Where Are We Investing Now: Emotional Consumer Goods
The Internet has disintermediated everything about consumer goods, from access to raw materials, to direct communication with consumers. And yet, the core activity of consumer goods, finding, evaluating, and purchasing products for ones’ self and family remains one of the most common and popular activities worldwide. This means consumer goods startups have a huge pre-trained audience for what they do. They have a ready supply of potential early adapters that provides them with opportunities to quickly grow revenues.
Joyance focuses on consumer goods with an emotional core, those most likely to deliver a Delightful Moment. Successful emotional consumer goods companies produce products that:
- Are sold online primarily; omnichannel is recognized as an inflection point at the Series A.
- Can be micro-manufactured and ship well; preferably, but not always, using new tech materials.
- Allow for a type of product design or economics not feasible in the traditional channel.
- Have high customer lifetime value.
- Deliver high gross margins.
- Display a strong propensity to be shared via social media or garner earned media.
- Show product timelessness and are not subject to fast or seasonal product shifts.
For mid-year 2020, our Joyance conclusions are that we maintain our course as set in January. However, strong evidence indicates that we need to focus more on AI in CPG immediately because it so clearly impacts many aspects here, from product design to warehousing and marketing.
Here is a more detailed view of our CPG focus for Joyance:
- Overall, in this area, investment opportunities remain strong. Given pre-existing trends accelerated by COVID, we should look for products that can impact mental wellness on top of physical health.
- We have always focused on science as a critical component of our CPG investments and we should redouble that focus now because the boundaries between pure science solutions and consumer products continue to efface.
We need to focus more on AI here because:
- More companies are using AI to help analyze customers and develop customized products.
- AI is enabling new approaches for ensuring product safety and supplier ethics.
- Product development processes (e.g., new ingredients, customer demand analysis) are also accelerating, helping bring new benefits to customers more quickly.
In every CPG investment, we need to see success well above the mean in the following:
- Gross sales
- Gross margin
- Data usage
- Customer identification
- Return rate
- Repeat customer rate
Questions we‘ll ask all potential consumer goods companies:
- What is delightful about your products?
- What’s the original market?
- Why is it ripe for disruption?
- What is different about your product?
- What is different about the model?
- Why is this an improvement for the customer?
- How do you ensure repeat purchasing?
- How much control do you have over production?
- How viral is your marketing?
- What is your Customer Acquisition Cost?
- What is your lifetime value per customer?
- What are your conversion rates in each ad category?
- How are you making your customer’s life better?
There will be many great companies created, but most won’t be top-tier venture opportunities. The massive winners will be across all categories and be global, omnichannel brands that deliver a generational opportunity for us to invest in a massive shift in worldwide consumption habits.
By Managing Partner Mike Edelhart