State of the venture market in CPG 🧵 Last week we spent time on-site with a number of our LPs to discuss the dynamics in CPG venture

Main questions asked:

How much has CPG tracked tech in slowdown of deal activity and valuation decline?

What is the “right” discount from 2021 prices?

How close are we to the… twitter.com/i/web/status/1…

Health and wellness is an absolute megatrend, and we're still in the early innings

Tens of billions of equity value will be created this decade in companies that don't exist yet

This comes from 4 key factors

(Thread) 1/ Factor #1: The wellness economy is absolutely booming worldwide

People are demanding better products to put in, on and around their bodies

And better experiences that make healthier living easier and more fun

Valuations are rising across emerging CPG which forces us to reconsider our frameworks

Investors are naturally complaining (as we do) but what is happening here?

(Thread) 1/ First off, consumer products seed and series A investors typically use two methods of valuation:

A. Multiple of revenue
B. “What do you need to believe?” analysis

One of the most important lessons I’ve learned since founding Selva Ventures is the close relationship between fear and conviction

(Thread) First of all, fear is everywhere and inevitable

It’s the product of combining uncertainty and care about an outcome

It’s the root emotion of a handful of derivative emotions we see everyday: anxiety, anger, frustration, insecurity, arrogance

I have one super high-conviction category bet in CPG that always invites a ton of skepticism and pushback: Non-alcoholic beer, wine and spirits

3 years ago I was a skeptic but now I'm convinced

Many people don’t believe me, but I think it’s going to be huge

Thread 👇 1/ In the past few years people have finally begun to apply their health & wellness mindset to their drinking habits, with the result being low sugar, low ABV and low additive replacements

I’ve written about this here:

https://twitter.com/KivaDickinson/status/1309673740087640064?s=20

My bet on the next category in consumer packaged goods to produce a billion dollar brand: Sleep

Here’s why 👇👇👇 1/ Health and wellness has historically meant diet and exercise, but that misses a critically important third leg of the stool in our physical well-being:

The ~8 hours of quality sleep we need each night

Every big success in emerging CPG brands can pass what I call the “Dinner Party Test"

Thread 👇 Imagine a consumer tries your product for the first time and a week later she is at a dinner party with friends

The friends start talking about new products and brands they've tried lately

Each person talks about their new favorite, now it's her turn…

I’m often asked what I look for as an investor in emerging CPG

Many assume a high degree of subjectivity given the different category and channels, with limited data at the seed/A stage

At Selva we’ve built a framework and process to drive consistency
Thread 👇 When we founded the firm, my partners and I agreed we needed a framework to evaluate brands across food, bev, beauty & wellness, on- and off-line

We established a set of questions to answer about each Company we looked at, and named it ‘the 5 Ms’ ensure it was remembered:

Last year I co-founded Selva Ventures, a CPG-focused VC firm, as a solo GP

This week I’ve been reflecting on our first year in business and wanted to share some of the lessons learned in building a small investment firm
Thread 👇 1/ As a solo GP I wear 2 hats

Investor: Always challenging but familiar. Same thing I was doing before

Entrepreneur: Incredibly ambiguous and scary, but also the greatest source of fulfillment

The change in alcohol consumption is arguably the biggest new brand opportunity in CPG. Household names are emerging every year in booze, all with a common theme: "better for you" products

Last I checked alcohol isn't "good for you" so what's going on here? Thread 👇 1/ In the 2010s as people upgraded all aspects of their lifestyle, from their diet to their beauty products to their fitness routine, it was inevitable that they would eventually question their drinking habits

More data showing large CPG brands outperforming small brands during the pandemic. What does this mean? (thread) Natural Q: is this supply- or demand-driven? Valid arguments for both sides

1/ In many conversations with early stage CPG CEOs since March I've heard the same question: "Sales are up but how do I balance growth and profitability during this time if I want to fundraise later this year?"
I've taken a stab at this Q here
medium.com/@kivadickinson… 2/ COVID-19 has only accelerated an existing trend of investor focus on profitability dating back to WeWork and Casper's IPO bids. We were in a bubble - that focus shift was coming, virus or not

