VENTURE CAPITAL | Profitability

In the past few months, we’ve seen venture groups become more and more selective with their consumer investments. This is common in an uncertain economy; less money in circulation means increased difficulty to raise a new fund, making risk aversion & collecting on existing investments all the more important. As a result, VCs are doubling down on the cash cows within their portfolio, and are cracking down on profitability for new investments as well as existing portfolio companies. 

BANK FINANCING | Swimming Upstream & Non-Bank Partnerships

In terms of DTC debt landscape, traditional bank financing has historically been reserved for later stage businesses, but profitability has more or less become a requirement in recent months. As a result, we’re seeing banks re-route smaller credit clients to non-bank lenders, ultimately creating a domino effect among CPG capital providers.

To combat shrinking CPG credit portfolios and the onslaught of new corporate banking partners caused by recent bank closures, banks are establishing referral-based partnerships with non-bank lenders to ensure brands in their network are receiving service that meets their standards.

WHAT DOES THIS MEAN FOR DTC BRANDS?

They say history repeats itself, and that’s certainly true when it comes to the fundraising landscape. An increased emphasis on profitability is commonplace in a recessionary economy and there is light at the end of the tunnel for early-stage brands feeling these effects. The key for early-stage consumer businesses will be to extend runway until the market inevitably shifts in their favor. 

You may be wondering how to extend runway with VCs and banks tightening their purse strings. We suggest speaking to your finance team about exploring your debt options. Odds are, you can leverage the assets you already have (think inventory and/or accounts receivables) for working capital to fund operations, marketing, inventory build, etc. For more on this, check out our article comparing the two most common non-dilutive capital structures for DTC businesses.

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