On March 11, a carbonated startup announced it had raised $67 million at a $1.4 billion valuation and reported 2023 sales of $263 million. Did you think this startup was canned water company Liquid Death?
Liquid Death has now raised more than $267 million in venture funding, despite being in a category that many investors aren't interested in. The beverage industry is capital-intensive, making it a tough industry for VCs. You need a knack for choosing companies that sell well in retail stores and other direct-to-consumer channels. You can attract repeat customers instead of one-time customers.
Michael Jones, managing director of Science Ventures, told TechCrunch that his company was not interested in being active in the beverage space, but that it could potentially disrupt traditional players like Pepsi and Coke. He said he supported Liquid Death because of his gender.
“We were looking for a culturally relevant company in the market to offer healthier products that redefines tired, old categories,” says Jones. His investment team considered Liquid Death to be a “super-disruptive brand.”
cut through the bubbles
Some venture-backed beverage startups are hoping to disrupt the industry by creating new beverage categories. Dan Backstaff, chief marketing officer at retail data company Spinz, said this is similar to what technology companies often do.
“You might think we can't shoehorn another category in here, but instead we take a different approach,” says Backstaff. “You get inspiration from others, or there's new technology or data that makes it possible. It leads to companies that can generate hundreds of millions of dollars in ARR.”
He said Liquid Death has taken cues from beer marketing and shelf placement, finding success not only on grocery store shelves but also at events, bars, restaurants and even conferences. (Liquid Death declined to comment.) In fact, Backstaff recently hosted a Liquid Death party at Expo West, a consumer packaged goods conference, and his room “really ate up.” It ended up looking like this.
He conducted an informal survey asking participants how often they ordered beer or wine to appear sociable. Half of them said so. This led him to believe there could be a huge market for companies like Liquid Death, which has alcohol-inspired brand names and packaging, but with healthier alternatives. I noticed.
“For those people, these non-alcoholic brands are well-positioned to do that and have great potential,” Backstaff said. “Not only at social events, but also at home, people relax and drink beer. Instead, there are now many mood-setting and relaxing alternatives.”
Not Beer is one of those companies paying homage to these early companies. Founder Dillion Dandurand is starting his own new company to produce a brand of premium sparkling water that will be released on April 9th. He said his own brand was created for consumers who choose to reduce their alcohol intake.
“Gen Z drinks less than previous generations,” he says. “These people still want to have fun, but they're starting to realize that they don't have to drink alcohol to have fun, or that they don't have to drink as much alcohol to have fun. They're actually getting a good buzz. It's probably more fun if it doesn't go to waste.”
However, standing in front of the noise can be difficult. According to Dandurand, there are two attributes that consumers care about and that provide opportunities to differentiate a brand from its competitors. It's the taste and the brand.
With so many choices, brands need to sell why their drink is better than similar drinks in the category, and also sell why their drink is better than other categories. there is.
“It's an uphill battle,” Dandurand said.
Who else is popping up?
Water isn't the only thing attracting startups and venture capital (often from high-profile angel investors). Drinks containing vitamins, minerals, supplements and botanical ingredients are also a fast-growing sector.
Companies like Odyssey, for example, raised $6 million in venture capital in February from a group of investors that included Rocket Beverage Group's Richard Leber. The company infuses its drinks with lion's mane and cordyceps mushrooms, which are known for increased cognitive clarity and energy effects.
Other beverage startups raising VC funding include healthy soda startups like Olipop, backed by Fin Capital Partners, Meritus Ventures, and celebrity angels like Camila Cabello. And Poppi is backed by Electric Feel Ventures, Rocana Ventures partners, and angels. Each has raised more than $50 million in venture funding. Lemon Perfect, a healthy lemonade alternative, has raised over $70 million in cash from VC firms, athletes, and a long list of celebrities like Beyoncé.
Poppi, which has CAVU Consumer Partners and high-profile investors including The Chainsmokers' Russell Westbrook, Olivia Munn and Nicole Scherzinger, has captured about 19% of the drinks market share since launching nearly four years ago. doing. According to a report by Forbes, this is 1.5 times more than Coke. It also surpassed brands like Monster Energy, Gatorade and Liquid Death to become the 11th fastest-growing beverage brand last month.
The brand has achieved success through “strategic marketing to build an active, loyal following and become part of the culture” and “bridging gaps in the industry by offering delicious, good-for-you options.” Poppi CEO Chris Hall told TechCrunch. Email.
Venture capital is chasing some of the biggest hits in this category. In 2021, Coca-Cola acquired celebrity-sponsored coconut vitamin water company Body Armor for $5.6 billion. Body Armor had raised $36 million in venture capital. Back in 2016, antioxidant-infused beverage maker Buy raised just over $10 million in venture capital before selling to Dr. Pepper Snapple Group for $1.7 billion. Smaller transactions also take place. NextFoods acquired tart cherry beverage Cheribundi for an undisclosed amount in April 2023, following a $15 million investment round in 2020 led by Emile Capital Partners, Food Dive reported.
These startups are attractive acquisition targets, as traditional companies often prefer to acquire rather than develop their own new products, but some may do well in the public markets. Yes, said Alex Malamatinas, founder and managing partner of food and beverage-focused Meritus Ventures.
“What is happening in the world of technology and AI is obviously amazing, but [but] After all, everyone needs to eat and drink every day, and those are very large markets with significant TAM,” Malamantinas said. “Despite everything going on, the best performing stocks are monster drinks, not tech stocks.”
That's a bit of an exaggeration. Monster is up about 16% over the past 12 months and has a market cap of a respectable $63 billion, but the world's most valuable companies are Microsoft, Apple, and Nvidia, and each company's value is trillions of dollars. But it's fair to point out that its market capitalization is higher than many technology companies. For example, of his 100 companies listed in Bessemer's Cloud Index, only seven of his companies are more valuable.
A new innovation cycle for beverages
Backstaff also noticed that Expo West, the food industry's largest trade show, is booming with new exhibitors. “I think we may have entered a new innovation cycle,” he says.
Jeff Kleinman, editor-in-chief of food and beverage-focused media company BevNET, certainly thinks so. Kleinman told TechCrunch via email that beverage startups' continued resilience despite tougher funding markets is a story of “haves and have-nots.” Ta.
“Funding has become more difficult in recent years, strategic departments have slowed down acquisition plans, and financing has tightened,” Kleinman said. “While the rollout of CPG funds has slowed, competition for brands that are actually growing and doing well is increasing.”
However, beverage startups are having difficulty raising funds even in the touch VC environment. Kleinman said the market is difficult because it hasn't hit the “sweet spot” where consumers make repeat purchases, there's no channel expansion, and there's no clear path to profitability.
Malamantinas said it's difficult for investors to know which brands will stick around and which are just jumping on the bandwagon. He noted that the CBD beverage trend briefly picked up steam a few years ago, but has since subsided considerably. Research is mixed on whether low-dose CBD drinks are effective, so perhaps thankfully the company avoided them, he said.
“We're going to see some big gains in the next few years,” Malamatinas said. “I think the main reason people shy away from this area is because it requires a certain level of expertise. We have experienced operators. It requires a level of know-how and skill.”
For investors willing to invest the effort and time to find long-lived brands, this category has the potential to generate significant returns. It cooperated with Bai. Olipop and Liquid Death seem to be doing well. Now let's see who's next.