April 2, 2021
Why Choose a Consumer Venture Capital Firm? By H Venture Partners
All venture capital dollars are not the same. As an early stage company focused on a CPG product or healthcare services, you could theoretically choose a tech VC to lead your seed round, join the portfolio of an “agnostic” fund, or you could choose to take investment from a consumer venture capital firm.
Many investors could write you the same check, but not all can provide the same support. So, if you’re a consumer company, why exactly should you look for a consumer venture capital firm?
Consumer products and services are a huge potential white space in innovation. Even though consumer spending accounts for about 20% of global GDP, and the Federal Reserve claims 69% of the economy is directed toward the consumer, just 3% of VCs focus on consumer investing. There are several reasons for this, but the bottom line is this: Not everyone can excel at consumer investing, which is a misunderstood segment of venture capital.
Specialization: The Midwest is Best
Many VCs don’t have the expertise to dabble in consumer investing. While your neighbor on the West Coast might have designed the latest interface for DoorDash, our neighbor in Cincinnati designed the latest formulation of Pantene. The Midwest is the Silicon Valley of consumer packaged goods. This makes sense from a logistics and distribution perspective - it’s more cost-effective to ship products from the middle of the country where you can reach X% of the market in about 90 minutes than it is from one of the coasts. Some of the biggest retailers in the world have headquarters along the Ohio and Mississippi Rivers. The Midwest is also fertile test market ground, and Cincinnati is the top test market in the country for consumer brands.
If you’re building a consumer company, it’s also important to have experts who can help you build out your omnichannel retail presence -- and that goes beyond the direct-to-consumer approach many startups adopt first.
So, before you take a check, ask these questions of your potential VC partner:
While some VCs think the consumer category is “easy,” it’s not. The success of a consumer company, and making a smart consumer investment, is highly technical and deep expertise is needed to come out on top. The right VC will be able to tell you the exact LTV:CAC ratio you need to survive -- and will help you hit those numbers with an experienced team. You need a team that can go to market with an omnichannel distribution presence.
Our mission at H Venture Partners is to grow and nurture tomorrow’s leading billion dollar brands that are better for human health and the environment. Based in “Consumer Valley” - Cincinnati, Ohio - we have access to some of the best cpg leaders in the world, who are also investors in our fund. We are invested in our portfolio companies’ success on many levels and have the ability to provide leading expertise. If you are a start-up consumer brand looking to grow your company, make sure you surround yourself with investors that are not only committed to your success but can help you achieve it.