Funding Lookback 2024: Defining Success at Year End

Do we skew the definition of success by covering the brands that receive investment?

I was on a call recently speaking with a group of entrepreneurs when one asked me whether we cover too much of the small set of brands that seek to fund their growth through venture capital and other investment vehicles, as well as those that eventually sell to another entity, as opposed to those that have not been able to find outside funding.

It’s a distorted view that I probably rationalize away too easily, one that dovetails with implications of bias that might come from putting a spotlight on a company or a person, regardless of what the story reveals.

But we strive to present a complete picture. Over the past year-plus, we’ve written repeatedly about the slowdown in venture funding and strategic transactions, and panelists on our stages continue to point out that they’d rather see brands with high margins and profitability. Repeatedly, investors have told us two things: first, that the threshold for investment in food and beverage companies, particularly with slower M&A activity, is higher than in the past, and second, that they will look to invest in companies that are able to maintain margins of at least 40% and are able to easily achieve profitability – if they haven’t gotten there already.

They also tell us that under those margin and profitability conditions, business owners have their own advantage: they have greater control over their financial destinies.

But still, the successes we write about, the way an exiting founder can be looked at like a triumphant general returning home from the wars, might very well over-distract from the gloomy conditions on the battlefield. It takes a long time to count the casualties.

Our events, BevNET Live, Nosh Live, Brewbound Live, aren’t necessarily designed to celebrate success so much as outline the decisions and circumstances that can, possibly, lead to that success. Nevertheless, our speakers may still skew too far in the direction of “what worked” as the model, rather than “what didn’t.”

As with our reporting, when we put events together, we try for balance; we push speakers to talk about mistakes in strategy and execution, to explore those things that pushed them to the limits of sanity and budget, but yeah, the stage is usually dominated by the survivors. I do believe that those folks are there to show their peers how to scramble aboard the lifeboat, but it remains a hard fact of this business – like any other – that a lot of those enterprises eventually sink beneath the surface.

The fact is, a lot more founders call us when they’re having a tough time than we’re ever able to report on. They call to vent, to ask for connections to angel or bridge funding, whether we can connect them with such-and-such fund or well-known investor or operator.

But it’s rare that they call us to say, on the record, “write a story about how I can’t close this funding round.” And it can be hard to make a final determination of a brand’s health. Between purchase orders, warehouse shipping, and the slow turns of products that are already on the shelf, a brand can still be shambling about like a zombified chicken for months or even years after the founder has started getting a paycheck somewhere else.

It’s the Sales, Not the Raise

Even as we report on tougher conditions and job changes, on rising interest rates affecting lending and the decay of available lines of credit, the funding events and transactions get attention because they’re the ones people are happy to announce – even if they aren’t that nine- or ten-figure exit that so few actually hit. I’ve said it and written it: when brands go under, they usually don’t send us a post card. There isn’t a morgue – there’s just a fading signal that really doesn’t stop until someone stops paying to keep the web site up.

The harsh truth is that about two-thirds of businesses across all industries don’t last 10 years and about half of them don’t make it three, according to the U.S. Bureau of Labor Statistics. We know that across food and beverage, there are fewer than 100 billion-dollar brands, according to scan data, and that VC investment has been down for the past couple of years.

But we also know how much the food business has shifted in the past decade – with growth driven by unique, small, specialty brands that are not part of the Big Food and Big Beverage marketplace. We know consumer diets and tastes are encouraging experimentation across flavor families and nutritional attributes, and that the cultural and political zeitgeist is causing even more people to question whether giant food manufacturers undermine public health.

There are also those success stories. For every well-funded, celebrity-backed brand like a Once Upon a Farm, there’s also a scrappy underdog like a Nutpods that is able to take advantage of the changing times with an appealing alternative product.

John Foraker, the CEO of OUAF, recently told our Nosh Live audience that he felt there had never been as good a time to start a healthy food brand, mostly for the reasons we stated above.

But that doesn’t necessarily mean it’s the best time for those brands to go out and look for growth funding, even if, as Foraker noted, their growth is their best asset. That’s because a lot of founders agree with Foraker – consumers want these products, and growth can lead to investment or even company purchase. The problem is, too many founders are hearing the reverse of the second half of that occasion, and believe that investment will lead to growth. The big strategics have already been through that cycle, buying and investing without necessarily reaping growth, and the investors themselves are now wary that their money will plug a hole, rather than rev an engine.

So that means that as investments and exits have stayed rare, they’ve become even more newsworthy. But it also means that the investments are clearly not the only indicator of a victory – depending on the terms, they are often indications of living to fight another day.

So if you’re looking for success, understand that it isn’t in the investment round, it’s in the sales. You can take in all the capital in the world and if the consumer or the retailer isn’t interested, you can’t put it to work. It’s something to think about in a world where growth capital remains hard to find. While it might seem like there are different eras in that regard, it’s important to note – even in the times when it seemed like there was more investment in brands, there were just as many of those calls I describe, where there’s a founder looking for money or connection, or venting over the lack of same.

So what can you do? As we head into the new year, remember, the investors like a sure thing; as Whipstitch Capital’s Mike Burgmaier likes to say, they don’t so much enter a room as slow the speed with which they’re backing out of it. So maybe it’s worth taking the time to focus on the people who are sitting down to eat and drink, rather than the ones who inevitably look for the door. If you do it well enough, they’ll come knocking on their own, and you can decide if you’ve got room for them, alongside all of your repeat customers.