Rapid, growth-at-all-costs strategies are out for startup CPG companies, while strong fundamentals and a clear path to profit are in, according to experts in the venture capital space.
Following a dip in capital fundraising spurred by the departure of tech investors, capital is returning, but the rules have changed for lenders and startups.
The JPalmer Collective, a boutique asset lending firm for consumer brands, discussed the ever-changing landscape for capital lending at its Coffee, Capital and CPG forum in early March.
Brands must prove profitability
Capital has become more results-driven over the last few years, said Jennifer Palmer, founder and CEO of JPalmer Collective.
An “explosion of capital” flooded the natural and organic CPG industry from 2015 to 2020, according to Jamie Schwartz, director of Encore Consumer Capital.
Palmer said capital was rewarding velocity, but now it values durability.
“Long gone are the days of growth for growth’s sake. And now it’s really about having a vision for profitability or how to be profitable right now,” Palmer explained.
Nowadays, investors are gravitating toward companies that are either turning a profit or have a clear path to profitability, she added.
Part of the pullback in lending took place between 2022 and 2024, when venture capital investment from the tech sector in the consumer space “realized this is a very different game,” Schwartz said.
Picking the right partner
Failing to build relationships with lenders and capital partners over time is a critical mistake that startup CPG companies face, according to Schwartz.
“A big mistake that we see founders make is meeting a bunch of investors or capital providers when they need it most, as opposed to building those relationships over a long time and really building trust and understanding,” he said.
Encore Consumer Capital searches for founders with a “clarity of vision,” he said.
“Having that broader vision for what the company wants to achieve, and then instilling that culture in your team where they feel like they’re really part of something important and driving towards that mission together, that’s an intangible that drives growth that’s really hard to replicate.”
CPG founders are still the boss
Bringing on investors often means compromising when it comes to decision-making, but founders are still the boss, according to Lee Wallace, CEO and owner of Peace Coffee.
Investors want to drive growth and spend capital to keep things moving forward, but founder/owners still must balance investor motivations with other competing factors, Wallace said.
“It’s great trying to get those partners at the table, but really take a step back and think through all the decisions that you’re making as a group,” Wallace said. “Your investors are counting on you to do that.”
