The Power Of CPG Brings A Steady ROI To VC Funds

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Nearly 70% of the US’s economy is driven by consumer spending. Yet, venture capital investment is focused chiefly on tech.

Some, like Springdale Ventures, see an opportunity in funding early-stage companies in the consumer packaged goods (CPG) space. The venture capital firm invests in everything from food and beverages to durable goods and from emergency preparedness to subscription books for kids. “Anything that you’d find in the household making life better is what we invest in,” said Genevieve Gilbreath, cofounder and general partner (GP) at Springdale.

Gilbreath is a serial entrepreneur who founded two export/import supplement companies. After she sold the second company, she wanted to start investing in consumer brands and support entrepreneurs through their early stages, so Gilbreath joined SKU as managing director. It’s the leading accelerator program for consumer product startups in the US. That’s where she met her co-founder of the venture fund, Dan Graham.

Graham had a digital sign printing business called Build a Sign which he bootstrapped and sold to Vistaprint for nine figures. “My background is in the physical products across all [distribution] channels, but predominantly natural channels, like Whole Foods,” Gilbreath said. “His background is much more focused on e-commerce and direct-to-consumer for physical products.”

“We saw a big gap in the market for funding early-stage CPG companies,” said Gilbreath. There were a lot of early-stage tech funds but not consumer-focused funds, especially in Austin. Consumer scaling brands try to raise money from tech funds or angels. But, “most [tech] investors don’t know what it takes to scale a [consumer] brand or have the networks to be really helpful.”

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Springdale Ventures launched in 2019. The pair set out to raise a $20 million fund but raised $27 million. The first fund’s limited partners (LPs) were all high-net-worth individuals (HNWI) and small family offices.

“We invested in 28 brands,” said Gilbreath. The duo raised money primarily from people who knew them. “Kind of similar to the friends-and-family round for a startup. They are wealthy people who know and trust us.”

Gilbreath and Graham are currently raising their second fund. They have some results from the first fund but haven’t had any exits. “We’re still pretty young,” she said. “Most of our investments are only about a year and a half old.”

“Now, we’re targeting a $60 million fund size with a hard cap of $85 million,” said Gilbreath. The pair have raised $40 million. “We invested in our first company in January,” stated Gilbreath. Many of the LPs from the first fund are returning. “We also have high-net-worth individuals outside our network, several bigger family offices, and small institutions.”

“We’re talking to a lot of institutions, both small and large,” Gilbreath. “there’s a ton of emerging manager programs [at these institutions].”

Pension funds, banks, mutual funds, hedge funds, insurance companies, and endowments have emerging manager programs in which they invest in the first, second, and even third funds below a certain threshold. The threshold for investing in most emerging manager programs is for the fund to be between $50 million and $150 million. Springdale’s first fund wouldn’t have qualified, but its second fund does qualify for some.

Most VCs think tech is the only place where there are returns. “It’s a complete blindspot,” Gilbreath emphasized. She looks at investing in consumer companies through two lenses. First, from a market-size perspective: Nearly 70% of the US’s GDP is from consumers. The sector is grossly underfunded. Second, from a returns perspective. The return on investments (ROI) that you get from CPG startups are much more consistent across the fund than tech funds. Unlike tech investments in which you may get a home run but often strike out, with consumer product investments, there’s a lot more consistency. Think lots of doubles and triples.

Many consumer products and services are staples. They enjoy a steady demand during recessions and other emergencies, such as pandemics. There are more women and BIPOC founders in CPG than in tech. “There’s a much more diverse pool of individuals looking to start those companies and have the necessary skill sets,” said Gilbreath.

“By the time we’re investing in products, they have good product market fit,” said Gilbreath. “They have a base of consumers and are starting to scale. There are so many exit opportunities for consumer brands. Even in a distressed situation, buyers will still be out there.”

There have been unexpected and expected roadblocks to raising the fund. “Some of our high-net-worth individuals who committed are now saying that due to the state of the stock market and their liquidity, they want to reduce amounts or pause on the commitment,” said Gilbreath.

“The majority of high-net-worth individuals who invest in funds are white men,” said Gilbreath. But women have a better understanding of the consumer space. “While women are increasingly becoming high-net-worth individuals, it will take time for cultural norms around women and investing to shift.” Women are told that they are not good investors, and the reality is that they are better investors than men.

Springdales’ current investment minimum is $500,000. Lower investment requirements are needed to encourage women to invest as an LP. Funds over $10 million are limited to 99 accredited investors. Ninety-nine small checks don’t get you very far. “I’m looking at how we can do this,” said Gilbreath. That could be having a parallel fund that is less than $10 million and can have 249 accredited investors.

How are you rethinking how you raise money?

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