

tion of CBD. “Companies who are actually putting out high quality CBD products now need to work extra hard to overcome the reputation set during the peak of the Green Rush,” says Reina.

DISTRIBUTION CHALLENGES

With lower quality CBD products initially setting the tone for the industry, many distributors and retailers are unwilling to take a chance on the category. And without federal regulation, most chain retailers’ hands are tied. “Even if they see value in the category, without great compliance at work, retailers can’t justify taking on the risk,” says Reina.

Spirits and wine distributors, who operate within state-by-state frameworks, seem to be the most feasible partners for CBD food and beverage products. While this is a good workaround, these distributors still can only work within the network of retailers willing to take on CBD products.

INCREASED COSTS

The added costs of including CBD in a food or beverage brand arise in nearly every aspect of the business, ranging from

expensive insurance to pricey copackers and comanufacturers; with only a handful of facilities specializing in manufacturing CBD products, there is little competitive pricing. There are also elements that most emerging CPG founders never would have predicted prior to launch: “There is a special payment processor we have to use on Shopify for regulatory purposes, which is far more expensive than the typical setup,” explains Reina.

And where other brands can reasonably budget for marketing expenses, CBD marketing is murky. While most CPG brands utilize paid ads on Facebook and Google to promote their product, brands containing CBD are largely left out of this opportunity. "You'll quickly get auto-flagged into their drug category, which is not allowed to promote," says Reina. This hurdle impacts these brands twofold — it prohibits them from reach ing target purchasers, and from accessibly educating prospective consumers on the benefits of CBD and proper usage.

HOW BRANDS ARE OVERCOMING THE CHALLENGES (FT. JIBBY COFFEE)

From retailer to end consumer, the greatest hurdle faced by CBD brands can be summed up in one word: trust. With a fraught history and minimal regulation, the CBD category today has been placed in the metaphorical doghouse for many. But Reina is confident in Jibby's ability to regain consumer trust — starting at the product level. "All of our coffees and matchas are Fairtrade Certified. This is helping customers trust

the quality of the brand as a whole.”

Jibby has also made it as simple as possible to research their CBD without lifting a finger. "We are conducting third-party lab testing for everything, from CBD potency and microbials to heavy metals, residual solvents, pesticides — everything. All of our test results can be accessed via QR code on the back of each can."

Beyond full ingredient transparency, Reina believes that brands need to thoughtfully educate their consumer on functionality. "CBD is a fantastic ingredient. It can alleviate anxiety, it can boost your mood — but it's not an instantaneous thing," he says. "Brands need to honestly communicate expectations."

LOOKING AHEAD

As of 2022, the major retailers in this space are limited to GoPuff and Sprouts. But Reina is confident that it's a "domino effect." These trailblazers have inspired major players including Circle K and the MLB (yes, like the stadiums) to take on CBD products in the next year.

We are also seeing movement on the advertising front: Google recently updated their ads policies to allow for the promotion of certain pharmaceuticals and topical, hemp-derived CBD products in some locations. Though this initiative doesn't apply to food products, founders in the space are optimistic about this momentum.

Reina acknowledges his conflicting feelings towards CBD as a CPG founder: "It’s a double edged sword, right? It’s our key differentiator, but it also causes many roadblocks. But I believe that's the natural recipe of any emerging category."

By Jenna Movsowitz

Disrupting Retail

LEARNINGS FROM TRAX RETAIL’S INAUGURAL EVENT

On January 18th, Trax Retail, a leading provider of computer vision and AI-driven solutions for in-store execution, merchandising and shopper engagement, held their inaugural event – at the New York Stock Exchange, no less. Leaders and industry experts from fast growing and emerging brands came together under the iconic roof of NYSE to learn about the current state of retail in the industry

Over the course of the day, speakers ranging from brand leaders at Once Upon a Farm and Hello Products to the Senior Market Strategist at NYSE brought their expertise to the stage. Here are 6 of the most interesting takeaways from the event:

1. Transparent is the new black

Craig Dubitsky, founder of Hello Products and co-founder of eos Products, emphasized that the coolest new trait in retail is transparency. “Make it friendly, not preachy,” he says. As an example, every one of Hello Products’ labels has a parenthetical next to each ingredient of exactly what that ingredient does.

