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Raising Equity During and After COVID

20 April 2020

Key Webinar Takeaways

The Dwight Team has seen some changes in the growth stage CPG investor sentiment over the past year, and we continue to see changes as the COVID crisis develops. Jessica Bates from our team sat down with Dayton Miller (Managing Partner, Boulder Food Group), Jared Stein (Co-Founder & Partner, Monogram Capital) & Jared Jacobs (VP, CAVU Ventures) to discuss how the raise environment has changed over the past year and throughout the COVID pandemic, as well as what to expect going forward.

Equity Groups are cutting checks BUT the focus is on profitability

What operational and spend levers do investors find most important and effective when making the shift to profitability?

Think about Core Contribution Margin: what is the full cost (freight out included) to get your product in the customers hands. Think about the following:

  • SKU rationalization to determine:
    • Best performing
    • Highest margins
    • Are there non-performing SKUs that should be shed from the product mix?
  • Consider renegotiate co-packer arrangements
  • Are you self-manufacturing?
    • Should you be?
    • Is your plant operating at optimal capacity?

Non-working spend:

  • G&A – what makes up this number? Is all spend in this category essential?
  • T&E – is this only happening when there is a realizable ROI?

Sales Channels:

  • Customer diversification
  • Channel diversification: online & retailers, then further diversification among retailers

While revenues are currently up, brands should hope for the best but prepare for the worst:

  • Benefit as much as possible from the uptick while you can
    • Maximize fill rates
  • If you’re waiting on resets to get sales, there could be trouble ahead
    • Prepare and maximize runway
  • Focus on channel exposure
    • If there is a recession there will be a pull-back from premium retailers to value retailers
    • Be sure to have a diverse channel mix
  • Think about levers that can be pulled to get to entry level pricing while maintaining the brand premium
    • Smaller pack size?
  • Be aware of the value of your product, it has to justify the premium

Prepare for a longer, more in-depth raise process:

  • Add 2-3 months to your raise timeline
    • Work backward from when you need to fund to determine when you should start a process
    • Build in extra time
  • Investors will be more discerning than in the recent past
    • Get to know more groups and spend more time with those groups
  • We are now 6 weeks deep into this new world – investors are going to want to know what you did to optimize during this period and they’ll want to see how it is reflected in your numbers

What to expect from valuations…

  • Best in class assets will continue to carry a premium BUT
  • This time period will make very clear what “best in class” vs “good” really is
  • It may be more difficult for younger brands to get higher or aggressive valuations

To sum up, it is evident that the current environment is presenting a revenue growth opportunity for brands in the near term. However, the message is clear that this growth should not come at the expense of profitability. Companies should, now more than ever, focus on margins, cut down on spending and keep an eye on channel diversification. Equity groups are active, but they are more discerning than ever. If you need to raise now or in the near term, these business fundamentals will have to be proven out.

We’ll leave you with some final pieces of advice from our panel experts:

Dayton Miller (Managing Partner, Boulder Food Group):

Use COVID as an opportunity to address issues in your company or to address things that aren’t working: from HR to stores that shouldn’t have been a focus. Know going forward that investors are going to ask:

1) How did you optimize during COVID?

2) Does it show in your numbers? 

Jared Stein (Co-Founder & Partner, Monogram Capital):

This is a hard moment for people personally. Lead with your heart, mission and cause, and make sure your actions align. This can build resonance in this time that has deeper meaning and allegiance in the long run. Build the tribe – show that the brand has a reason to exist and that there’s a reason that you’re putting this incremental product out into the world.

Jared Jacobs (VP, CAVU Ventures):

Be creative – do anything you can to create that cult-like following or community for your brand. The money will follow that. Demonstrate consumer enthusiasm, through sales, Instagram engagement, LinkedIn posts, etc. Investors can feel the brand heat.

Webinar recording has been provided for full access to the panelist discussion.