Thread by @ryan_caldbeck

1/ Top things CPG investors look at when evaluating success.

[FYI these are heuristics - most investors look at these metrics because they are intuitive and seem to make economic sense. I’ve never met an investor that has proven their value.]

2/ NET REVENUE- If a CPG investor can have 1 number and only one, it is # of eyeballs that looked at your app but didn’t pay anything for it.

Nah just kidding- it’s net revenue. I know- crazy right? Net revenue is actually an important metric.

3/ Note that it is net revenue, not gross. Gross revenue can be very misleading. Difference is trade spend, promos, and discounts can be >20%.

4/ NET REVENUE GROWTH. For companies <$20m in revenue, it is all about growth. Above that threshold you can make money with leverage as well so growth isn’t required. Good investors are often focused on $ growth instead of % growth for companies <$10m in rev.

5/ GROSS MARGIN – a healthy GM% is vital in CPG. Targets depend on category but can range from 40% (food) to 65% (beauty). Fully burden w/ freight. If your food co. is 20% GM and your competitors are 40%, means they have 20% more to spend on mktg, sales team etc. That’s hard.

6/ BRAND- a brand that really resonates with the consumer. Think of @vitaminwater 10+ yr ago. Or @HaloTopCreamery today. Typically for co’s <$10m in revenue, the packaging is the brand billboard and best marketing opportunity a brand has. Social engagement also critical.

7/ PRODUCT- great investor looks for a product that is unique in a way that matters to the world. Product uniqueness is necessary for success but not sufficient. Ingredient deck, packaging/form factor, nutritional profile, etc. Rarely comes in “just [tastes] better”.

8/ [Pause for editor’s note]…. It is really hard to find a successful exit of a branded CPG co. that didn’t spike high on brand intensity and product uniqueness. Go ahead and try, it is kind of fun.

Back to the list....

9/ DISTRIBUTION BREADTH AND QUALITY. Not all stores are created equal (online or offline). Company’s ability to grow distribution thoughtfully and efficiently online and/or offline.

10/ (continuation of 9) Offline distribution - is there a thoughtful strategy behind where/why they are expanding and how they are expanding that growth? Have they won (and succeeded in) key accounts?

11/ VELOCITY (offline)- Units / store/ week (or $/s/w) to understand how quickly a product sells in a particularly retailer.

12/ ONLINE- cohort data, repeat purchase (corollary to velocity offline), LTV/CAC, etc. There is probably a separate Tweetstorm about online CPG metrics, so consider this a teaser.

13/ CAPITAL EFFICIENCY- Good CPG investors realize a great CPG brand can/should be built without much $. I can name hundreds - literally - of successful exits in CPG that raised <$20m of growth capital. I can’t name 5 that raised >$50m.

https://twitter.com/ryan_caldbeck/status/1005272431110393856

14/ Lack of capital efficiency often means the company hasn’t found product market fit, which can mean they are ignoring the core problem of the business .....the lack of product market fit.

Gotta find that.

15/ TEAM- Effective leadership- particularly sales and marketing leadership. They are the most imp and those will attract other talent (and retailers, investors, etc). This isn’t about fancy schools or being well polished with investors, this is about building a great business.

16/ SUPPLY CHAIN- Some (not all) investors prefer the co. to outsource mfg and use a co-packer. If they own their own plant, there needs to be a strong reason it creates a meaningful pt of difference. Can they reliably and efficiently produce the product, and deliver on time?

17/ IMO the average CEO of a $1m-15m revenue CPG company that can nail #16, is more sophisticated than the average tech co CEO- and not even close.

Showing up on time, every time to 400 Whole Foods is really dang hard.

18/ MARKETING EFFECTIVENESS - a close cousin to capital efficiency. Is the brand blowing money trying to do national advertising when they are only in 50 stores? Do promo dollars increase baseline velocity or just cause peaks that revert quickly to previous troughs?

19/ MARKET SIZE (or potential for mkt expansion)- Is market large enough to believe a new substantial winner can be crowned w/o capturing unrealistic share of the mkt? If market growth is required, what is the value prop that is required in order to believe the growth will occur?

20/ CATEGORY DYNAMICS- Investors would rarely express it like this, but effectively they are looking for categories with stale incumbents that are ripe for disruption. Those strategics spent $ building category so you don’t have to.

21/ THE DEAL- great companies have been ruined by bad deals. They often get horrible advice from a 4th tier banker, or have a friend in tech that convinces them to raise at too high a valuation. This gets me genuinely so frustrated for the founders, company and their consumers.

22/ CONSUMER SENTIMENT- Would a consumer recommend product to a friend? Most investors try to get at this with focus groups, NPS surveys, etc. One reason we love d2c is because you can measure repeat purchase rate- which gets at consumer sentiment. (I’m a bit blah on surveys)

23/ CONSUMER VALUE PROPOSITION- Does the product deliver value to the consumer? Not necessarily cheaper $, but could be more innovation regardless of $. How sustainable is the differentiation that is delivering that value prop.

24/ EXIT- Why will a strategic have to own this co.? Why will this matter to the strategics, is the space aligned with their strategic goals?

25/ Goal of me writing this out is to help give founders a glimpse into what attributes investors probe on. You won’t be great on all of these. That's ok.

btw- part of what we’re doing with #Helio is actually identifying what matters so we dont need to rely just on heuristics.