Consumer PE - What does the landscape look like?
Can anyone share anything they know about the top consumer groups, how they've performed recently, and general outlook on the space? I'm sure a lot of the retail-oriented firms have been hurting for a while but curious how food/bev, CPG, ecommerce, and others have been doing.
Also, I know TSG and Catterton are the two biggest dedicated names. Any others that come to mind or generalist/multisector funds with a strong consumer focus?
Can only really speak to LMM + eCommerce/DTC end of things.
There are a handful of VCs focused on it as well as some small PE firms. Platform plays like what WIN Brands is doing are popular as there’s a lot of synergy you can capitalize on in e-commerce.
IMO the most interesting LMM firm is CSC Generation and Retail E-commerce Ventures. REV is actually run by Tai Lopez but they’ve picked up some crazy IP like RadioShack, Pier 1 (beat Sycamore) and a few others. Not sure how well they are performing but REV has actually been raising on ridiculous terms from retail investors.
For a bit and I guess still to an extent today, there were a lot of VCs that primarily had tech experience who were underwriting DTC deals at tech valuations because they felt unicorn outcomes would happen just as often in DTC as tech. Not the case at all and the "new" wave is underwriting exits at much lower valuations ($100M - $300M).
I hear that Justin Yoshimura fellow is a qt3.14
Verlinvest comes to mind as well. They got Oatly, Vita Coco, Hint and some others in their portfolio. If I understand it correctly, it’s more of an evergreen vehicle of a few wealthy European families but they write relatively large tickets and are operationally involved (so wouldn’t call it a family office).
Another name is Invus. Similar setup (backed by European families) but quite sizable with $8bn AUM.
I understand L Catterton’s performance has been “good”.
I do wonder how robust the brand thesis in an age where brands can be created/built so rapidly and at lower cost than in the past.
Retail generally is still reeling from covid but that may present some lower valuation entry points.
Didn't know good meant mid-teens returns these days...
LOL, IKR! I think L Catterton's growth funds have performed well but agree the flagship funds are probably lackluster.
Good question and I definitely don't know the answer, but as someone who competes with a lot of these DTC companies I have a few thoughts.
1) It is easier than ever to break into the CPG space. The 3 major barriers to entry - shelf space, manufacturing scale, advertising cost of entry - have been massively eroded by eCommerce, large-scale contract manufacturers and digital advertising (mostly Google/FB).
2) DTC is "attractive" as a marketing/brand-building channel due to the first-party data you get on shoppers, but it is really not that attractive from a margin perspective in most CPG categories. Acquisition costs (see 3 below) and logistics costs squeeze a lot of the margin out. If you're Glossier selling $50 makeup that weighs 2 oz, that's still ok, but if you're trying to sell body wash for $6 for 15 oz of liquid (heavier, harder to ship) the margins quickly plummet. Most DTC players have realized this, which is why the playbook is now use DTC to build a brand and then move into mass retailers (WM/Target) as quickly as possible because that's where the margin is.
3) In the early 2010s post-recession digital advertising was cheap and so brand-building was cheap. As more startups and established players have rushed into the space, costs have gone way up and as with anything the scarce input captures most of the value. The scarce input is YouTube/FB/Google, not advertisers. It's become much, much more expensive to build a brand this way.
IMO, the golden age of DTC is over, with the failed sale Harry's to Edgewell serving as a highly visible marker.
Thanks for sharing your experience. +SB
Well said. The one cure for a lot of what you brought up is allocating into companies that are truly vertical (DNVBs), especially those with serious complexity around engineering, manufacturing or something similar.
Roark Capital is huge in the restaurant space. Just had an $11B deal to takeover Dunkin and have lots of other well known brands in their portfolio like Buffalo Wild Wings, Cinnabon, Arby's, Carls Jr, etc. Lot of these fall under the Inspire Brands platform.
As far as performance goes, they're currently raising for fund vi with a $5B target, in line with fund v's final close of $5B. Looks like fund iv (2016 vintage) struggled for a bit and has subpar returns at only 1.05x, but as of 2019 fund v was doing well enough at 1.12x (2018 vintage). https://www.oregon.gov/treasury/invested-for-oregon/Documents/Invested-…
Curious to see how COVID affected the portfolio. Couldn't find updated 2020 numbers from any LP sites but maybe someone else has them.
This is what I don’t get about PE.... Roark is one of the largest, most prestigious funds but those return numbers are terrible.... I don’t understand how the HF industry is losing allocation these firms when the returns are better
illiquidity discount... these LPs love not marking returns to market & many of them won't be in the same seat for 5-10 years at an allocator so they dont really care if a PE fund doesnt generate good IRR over 10 years as long as they can CYA w good pedigree
makes their jobs easier and so a fund w one good vintage will attract $$$
https://www.aqr.com/Insights/Perspectives/The-Illiquidity-Discount
if these allocators actually had balls they would allocate to levered small cap long only but a) you can get margin called in the public markets whereas in PE you can renegotiate financings w your golf buddies b) their incentives are not aligned
Does anyone have any insight on the recruiting process at Roark? I am going to be an IB SA this summer but am interested in possibly joining there full-time. Know that they have primarily hired from UVA for UG roles over the past few years but am curious if they are open to other targets.
Here are some key players in the consumer (and retail) space that haven't been mentioned yet. Can't really speak to performance although can say these are generally high quality firms.
TSG, L Catterton, and Roark are all big names but mentioned above.
Have always felt that VMG Partners and North Castle partnered with some impressive brands (market leadership, growth trajectory, etc.). Recently, have seen Yellow Wood and Monogram make more of a splash in the consumer space.
VMG is awesome. There's a great podcast (can't remember where I heard it) floating around with one of their founders or partners IIRC. Good listen.
Unfinished biz podcast? one of the partners wayne wu, was also featured on the consumer vc podcast
If we are mentioning VMG / Monogram (which do lots of growth equity / venture deals as well), probably worth mentioning the below funds too.
Alliance Consumer Growth - Shake Shack, Lola, Good American
Stride Consumer Partners (formed from the recent fizzle out of Castanea Partners) - Tatcha, Essentia, Drybar
Stripes Group - Reformation, Erewhon, Califia Farms
Sonoma Brands - Milk Bar, Hu Kitchen, Krave Jerky
Eurazeo Brands - Herschel Supply Co., Axel Arigato, Bandier
Forerunner Ventures - Bonobos, Dollar Shave Club, Hims & Hers
Imaginary Ventures - Daily Harvest, Everlane, Glossier
14W - Moda Operandi, Reformation, Food52
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