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1/ M&A exits in consumer are going to get smaller. Yet we're in the Golden Age of CPG. How do I square this?
2/ Personalization of the Consumer is a very real thing. Consumers are demanding personalized products that meet their unique needs. Consumer tastes are fragmenting.
3/ As a result, in every category large brands are losing market share to small brands.
I’ve said that before right?
I’ve said that before right?
4/ But yet large CPG is basically big Pharma with the public companies basically buying innovation through M&A.
5/ That proportion of small M&A has been getting smaller. This is by # of deals (which I know is less compelling) but $ tells a similar story. 
6/ That is going to continue. Consumers will keep to demanding products that meet their unique needs.
As consumer continues to fragment, the “winners” will just be smaller.
As consumer continues to fragment, the “winners” will just be smaller.
7/ I believe the billion dollar revenue CPG company is much harder to create over the next 10 years than it has been for the last 30.
8/ So what does that mean if I’m right? It means the exits will be smaller but far more numerous. 10x $400m exits vs. 1 $4b exit (vitaminwater).
9/ So….what does that mean for consumer investing? I would be worried about the growth stage firms that want to write $25-100m growth equity checks into consumer companies for primary investment (buying secondary a bit of a different pt).
10/ If the projected outcome is, lets say, now $400m exit - the math makes it really hard to believe that a $100m investment will make venture returns given any sort of reasonable entry valuation.
11/ BUT if you as the investor can instead make ten to twenty $5-10m investments, vs. one $100m investment, then suddenly that looks like a really attractive portfolio. IF entry valuation makes sense. Big IF.
12/ Problem in CPG is a) companies are all spread out (no Silicon Valley in consumer)- they are in Boulder, Austin, LA, NYC, Florida, Sonoma, etc etc).
13/ b) no infrastructure like YC or TechCrunch that reliably connect companies & investors. Yes there there are CPG blogs & incubators, but nothing of scale that exist in tech.
14/ Thus cost to find/evaluate these brands is super high, so investors have to spread their search costs across larger investments.
15/ It’s really hard to find/evaluate cpg companies with <$10m in revenue because the cost to source as percentage of investment is just way too high.
16/ Let’s be clear- the investor that can play that end of the market will be deeply rewarded if she is disciplined in valuation and check size.
17/ More exits at that end can be very valuable if the investor maintains discipline.
Something that appears to have been lost among some tech vc firms that are dipping toes in CPG over the last few years.
Something that appears to have been lost among some tech vc firms that are dipping toes in CPG over the last few years.
