#261 - What Makes Brands Investable at Founders & Funders? with Hannah Dittman

21:51Hannah Dittman:I would say still apply. Short answer. Long answer is there's different investors playing across what I would say the investment spectrum. On the furthest left is like super duper early stage, just concept pre-revenue. And on the super right is late stage PE or super late stage investments. There's people playing across this entire spectrum and have different focus areas. So I would say, while you might not be attractive to growth investor or someone focusing on that sweet spot and seed as a venture capitalist, you might be very attractive to a super early stage fund who focuses on pre-revenue and that end of the market.

22:32Hannah Dittman:So I think there are investors probably for everyone. Is it a little harder, especially in today's climate, if you're pre-revenue without traction? Probably yes. But that being said, I think there's always ways to pitch a compelling story. And there might be other things that you have going on, like being a multi-time founder can help that or having a really, really strong, clear concept and prototype and a really crisp way that you're going after the market might be compelling enough. So I would say there's no one size fits all answer in investing almost ever. Yeah, we definitely have had pre-revenue brands at our events.

23:06Pre-revenue brands have gotten checks. I think it like when they do, I would almost say, oh, there is a good read. Like, yeah, that founder has a heavy background. They have a track record from something else. Or this is just one of the most interesting concepts. And this is an area that people do have investing theses around right now. And that is just going to be a hit. And they want to take a big bet early on. I think if you don't have some kind of really like very pro branding or idea or a heavy background, it can be tough because I do see a lot of people come into our Slack channel like, hey, I want to do this.

23:39Anyone know investors I can talk to? Like that always just feels like it's going to be a tough sell where they haven't really proven anything out before this project or during this project. So it can happen. But yeah, I think you need to come in with a pretty convincing story if you're earlier stage.

23:57Hannah Dittman:Yeah. The other thing I would say to that is so much of fundraising is relationship building. And I think getting ahead of that, even if your first round, if your pre-revenue is realistically probably going to be friends and family and angels or something else, most likely. I think at least for roadshow events, it's still, I think, really beneficial to be able to kind of get feedback early on from relevant people about your concept while you can still incorporate that feedback and make changes or make a gut check at least. And then I think building relationships with people can definitely only help down the road for sure.

24:31Yeah. And speaking of which, even if you don't get the chance to go to one of our roadshow events or the big one in December, Hannah and Adriana from our team and a bunch of other people have helped us to create this incredible list of all of the very active VCs out there. And so we released it for the first time a year ago. We've now added to it throughout the year just because we are constantly on the hunt for who is actively investing in the space right now. These are early stage institutional VC investors. And so you can access the database for free. It's on our website, startupcpg.com. If you go under founder resources and databases, then it's on there as the top investor database.

25:08And we really try to make it easy for you. We put information about the check size that they do, the profile of their firm, even their current portfolio, and where are they located. Even if you're going into a particular city, you want to try to set up some meetings. So that is all accessible to you. So I hope whether or not you make it to an event that you will use that because it is really good to build those relationships like Hannah was saying, and we have done our very best. This is the same list we use to invite the investors to our event. So you have the access to it as well and do your job, LinkedIn.

25:39You know, their job is to find good projects to invest in. So hopefully you will be one of those. So, okay. If we talk about our December event, which is a very special event, and that is where we do try to put the most investable brands in front of these investors for this December 1. I wish we had unlimited capacity for every brand out there, but we do not. We don't have unlimited space. So we do limit it to 150 or 200 brands out of probably this year. I expect we'll get maybe 800 to 1 ,000 applications. So there is an application process. Can you just talk a little bit about like, what are we actually asking the brands to fill out and why is it important?

26:18Hannah Dittman:Different categories of information. I don't think anything that they probably haven't come across before, but general company information. That's just to contextualize your business, obviously. Understand what you're doing and where you're sitting in the world and how long you've been around for and kind of all of the background information. your mission and vision to really understand what's your big picture goal for the company who are you serving and what's your purpose for doing it the next set of areas would be traction related and those are questions trying to explain why this company would be a great investment those are things like your distribution your growth your profitability your plans to get to profitability, your velocities, your repeats, kind of all the metrics that indicate a winning, successful company.

