The CPG space is tough, and plenty of businesses are working to ensure they have plenty of cash on hand, especially right now, in order to ride out the current, ever-changing tariff situation, tight investment environment and whatever else is still to come. Some are bridging those gaps with lines of credit.
Though a line of credit is non-dilutive, it still comes with risks. Partnering with lenders that not only understand your business, but also the whims of the industry you operate within has become even more important.
Assembled Brands, a CPG-focused lender that stemmed from the fashion space in 2016, has broadened its purview over the years, most recently partnering with brands such as Fishwife and Brami and having previously supported Mason Dixie, Juneshine, Happy Dad Seltzer, Jack & Annies, BobaBam, Aura Bora and more.
We recently sat down with Kunal Kohli, managing director and head of revenue at Assembled Brands, to better understand the funding landscape for CPG businesses and how operators are hedging against uncertainty.
You’ve been on the other side of the table before as a founder with your better-for-you bouillon cube business BOU Brands. How has the path to financing a CPG business changed since that time?
What I’ve generalized [about VCs] is that there [used to be] a lot of FOMO mentality because so many companies actually did well and got acquired for insane multiples. A lot of the VCs felt left out… Then what they kept on emphasizing with the customers was to grow top line – top line, that’s where all the multiples are going to come from, and that’s how companies are selling.
VC people are very smart. They obviously want to make sure that you’re running a business that is efficient and sound, and it may not be profitable year one or year two, but has the potential to be profitable from then on. But those lines got blurred, in my opinion, and I think that growth at all costs definitely sacrificed the bottom line for a lot of these companies. So while they were growing, they weren’t really focused on the operational efficiencies of the business.
When I was running my brand, my number one was: how do I continue to save a penny here, a nickel there on my costs? How do I improve my margins? As any startup founder, you’re always going to have that initial margin issue because you don’t take into account all the costs and everything that there is to sell. I do think that [the VC] mentality has definitely changed over the past three to four years… profitability has become more rampant. But the problem also is that some of these brands never had the ability to become profitable or get to that optimal bottom line because their margin was just never there to begin with.
Why are business owners seeking out Assembled Brands’ support in the current climate?
What we’ve been seeing a lot more of recently is uncertainty around tariffs [since] the initial announcement was made with those insane increases [back in April] and then two weeks later it drops down, but then three weeks later it goes back up. The problem is there’s just so much uncertainty that these brands don’t even know what to forecast. What we tell them is to just be conservative with your projections. You need to have a base case of an understanding of what these tariffs are, at least for the near future. Unfortunately, with this administration, the near future just means, like this week or this month.
It is subject to change now, again, but at the same time, there is also an understanding that some countries are going to be impacted more than others from these tariffs. Is there a world in which [a business operator] can look to move production – this is not an easy thing to do – but a lot of these founders and operators understand that they might have to do it. When we are looking at a company, we know that there is going to be a tariff impact, but what we are looking for is how has the company addressed this problem that is going to linger at least for the next early half of this administration.
How are you seeing companies successfully hedge against these uncertainties?
There are a lot of founders, operators, etc., that have approached this problem in a very actionable way to where [they] have three forecasts. These forecasts include [tariffs as] “this much of a hit to my COGs” or “this much of a hit to my COGs,” and “this much of a hit to my growth and my COGs” and [detail] “this is what we have done, we have adjusted these operating expenses, we’ve adjusted our marketing expenses down.”
Some have also brought their growth down because not growing so much actually means that they’re spending less on marketing, which is then improving their bottom line. What we’re looking for comes down to what have the operators done to address the uncertainty in the market? The more data and the more information that is used to make these decisions goes a long way, at least with us.
How does Assembled provide strategic support to its partners?
We know what’s going on with the companies that we’re currently working with, the companies we are offering on, and then we give advice where it is accepted. We’re not going to give unsolicited advice, but we do have a lot of data because we see a ton of financial information. We see what’s working for some companies, what’s not working for some companies.
What I’ve also stressed and am moving forward on quite a bit is making sure we have good partners who have the ability to help these brands as well. There’s a lot of service providers that come in that can make lives easier. The ones that I primarily focus on are the ones that provide immediate value without any type of commitment to the company, but are helping them save on costs.
[But] we never issue a term sheet without doing our due diligence. Even though we know that we’re going to do a field exam, a third party is going to come in and provide a recommendation, we don’t just issue a term sheet just for the hell of it. We issue a term sheet with full transparency…
There’s a lot of lenders out there who are very quick to jump to a default because it gives them the legal ability to change terms. You would never find that at Assembled. We’re going to work with you to figure out that path forward. There’s several customers of ours who’ve appreciated that [because] growing a business is very difficult. There’s always gonna be bumps in the road; there’s gonna be ebbs and flows. If you don’t have a lender who understands it, they’re gonna be very quick to call you out on your mistakes and then charge you for it.