2. Don’t “tell” a buyer – “ask” a buyer

Craig reminded the audience that, at the end of the day, a retailer is asking themselves “what’s in it for me?” Instead of going into a pitch determined to convince them why your brand is deserving of being on shelf, find out what they are actually looking for to fill their shelves. Ask what needs they are looking to fill, and genuinely determine if your brand is the right fit.

3. Every account in every channel is its own unique business

Chris Jane, founder of Proper Good, brought up the importance of treating every single account as its own unique business. At the end of the day, you’re not running a single business – you’re running as many “franchises” of your brand as individual stores it is in. Each requires different investments, different launch strategies and trade marketing. Paying attention to each account can feel impossible, which is one of the many reasons why Chris and the other panelists – Chuck Casano (Pitaya Foods), Jessica Pratt (Pop & Bottle), and Ashley Christensen (MingsBings) – rely on Trax Retail to manage their many businesses, near and far.

4. Authorized store count =/= actual store count

Cheryl Vanvalkenburgh, CCO and VP of Sales at Once Upon a Farm, reminded the crowd that authorized store count does not determine where you’re actually placed. Thanks to Trax Retail, her team discovered that they were only actually present in 40% of their authorized stores at one point in time. Retail is not something you can “set and forget.” It’s a continuous lift – which is why having a partner like Trax Retail is critical to in-store success.

5. Living on-shelf in center store is not enough

Matt Weiss of RIND believes that much of their success came from moving off-shelf to captivating displays and endcaps in their retail locations. Taking advantage of these off-shelf opportunities was critical for RIND, and was only made possible by Trax Retail’s ability to work with each unique store location.

Announcing: Trax Smart Action

Trax Smart Action is a data-powered merchandising solution providing fast-growing and emerging brands data, insights, and recommended actions to optimize in-store execution. Shelf data is proactively collected in-store data from national retailers and is closed-looped into Trax’s merchandising solutions for prompt actions.

This comprehensive dataset unlocks a new level of retail visibility and allows high growth brands to better understand current shelf and market conditions. Key performance indicators like OOS and competitive insights are integrated into a single dashboard that allows brands to efficiently grow sales based on data-driven decisions.

Trax Retail is a proud sponsor of Startup CPG. If you are a service provider or industry partner interested in partnering with Startup CPG, please email partnerships@startupcpg.com

By Jenna Movsowitz

HOT + NOT FUNDRAISING IN 2023

WHAT’S HOT Retention + strong velocities

Impressive acquisition alone is no longer interesting for today’s investor — they want to see sticking power. While strong velocities can be a result of high trial rates, sustainably strong velocities are a result of retention. If you can cite both in your pitch, you’re demonstrating a stable path to profitability that is far more attractive to investors than trial alone. Investors care about long-term growth and want to see strong potential for a high LTV. If you’re seeing low churn, emphasize it.

Community as a metric

The term “community” is being used ad nauseam these days – yet it is still largely misunderstood and misrepresented as a metric. To stand out in a pitch, consider finding ways to quantify your community beyond your social media following. As Mike Gelb, host of The Consumer VC Podcast explains, “Community isn’t just about having a following. It’s about demonstrating your following’s ability to activate.”

“Think about ways that you can show a direct correlation between your virtual following and their physical footprint,” Gelb suggests. “Sometimes this is anecdotal, like showing DMs of followers who found you online but purchased in retail. Other times, you may have to get creative.

Consider capturing the zip codes people are searching for in the ‘find us in stores’ on your DTC site. This demonstrates intent to purchase in retail.”

Demonstrating “coachability”

"Having a plan, but being open to changing that plan, is actually really relieving for people who are trying to invest their money in your idea,” explains Dylan Barbour of Barbour Ventures. “The best founders I work with aren’t the ones painting a beautiful picture of a rocket ship – they’re transparent. Sabeena of Deux is a great example of this. She is confident, but knows where Deux is struggling and knows how to communicate where they need help. Be super convicted, but also coachable.”

Better-for-you

We’ve been hearing about better-for-you (BFY) for years now – and it hasn’t shown signs of slowing down. BFY allows the promise of both natural and conventional channel success; products in this category are considered both suitable for the natural consumer’s standards, as well as a feasible alternative to BigCo brands in the conventional channel.