27:07Hannah Dittman:We look at your product offering and future pipeline, trying to understand how many SKUs you have and what the strategy is for them, your founders and team and their backgrounds, your fundraising history to understand how you've gotten to where you are today and where you're hoping to go in the future. And then a quick pitch video as well, which is probably like a minute long quick pitch of your company. And that one, I think, is great just to get a little bit of a human aspect to an application. But also it's kind of a peek into what a one-on-one meeting with an investor might be like. Those are short format pitch meetings.

27:45Hannah Dittman:And I think being able to get a taste for what that conversation might be like and how prepared you are for something like that is also really helpful to understand as well. Just to be clear with everyone, We do not want a professional edited video with fonts and graphics and all this stuff. This is a grip it and rip it iPhone selfie video. It's pretty quick. And we are just generally trying to get a sense for the brand and the team and just how they're pitching the product overall. Yeah, definitely. And like I said, it's peak into what a one-on-one meeting would be like. And for reference, these are just casual.

28:23Hannah Dittman:Like you meet at a high top table. The investor's there. You're there and you're just kind of having a casual conversation pitching your business and getting into it for five minutes or so. So it's a similar vibe. It's not a commercial by any means, but it definitely is just getting to hear it from you face to face and seeing how you speak about your business and the most important points of it in a short period of time. Yes. And I think it's good for people to understand also, like we feel very fortunate that the VCs place a lot of trust in us by coming to the event. A lot of them fly in for it and they do it because they're expecting to meet great brands, which they do.

29:00And we also are placing a lot of trust in the brands to then come and like fulfill their commitment and be prepared for the event and make the most out of it. Because it could be another brand that was there in their spot if they no show or just half asset or something like that. And so I will say probably the easiest way to not get accepted into one of these application based programs is to not do the video. Some people will just like put in an image in its place. I'm like, okay. I mean, if you don't want to put in the effort to do the video for this event that we know is incredible, then are you really going to do the other stuff that we need you to do as well and do it on time?

29:35Because it actually takes Hannah and my team a ton of time to coordinate all of the stuff that goes into this event from the one-pagers and the meetings to the day of. And so that is a pretty quick way. So overall, when you're reviewing this application, then you have the full set of questions that they've answered. The video is there as well, but all of the details about their business, the fundraising history, the mission, everything that's there. What are some of the things that might make a brand stand out to you, either in a good or bad way, as you're going through these applications?

30:07Hannah Dittman:Yeah, there are so many different things. I think also, whereas an investors might be looking at companies or diligence with a very scrutinizing lens and a very discerning eye, I think at Startup CBG, we're brand allies and our goal is to get amazing brands in the room. So, of course, we're evaluating. But at the same time, I think we're really champions of the brands and looking for reasons to be excited about them. And that can come in so many different formats and ways. So you could be a founder with a really compelling background and doing something interesting, and that could be the spiky point that really makes you stick out.

30:42Hannah Dittman:Or you could have a really interesting product concept and have good traction and have a really compelling price point, but maybe still be in your early journey. And that might be something that's exciting. I think the investment story or the brand story of why an application might be exciting are so different. But I would say we're typically looking for something in some area to be above average and for the holistic story of the company overall to make sense and be, quote unquote, investable or compelling. So when we're looking at unit economics and traction, wanting to make sure the team is managing that and understanding it and communicating it in a way that would resonate with investors, but also that they're contextualizing that relative to their competitive set and performing well.

31:31Hannah Dittman:So if you're going to be talking about velocities, for instance, I think a really great way to help your application would be to contextualize that relative to the rest of your category and your competitive set and make it really clear and showcase that you're performing better. And that's a point of differentiation. If you're going to be talking about your price points, maybe you're making something better, higher quality, but at a lower price point. Contextualize that price point and benchmark it against everything else so that it's really clear. why that is compelling. I think you're really just trying to find the areas where a brand is differentiated.

32:08Hannah Dittman:And that is such an overused word. And a lot of people think that means product differentiation. That is one aspect of it. But differentiated as a company, when I'm looking, for instance, if you're a beverage brand, assume that I'm getting 100 beverage brand applications, and they're all saying similar stuff with a similar mission statement and a similar product. what else can you tell me that would make me feel like you stand out in the crowd and are differentiated and that's kind of I think a great way for founders to be thinking about it is it your business model is it a marketing strategy that you have going on is it your founder background is your metrics your traction your performance to date maybe it's your relationship with your retailers or feedback that you've gotten for them distribution opportunities unique flavors that no one else is doing something like that there has to be something for an investor to be able to grab onto and latch onto and think something is going to be worth betting on.

