The Silicon Slopes Consumer Chapter held their December event last week with a panel discussion on Funding a Consumer Product Company. The panel was comprised of Summer Harris, Founder and CEO of Baby Bling, Ben Capell, Partner at Peterson Partners, and Sara Day, Program Manager of Training and Outreach at Utah Microloan Fund. With their mixed perspectives, there were interesting insights on funding.
Baby Bling’s Funding Journey
Baby Bling has been around 14 years with no funding until 2 years ago. In the early years, Baby Bling was a “side hustle” and most banks didn’t comprehend baby products, so it was funded by personal capital and cash from operations. Two years ago, they had a huge track record of growth with both direct customers as well as retail partnerships. Summer’s first attempt to get a small business credit card required her to get her husband’s signature despite he not having any involvement whatsoever with the business. It’s hard not to assume a gender bias, but to Summer’s credit, she rolled with the punches and has since been able to fund the business through lines of credit, factoring, and credit cards since then and won a lot of awards along the way.
Utah Microloan Fund
Utah Microloan Fund lends where banks and other traditional lenders do not. Banks often want 2 years of financial history, but this doesn’t help a new business who needs some capital to get off the ground. They will typically lend up to $25,000 and can go as high as $50,000. Sara noted that they look beyond credit and focus on the bigger picture of a business’ prospects by reviewing their business plan, application, and the people behind the request. Consumer product companies make up approximately 25% of their lending with their broader customers making up underserved demographics: women, low income individuals, refugees, and the like.
Peterson Partners and Why Venture Capitalists are Funding Consumer Product Companies
Ben noted that Peterson Partners provides seed stage funding which is inherently risky. They look for high scale businesses and today’s consumer product companies are often times able to do that with digital marketing and distribution combined with outsourced manufacturing. He identified that both software companies and consumer product companies employ a lot of tech staff.
Getting Venture Funded
Not every company can be venture funded. Ben noted some key attributes to funding a consumer product company:
- Product Differentiation
- Ability to Build a Brand
- A Cause that Drives the Brand
- The ability to achieve $100 million in revenue in 5-7 years
With product differentiation, Ben says they ask a few questions. What is it about the product that stands out in the market? Is there something unique or different from other similar products in the market?
Ability to Build a Brand
Ben noted that differentiation will get copied. At that point, having a brand becomes critical to continue to retain existing customers and attract new ones. This makes sense when you think about Nike versus a niche brand like Brooks (which I run in). Nike gets the buzz, the attention, and the market share while someone like Brooks gets hardcore runners like me. Venture capitalists want Nike, not Brooks (although Brooks is a fast growing private company now owned by Warren Buffet’s Berkshire Hathaway).
A Cause that Drives the Brand
Speaking of shoes, Peterson was an early investor in Allbirds and one thing that set their shoes apart (besides being made of wool) was their commitment to sustainability. Causes are increasingly important for consumers and will create a loyalty that goes beyond traditional marketing.
Baby Bling has a primarily women workforce and contracts their manufacturing to local women who create their bows and other products. Summer noted the experience of being a mother of four kids and the senses of accomplishment work provides her staff and contractors. She also mentioned that they haven’t promoted this aspect much to which Ben replied they should.
Ability to Achieve $100 Million in Revenue in 5-7 Years
Venture capitalists want growth so they can achieve a good return for their limited partners and offset the investments that go nowhere.
How did Baby Bling prepare for the Great Recession?
Summer stated that they were still fairly early in their journey but had two factors that helped. First was the factor that people still spend on their kids during a downturn. Who knew? Second was with their local, small batch manufacturing, they were able to be agile with their products and quantities.
When do venture capitalists invest in a consumer product company?
Ben said they invest early but look for a few things including a clear product \ market fit, selling to underserved markets, and a company’s scale potential. Product \ market fit can be measured as simply as a kickstarter campaign result such as Allbirds selling 1,000 shoes in 3 days. With scale potential, they look for the cost of customer acquisition and lifetime value of the customer in particular.
How do venture capitalists value consumer product companies?
Ben said that they measure some key metrics when valuing a company:
- Repeat purchases
- Return rates
- Lifetime customer value
- Growth rate
Depending on the performance of these metrics can determine revenue multiples that a company will receive on their valuation.
What are the exits for consumer product companies?
Ben used the analogy of pharmaceutical companies that increasingly do less drug development, but instead buy startups who have developed a drug, proven the drug’s value, and received the approval to go to market then swoop in and buy them to scale up the sales. He is expecting a similar approach with consumer product companies and cited Bonobos being acquired by Walmart.
This was a fascinating discussion that doesn’t get brought up very often. The options for funding were well represented with the speakers. It took a heavy turn to a discussion on the venture capital option as this hasn’t been considered viable for most consumer product companies until recently. Summer’s experience with Baby Bling demonstrated the ability to bootstrap and fund hyper growth through a diverse set of options other than venture funding. Sara and Utah Microloan Fund and doing great things to help businesses get off the ground when most doors are shut. We need more lenders like Utah Microloan Fund!