Today’s investors, though, are extra skeptical about the “better” piece. “You have to demonstrate a really good narrative,” says Gelb, “But you also need to have that narrative tie back to your product rather than just your marketing.”

In other words, investors will do their due diligence. Every nutritional claim needs to be easily backed up.

Literacy

Reading is hot. Before approaching a potential investor, make sure you are well-read in the space. Know what a term sheet is (check out Y Combinator’s free template), be able to reference and understand the success of other CPGs, and know your category in and out (try NielsenIQ’s Byzzer tool for this). Check out these book recs from Paul Voge and Dylan Barbour:

Dylan’s Picks: Secrets of Sandhill Road by Scott Kupor, Never Split the Difference by Chris Voss, The Hard Thing About Hard Things by Ben Horowitz

Paul’s Picks: Venture Deals by Brad Feld, High Hanging Fruit by Mark Rampolla, Mission in a Bottle Seth Goldman

WHAT’S NOT Debt Funding

“The debt market right now isn’t very forgiving,” says Gelb. “Early stage brands are playing in an asset class that debt providers simply don’t want to be in. It may be possible to get a bank loan, but you are likely looking at giving away equity in 2023.” However, if you plan on using debt for working capital needs, there are some companies that can provide you with that, such as Ampla and Clearco. “If you’re able, you should avoid looking for

debt funding right now and bootstrap until you gain traction.”

DTC-only

“Acquirers and VCs in 2023 want to see 80-90% of your business coming from retail,” says Barbour. Or, at least, a clear path to this metric. If you haven’t made your way into retail yet, you may not be ready for fundraising. However, if you are conducting a raise anyway and want to get investors excited sans retail presence, there are ways to get crafty: “Show why you could have a really compelling wholesale business and demonstrate that

your gross margins are potentially higher than some of some of your competitors,” says Gelb.

Barbour suggests that you start out by growing a successful Amazon business, demonstrate some DTC success, then raise with a clear plan of using the funds to get into retail.

Relying on volume for better margins

“We often hear ‘we're going to get better gross margins through volume,’” says Wayne Wu of VMG Partners on the Startup CPG Podcast. “And unfortunately, I

haven't seen that come to fruition many times. I found that most brands either start with great gross margins and they keep them, or it's something that plagues them throughout their existence.”

Moral of the story? Build great margins into your brand early on, even if it may be costly upfront. “Investors are looking for a great story in the natural channel, but one that can seamlessly switch over to conventional,” says Gelb. “Pay attention to how you think about price for a future in conventional. At the early stage, really dial in on margins and focus on what that could look like at scale.”

HOW A VENTURE CAPITAL FUND WORKS

Want to learn more about Venture Capital and Private Equity?

Here are some of the takeaways from Episode #60 of the Startup CPG Podcast with Wayne Wu of VMG Partners about how a venture capital fund works:

WHAT HAPPENS WHEN A FIRM DECIDES TO INVEST $10 MILLION OF THE FUND IN XYZ BRAND?

• Firm reaches out to all limited partners/investors committed to the fund

• If investor committed $10 million of $100 million fund (10%), they would need to send $1 million to invest in XYZ Brand (10%)

• Investor has X number of days to send in the $1 million

• Firm invests $300,000 of $10 million (3% of the fund represented by the firm)

• On exit: XYZ Brand sells and $20 million comes back to the fund (doubled the investment) - 20% of the gains go to the firm, 80% goes to investors

• Firm also makes return on their $300,000 investment - receives

$540,000 back ($240,000 additional gain since investment was doubled minus the 20% already received by the firm on gains)

WHAT

DOES

A $100 MILLION FUND MEAN?

• $100 million is the total of commitments from individuals and institutions to invest $X in the next X number of years (example: 5 years to deploy capital, 5 years to harvest returns).

• Private equity firm represents small percentage of fund (example: 2-3%) with the firm's own $$. Other 9798% of funds from outside investors through commitments.

• Firm makes money on % of gains returned to investors (example: 20%) and through their own 2-3% investment.

LEARN MORE ABOUT VC & PE ON THE STARTUP CPG PODCAST, AND CHECK OUT OUR OTHER EPISODES ON ANGEL INVESTING, CROWDFUNDING AND MORE