33:02Hannah Dittman:And so we're kind of doing the pre-screen of that and looking through all the application points and trying to find the highlights for you really and getting excited when we do. Okay. So let me ask you another one, because I think you've taught me a lot about this fundraising history, because we do ask this. It is a very important thing for investors to understand. So you can have a fundraising history where like, okay, yeah, they've raised money. Okay. hey, that like shows that there are people who believe in this concept and maybe I need to look harder because some of the stuff that wouldn't have jumped out from their application, like there is something here because they've been able to raise money.

33:35It can also work against you because you can look at a business and be like, well, they've raised a lot of money and they still don't necessarily have the traction they would need to or the sales then to get to that next raise. How do you evaluate the fundraising history of a brand?

33:49Hannah Dittman:Yeah, I would say a lot of investing in general is storytelling and puzzle piecing. What investors are really trying to do a lot of the time is just understanding what's going on in your business and what has happened over time from a business perspective. And fundraising history is part of that journey. I think there's no right answer here or one way to get a company built or done is just contextualizing a lot of the answers and performance with the fundraising history in the background. So for instance, if a business seems like, oh wow, all these metrics are great, they seem like above average on a lot of stuff with an interesting concept and they're generating a size they're doing over a million dollars in sales, that's pretty great.

34:34Hannah Dittman:And then you get to fundraising history and you realize, well, they've already raised$7 million. Now the story has changed because now when you're looking at that same company, you're like, well, you had$7 million dollars in the bank and we only generated one million dollars in sales like what happened to that money and now that kind of operator narrative no longer has the same storytelling that it once did so I think it's just understanding like I said what's happening in a business in that context at the same time maybe you're a founder who's really punched above your weight and you've done all these successful things then you get to fundraising history and you realize wow they did all of this with like$50 ,000 in their back pocket.

35:14Hannah Dittman:That's crazy. That's amazing. And it kind of gives you a color for what the operational discipline, opportunities, the founder mentality, and the capital management has been like within a company. And like I said, there's no right or wrong or one way to do something like that. But I think it's just another layer of context that's helpful for people to understand what actually was going on behind closed doors during that time of building the business. And then I think going forward, if you have already fundraised, like I said, you're kind of now on that fundraising merry-go-round. And that's also important for investors to know because now they're going to need to be thinking about what your cap table looks like, how much room there might be on it, what your cash burn has been like, the capital management, like I said, of all of that stuff.

35:59And then also what the valuation might have been

36:02Hannah Dittman:before. Are you going to have a down route going forward? What's the narrative of that going to look like for future investors that they may need to make sure would get on board down the road and all of these other complexities. So it's just kind of like a diligence item. Yeah, that is really good to hear all of that context. I think also, I mean, when I see the applications, if I see a brand that's gotten to 500k or a million or more in revenue and they haven't really fundraised yet, and now they're applying to come to a fundraising event, I'm like, I think that gives them a huge leg up with investors because they're going to see that.

36:32They're like, OK, good traction, have been very responsible with how they've grown the business. And there's room there like they can do around and they're still going to have massive incentive and room to fundraise more if they need to. Is that what is going on in investors' minds if they see something like that?

36:48Hannah Dittman:Yeah, for sure. And I think also just you know how many things had to go right and to work and that you really had to build a super strong relationship with your customer to get there because you couldn't pay to play. There's like nothing you could pay to play on if you didn't have the money to do so. Whereas if you had raised a ton of money and then you were only generating that amount of sales, my first place that I'm going to be looking next is going to be the marketing spend and the team and the headcount. Because I'm going to be like, where did the money go? Probably those places. And are we not seeing repeats?

37:21Hannah Dittman:Do you actually not have a strong relationship with your customer and they're not coming back? There's not actually affinity. You're essentially purchasing customers through high marketing spend. Investors' minds are always thinking, what's the next question that I need to ask to dig deeper? You're kind of on a fact-finding mission. And so when you see something like, oh, yeah, wow, they've done all that with no money, your mind goes to a very positive question place, which is like, wow, that's magical. How did they do that? Instead of like, uh-oh, what's wrong? Where's the gremlin that I need to uncover?