In contrast to the "build P&G from scratch" idea that I took issue with yesterday, there could still be a way to build a DTC holdco that makes sense (h/t to @web who has a great take on this below). It's not easy, and it has to start at scale. The framework needs to be...

https://twitter.com/web/status/1192142324660350977

1. Find a capital source with desire to invest heavily in emerging brands. @web says @Shopify (great, but doesn't need to be). Could just be one of many large cap PE firms stuck on the sidelines as their minimum check is too big for the small brands doing all the innovating...

I'm hearing more often lately: "DTC brands should launch as holding companies for a portfolio of brands" aka build the new P&G. It's the popular response to brands raising too much & burning too fast without a path to exit. I just don't think it's the answer. 3 reasons why... 1. The picks and shovels of DTC mean brands can outsource commodity functions (finance, operations, fulfillment). If there's not enough work to justify a VP finance you pay an outsourced CFO (@PropellerInd), you don't start a sister brand so your VP finance has more to do...

1/ Went to the grocery store today and was struck by something: for all we hear about consumers changing preferences and wanting healthier goods, there is still so much shelf space allocated to things we don’t want or need 2/ When you look at a wall of selections and don’t see a map of what the consumer actually wants, you can bet that an entrepreneur somewhere is getting excited. Change is coming. Here’s what stood out to me:

1/ Fascinated by @James_Holzhauer on @Jeopardy - now has 2nd highest longest winning streak of all time and has won $1.6M in just 21 episodes. I'm fascinated not by his knowledge and ability, but by his strategy 2/ Aggressive betting out of the gate and "True" Daily Doubles ensure that he builds a lead of 2x his opponents before Final Jeopardy so that he's mathematically guaranteed to win and live to play another day come the final round

Best I've seen written on ISAs, which I believe will see huge growth in next 10yrs - kudos to @eriktorenberg
Two reactions I had though:

https://twitter.com/eriktorenberg/status/1110703803764891651

1. Social interest in one another's income is more negative than positive. Your friends/mentors give advice/help with vested interest in your happiness. which often might conflict with income maximization. Would your friend really say "quit the stable job and start a company"?

1/ I said in my 2018 Lessons Learned that I believe people think about risk the wrong way. I think that’s esp acute in making career decisions. My belief stems in part from my own struggles - nobody is immune to this. Here are 4 things I think we do wrong

https://twitter.com/KivaDickinson/status/1080612450142044160

2/ First: we grow attached to the status quo because it feels safe. Leaving a job you don’t like feels scary, but staying is a slow train to unhappiness. As humans we systematically overvalue our “bird in hand”, and rationalize keeping it until there's a perfect bird in the bush

1/ Please check out my latest post “Who Should Make My Product?”, covering the question of whether CPG brands should outsource or self-manufacture -- big thank you to Wayne Wu from @vmg_partners for sharing his insights on the topic medium.com/@kivadickinson… 2/ This is not meant to be prescriptive by any means, or suggest to any entrepreneur that there is one right answer. It's rather to give brands a lens into how we investors think about one of the most important questions that they face

1/ I have a theory that as one’s career in business progresses to a senior management level, no matter what it is you do, your role and success ultimately becomes a framework of only 3 things: Sales, HR, and Predicting the Future 2/ Sales is both internal and external. Internal sales is about communication of your ideas to achieve progress and results. That means motivating those who work below you and establishing clear frameworks they can buy into

1/ Talking to these companies all day I can attest to this, and while scope of roles is certainly an issue, so too is the experience these CEOs are looking for when making a digital marketing hire

https://twitter.com/ryan_caldbeck/status/1070728797903716354

2/ Many companies eventually settle for someone underqualified from a big company, true, but I often find they are actually looking for that big company resume in the first place (which I think is a mistake)