Advice to new brands: find investors that bring more than money
Adrienne Little, co-founder of London-based agency And Rising, questions the importance of venture capital to emerging brands in the current market compared to the wisdom investors can bring.
OK, so we know venture capital is slowing. Or is it? Whether dipping from all-time highs or finding new lows, start-up brands feel an investment squeeze. This viral TikTok summarizes the mood. Last year, dreams and money flowed. The IPOs flowed, too: Airbnb, Oatly and Allbirds were just a few multi-unicorn successes. This year, a new reality is biting (hard). It’s not for lack of capital, investors have more dry powder than ever. At times like these, it seems venture capital hesitates more than innovates.
Here’s the problem: consumer brands are struggling to prove they can grow and still make money. Digital media is saturated, supply chains are stretched, and drops in consumer demand are melting one innovation after another. Casper, the original direct-to-consumer darling, fell out of the New York Stock Exchange last year. And pandemic heroes like Peleton are now warning posters for the viability of a brand versus its product.
This is a shame because we need a wave of innovation to crash into the trillion-dollar consumer markets. We need fewer, more sustainable brands. The founders of tomorrow are out there amongst the crowd and now is the perfect time to identify the strongest ideas. Brilliant thinkers like Dan McCarthy are redefining customer value and brand valuations (clue: it isn’t by blitzscaling). But every great idea needs a runway before it can fly, so let’s view the available alternatives to venture capital with fresh eyes.
First, do you need venture capital at all? Is now the time to maintain full independence and bootstrap? According to Atomico’s State of European Tech report, over a third of all unicorns in Central and Eastern Europe (CEE) have been bootstrapped. In the US, less than 1% of businesses raise venture capital. Raising large sums might be good for egos and PR, but all roads eventually lead back to unit economics. Maybe it's time to get back in the workshop and focus on pushing product boundaries and swap marketing for market testing. If you have something new and good, nothing replaces it like proving it yourself: no VCs needed.
Crowdfunding is option number two and its meteoric rise proves it’s no longer the option of last resort. Crowdfunding is the third most active investment class in the UK, and US crowdfunding is doubling in size to over a billion dollars. For consumer brands, crowdfunding is a strategic way to build loyal communities. Today's brands start by carving out a specialist niche. Brands of tomorrow will focus on customer participation and less on mindless consumption.
Option three: bring on the angels. Conventional wisdom is not to raise from too many angel investors because they clutter the cap table. But a clean cap table doesn’t mean having fewer shareholders. Similar to crowdfunding, a brand having a board of angel investors with relevant domain expertise can be a resource more powerful than cash. Angels like to network, so inviting new angels into carefully curated investor groups is easier than you might think.
Finally, services-for-equity is another powerful model when used correctly. Reaching out to experts to invest their skills lowers cash burn and is often more equity-efficient than raising capital to buy in capabilities. Having invested partners, not consultants or agencies, goes beyond what capital buys - energy and expertise you can’t measure.
Services for equity covers a variety of sins and works similar to founder or employee stock options. One example is Creative Capital, which deploys a team of seasoned specialists in strategy, brand, media and creativity to build out a marketing function and drive brand valuation. Product-led growth has its limits and marketing is a rock every venture faces. The future costs of marketing scare VCs (see above, Casper, Peleton). At one point, 40% of all VC money went to Google and Facebook. A lot of these brands got stuck in digital optimisations and ultimately lacked the right foundations to scale.
Why is this important? Because a brand ensures your idea can deliver large enough returns. Strong brands use their equity to transition from smaller to larger markets and scale into adjacent products, tech and services. Creative Capital is a coin with results of the 100-day marketing test on one side and the 100-year brand valuation on the other.
The environmental challenges we face mean we’re on the cusp of a new consumer era. For too long, we’ve been loyal to brands that don’t care about us. We have been sold products that aren’t good for us and that we don’t need. Whilst access to capital is a competitive advantage, finding funding is not all about the money. Sometimes it's about finding people who believe in the vision, are willing to take a chance, and, most of all, can actively contribute to delivering it.