37:54All right. Right. And by the way, the application that we have actually pretty closely mirrors the one pagers that we will eventually have for the brand. So the way we do this is for all of our investor focused events, the founder and funder events, a brand will apply if it's the one in December or just get a ticket for the other ones. And then if they're participating in the event, they fill out a one pager. We've designed this to be a one page template. The reason is because we want to send every investor attending this one pager ahead of time. So we do it in a consistent format. It's our format and every brand has to fill it out so that it's really easy for the investors to flip through all of them.

38:29We send it to them as a combined PDF separated out by category because some of the investors are focused on specific ones. Some of them go across and then they're looking through it. The sections on the one pager are consistent. So it's all the stuff that we talked about before. So we send those out ahead of time and that is what the investors flip through to decide who they actually want to take the meetings with. And so they are actually looking at the complete picture of your business. You'd be surprised. I actually am really happy. I've seen brands starting to use that as a one pager outside of our events, just as a really nice synopsis to send to investors about the business that highlights.

39:02What are we doing? What are the products? What is the SRP of each of them? Who are we? What is the history of fundraising that we have for the business? And really important, those traction points. Like if you don't have a nice tight data point that you can pull out to get people interested in the business, then get one. whether it is about how your product's performing in the market like yeah we doubled at target last year or something like that or one great velocity highlight or e-com stats something like that then like you got to get one because that is going to be the thing that really i would say is the most important piece of that one pager if there's one thing i'm going to look at it's going to be that traction data point so those are a really important part of what we do and i do think if brands get into the actual event, but then maybe don't get a lot of meetings, that usually is going to be why.

39:51And it's either because maybe their brand just isn't in a place where the investors are really going to look at it as much as some of the other brands that are there. Or what I find is more common is sometimes the brands didn't actually put the right effort into telling their story on that one pager. And it really is a skill to tell your fundraising story. And it is an even bigger skill to tell it in a one pager where it has to be so simple. And I would say the kind of mistakes that I've seen brands make, and I know Hannah, you've been very close to seeing the brands all do the one pagers and giving them a lot of coaching.

40:23We run training on it. I've seen brands lean in just with maybe too much heart on it and actually fill out too many of the sections talking about the mission and why the product is so beautiful. And then they never quite got around to the numbers. Like they just know this is like traction, not about like why your product's important. I want to see hard numbers and get me excited and show the growth and why everyone's picking this thing up. Are there other common mistakes you've seen people make on those one pagers?

40:50Hannah Dittman:Yeah, I would say being too verbose or cheap with the formatting, like you want clear communication with clean formatting. When investors are going through like 100, 200 of these back to back, they're like flipping pages in a book looking for something that's going to quickly pop out of them. So keeping things easy to read and a stable formatting along everyone else is great because it allows them to really focus on the metrics they're going to look for. And every investor might have something else that they index on a little bit more than others. Some might really care about the revenue scale you've gotten to.

41:22Hannah Dittman:Some might really care about just your concepts. Some might really care about looking at your traction points and that's what really matters to them the most. All of it matters, but they're going to have their first eye on something. And if it's hard for them to find, that's not great. And then as you're saying, Daniel, I think strong traction points that paint the picture of a business and also leaves you wanting to learn more, I think is really helpful. You're not going to be able to say every single thing that's amazing about your business in just one one pager. It's the introduction. It's the flyer so that someone says, I'm ready to read the book now.

41:55Hannah Dittman:And that means some can be left off You don't need to cram every single little thing in there. It's the most important appetizers that want you to continue eating after that. So and traction points, I think we left that intentionally open ended because every business is so different. And it's a choose your own adventure based on what makes the most sense for your business and what's most compelling about you. But I would say, again, as I said earlier, try to contextualize things to benchmarks if you can. Not every investor is like a category expert, especially if you're in a little bit more of a niche category.

42:31Hannah Dittman:If you're just kind of quoting statistics in a vacuum, like a velocity number, maybe it lands, maybe it doesn't. But if you know, oh, this is a super solid velocity for our category, show what the category averages on a little chart with you next to it and show that you're doing a lot better than the rest of the category or whatever the metric you might be comparing to. I think competitive benchmarks always help. and something I haven't seen a ton of but I would also say holds a lot of weight if you have a really strong relationship with your retailers and can get some like really strong quotes or feedback or anything like that from your retail partners and you're looking to add more to that space buyer feedback if it's a big mainstream national retailer can hold a lot of weight sometimes you know if you've got a really good relationship with Target or Walmart or Whole Foods or something like that, and they're willing to give you a quote for this and be a partner as you're fundraising, I think that can help a lot sometimes for sure to get a third-party objective opinion on your brand.

43:34Yeah. And even if some of them may not love the like, wait, you want a quote from me? You know, sometimes if they're at a bigger company, they might not even know how to get that approved to do. But I also have seen it done well where someone will just have a screenshot in the data room of like, look, this is what the buyer says about us. And I love seeing that as an investor and just like the proof of the launch is all like there and well organized all that stuff okay so hannah as we're wrapping up here one thing i would love to know is just what do you feel like the investing landscape is like these days because it's evolved a lot if i rewind back to i mean there have been different stages like when i moved out to the better for ucbg world 2016 money was just flowing freely into these food tech companies where you could raise 300 million bucks and not have much revenue.

44:21And then like I would say it got tighter 2020, 2021. It was a little more free flowing as well, just for whatever reason, CPG was really bolstered by pandemic style stuff and brands were getting pretty good valuations. And then it got really tight for a while. But like, how are things evolving these days? What would you say people are looking for compared to the past? What do the investors want to see now that they might not have looked at previously?

44:45Hannah Dittman:Yeah, I would say definitely there's twists and turns in this journey over the last decade. And it's an interesting time to be watching CPG. I would say a few things. I think, no surprise to anyone, profitability has become a little bit more important than maybe purely growth was at some point in the past. Of course, there was always investors that did have a mind on profitability, but I think any that were purely focused on growth have changed tune. And those that had focused on profitability are kind of doubled down on that sentiment. I think omni-channel success has become more important nowadays than it was in the past.

45:20Hannah Dittman:Again, the idea of like purely D2C, I think a lot sexier in the past. I think there's still investors that are excited by D2C and it's not like, oh, if you're a D2C only company, you're screwed by any means. But I do think omni-channel success has become a little bit more mainstream of a focus. I think something that I find interesting and relevant for our audience particularly is I think challenger brands in overlooked categories have gained a lot more interest and used to have a lot of a harder time fundraising because they were seen as way too niche but I think there's been enough success stories of these kind of random category products that people thought how big is that or how disruptive is that really going to be or how much attention is that really going to get that now almost every brand it's like sometimes the more niche of an aisle the more interesting it can be to investors it seems disruptive and I think if you know that there is a big incumbent that has owned whatever you're trying to do for a long time even if it seems like not a super sexy part of the store or of the category I think having a really clear story of like hey xyz the incumbent is this much market share.

46:38Hannah Dittman:No one else has touched it and we're touching it now. And these are all the ways that we're making a better differentiated product that has gained a lot more traction as a storytelling pitch that resonates than maybe it has in the past. But yeah, I would say there's no one size fits all. All investors are different and look for different things. But I would say those are kind of the most noticeable shifts I've seen. I've also seen a lot of investors move towards growth. They will kind of market it as like seed stage investor with a growth mindset, which I think is so challenging and not the most ideal for founders.

47:12Hannah Dittman:When I hear that, what it means to me is like, they want to lean in early with a smaller check size, but want you to have all the traction and performance that de-risks an investment of a later stage growth company that had a lot more momentum and capital to work with. So I do think there, we're still in a little bit of, I would hope, the end of the founder squeeze where it's a have your cake and eat it too for investors and a really high ask for founders. And I hope that does right size in the future. But I do think we're still a little bit in that spot now. It's so funny. You and I were giggling a little bit because I was asking somebody who is an investor, yeah, like, what do you look for?

47:51And they're like, yeah, I want them to be above this dollar threshold, which was kind of a high one and really profitable. And I'm like, well, that brand does not need to fundraise, by the way.

48:02Hannah Dittman:I know. But then in reality, when you see them invest, it's like often not that case, right? Like smaller brands, not exactly hitting all those metrics. So there's kind of what they say they might want, but then also it's possible even if you don't hit those metrics. Santa's wishlist versus what actually shows up under the tree. Yeah. Right. First, yeah. First, what was available on Amazon that day. so okay last one for you hannah which is you do such a wonderful job on our podcast with all of your episodes i hear compliments from people all the time about your interviews with the investors and i know it's so helpful to all the brands out there what is your wish for all of the brands that are listening to your episodes what are you hoping that they get out of your episodes what are you hoping that they learn or can take away from those episodes as they're on their fundraising or not fundraising journey?

48:51Hannah Dittman:Such a good question to end on. And I will also say, I do think I like being on the interviewing side a little bit more than the interviewees. Me too. But I will say the thing that I hope that everyone leaves with is feeling empowered and really feeling excited about the fundraising journey instead of being overwhelmed and anxious about it. I think demystifying it, I hope helps. Knowledge is power in every aspect of business. And I think fundraising is no different. It's easy to be overwhelmed by something you're not as familiar with. But I hope by hearing what diligence is actually about, how investors answer questions even, the way they think or where their knee-jerk reaction goes to, helps you get into their mindset a little bit more.

49:36Hannah Dittman:And I hope everyone realizes an investor is lucky to be part of your business. It is their benefit. They're not doing it for charity. They're doing it because it will benefit them if they are part of your business. I mean, it's important to be humble and curious, but to not forget that piece and not let yourself feel like you have no power and you're just fully at the whims of these other people and the powers that be. Don't let the need for capital or growth or whatever it is that you have your ambition on to be the reason that you start feeling negatively or judging your own self or your business or feeling unsure of where you're going.

50:16Hannah Dittman:I think treat it like any other business interaction and I hope hearing enough about it makes it feel like that where it's a little bit more rinse and repeat look for a real partner ask thoughtful questions be confident ask for feedback handle it the way you would handle any other interaction and I hope that more than anything all the founders out there that are hustling for some checks get them and that we see some awesome continued success stories because that makes me so happy because I can only imagine the feeling that they're failing when their dreams are coming through and they know they're going to be able to achieve a lot of the things that they've been working really hard and set out to do.

50:52Hannah Dittman:So it's a great feeling and probably why we all do what we do at Startup CPG. So hope it helps. I love it. Yes. Thank you, Hannah. Amazing. Thank you for everything that you do on the podcast and very importantly, designing and executing a lot of these huge founder and funder events that we do and we are seeing huge impacts from them. You and I personally know of probably six or seven deals that have already gotten done from the one in december which given the i mean lead cycle that can take on fundraising is pretty incredible to see so this was the dream for this event for just deals to happen and they are happening and you are a huge reason why so thank you for everything that you do and all of the thoughtfulness that you put into it and thank you to all the brands for just being out there and participating in it i know sometimes it's hard if you don't get selected for a particular event but we really do encourage you to use the resources reach out to all the vcs on there, have a really great pitch for them.

51:44Come to the roadshow events where we really have so many of those VCs as well. We are doing absolutely everything that we can think of to create opportunities for the brands out there. And we will continue to do so. It is really our pleasure to do that. So thank you, everybody. Thank you, Hannah. And make sure you tune into her Saturday episodes if you aren't already. Now you know why.

52:05Hannah Dittman:Thank you so much. Thanks, Daniel. And you don't give yourself enough credit, but Daniel's an even bigger reason that we have all of this amazing stuff going on. So yeah, shout out to Daniel. He's a mastermind behind obviously everything we've got going on at Startup CPG. And I know this is a huge vision of his. And he's been incredibly hard behind the scenes and traveling literally everywhere all the time to make all of this awesome stuff happen, both with the investor side of the world, but with everything else we've got going on too. So huge claps to him as well. Thank you. Thank you, Hannah.

52:37Isn't it a wonderful world it is where we get to do this for a living. It's so much fun. All right. Thank you. Bye, everyone. Bye. Well, my friends, we've now arrived together at the end of another episode of the Startup CPG podcast, the top globally ranked podcast in CPG. As you may know, we're not just a podcast. We're a community of brands and experts, and you should join. You can sign up at startupcpg.com. You'll then get an invite to our online Slack community. You're going to hear about amazing events near you, all of our special opportunities to get you in front of buyers, investors, brands, and more.

53:13It's a free community. So what are you waiting for? I will see you there or on our next episode. Bye-bye!

53:34Thank you.