Investor Spotlight: Brian Bustamante-Nicholson, Greycroft

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0:53The first adoption within these technology shifts, these platform shifts, gain outsized advantages. And that's because the marketplaces in the beginning are inefficient. And I think you can read a bunch of folks that have invested through those kind of 2.0 to mobile to social and all those shifts. A lot of people have written extensively how the people that refer to those shifts benefited just from better economics because the market fixes were still calibrated. Hey, everyone. I'm Hannah Dittman, operations and finance host of the Startup CPG podcast. And today I'm joined by Brian Bustamante Nicholson, a partner at Graycroft and the consumer brands vertical.

1:39Brian has spent his career working alongside founders building consumer businesses, developing a sharp lens for what actually drives durable growth versus what just looks good in a pitch deck. His experience spans deep e-commerce knowledge and evaluating brands at the earliest stages through to scale, giving him a practical operator minded view of how products, teams and metrics evolve over time. In this episode, we talk about how AI is beginning to meaningfully show up in the consumer space, the core pillars Brian looks at during diligence, and the reasoning behind why investors care about certain metrics.

2:09He shares lessons learned from working with standout consumer companies, what strong founders consistently get right for long-term success, and how to think about building real defensibility as you grow. This conversation is grounded, thoughtful, and highly relevant for founders navigating both business decisions and fundraising conversations. If you want to better understand how investors evaluate consumer businesses and how to build with intention from day one, this episode is for you. Enjoy!

2:39Hey everybody, welcome back to the Startup CPG Podcast. This is Hannah and today I am here with Brian Bustamante Nicholson, an investor from Graycroft. Brian, welcome to the show. Hey, it's Fitzabit, Hannah. Yeah, we're so excited to have you today. To kick off, I'd love to get a brief background of your experience in the space and what led you down your path to Graycroft in the first place. Sure. So I've been an investor in the consumer space for about 15 years. I started my career with the consumer technologies. I've kind of had one foot in the world of what we call digital native brands and then one foot in traditional consumer branded products.

3:17But anyways, I started my investing career at a firm called Stripes Group in New York City. I was there pretty early with the first fund and was fortunate to grow with that for about six years. And at the time, Stripes was focused on kind of two areas or three areas, I should say, but really software, really like hard tech, consumer brand products, food companies, things like Calafia, and then consumer internet and technology. And my background before that was covering internet companies as a junior banker. And so I sort of sat there in the world of consumer internet, and it was a great time in Herrick City.

3:56This is 2011, 12, 13. That's when I would call it next generation digital native brands, Kempow, the Warby's and Casper's and so forth. And so I invested in everything from digital native brands and products like Reformation to digital media companies and e-commerce companies. And over the course of that time, I really started gravitating more towards branded products like traditional consumer-braided products because I felt that my understanding of digital was really an asset there that a lot of the other firms in the space really didn't have. And so I had the opportunity to join an upstart consumer of equity fund called Sonoma Brands, where really focused on traditional CPG, a lot of food above, personal care, beauty, health and wellness type stuff.

4:48And then I had the opportunity to work with an entrepreneur that I had invested behind named Catherine Power. I had invested in all of three of her brands, Abilene Burst and Merritt. She's an incredible entrepreneur that's in the beauty media personal care space. And she had joined Gravecroft, who had also invested in all of her companies. And she joined to stand up a separate consumer investment strategy. And she and I had been collaborating as investor and entrepreneur, and I had the opportunity to join her as a partner on the investing set. And Gravecroft has been around for close to 20 years.

5:26A traditional venture firm has done a lot within software, now AI, e-commerce, and digital media, but had dabbled in consumer investing and had some great investments there, things like Seat Health and Thrive Market. And so when Graycroft stood up, the separate consumer strategy was the opportunity to kind of build a firm within a firm and again, to work with an entrepreneur that so respected and loved collaborating with them Catherine. So it was a pretty easy decision. And I joined to lead the practice here about a year and a half ago. And we are, as I said, a separate fund within GrayCrob, a separate team, but we work collaboratively with the software strategy here, the sustainability strategy as well, which is it's a distinct fund team.

6:16And what we're doing is we're investing in exceptional growth stage consumer businesses. We want to be really the first institutional capital to these companies, very similar to what I had been doing over the course of my career, really finding brands that are reaching those inflection points in terms of product market fit. Typically, they're going from$5 to$15 million in that range. But we're looking for businesses that have those really strong signals around product market fit. Then you can validate through There are all kinds of metrics that we look very closely at. And we can be a great partner to these entrepreneurs by virtue of our experience as entrepreneurs and also our ability to help Cadillacs grow through our relationships with certain retailers and, of course, our connectivity to some of the bigger visual platforms out there through the MetroFirms relationships.

7:10Last thing I'll say is I have the opportunity to recruit another person to our team about a year ago, an incredible entrepreneur named Eric Ryan, who's the founder of brands like Oli Vitamin, Method, Soaps, and Products. And so he joined us as an operating advisor here nine months ago. He's going to be doing more with us beyond just being an operating advisor. So we're very excited about that. And yeah, it's really been an incredible opportunity to build what I think is kind of the dream team with consumer investing. Thank you so much for that awesome intro. And And what great experience. I think it sounds like you guys have some serious operational powerhouse muscle leading the charge in your division of Graycroft and a lot of passion and knowledge for the space across different categories.

8:00So I'm sure you guys see a lot of interesting, cool deals and meet a lot of great people. You mentioned as you were going through the Graycroft overview a little bit that you're a growth stage fund looking at companies between about$5 to$15 million in revenue at an inflection point. I'd love to double click a little bit more into that. When you're saying growth, for those that maybe are a little bit less familiar with the investing spectrum, what does that mean to you and to your firm? What check size are you writing? And when you're talking about inflection point, what are some tangible examples that founders can have in their back of their minds to understand if they're a fit for what you're focusing on?

8:38Yeah, when I say growth, I mean signals very strong around product market fit. So things like velocities, trail work behavior, repeat purchase rate. Also, unit economics are really important to us at these stages. So the companies have to be profitable, but they have to have the kind of margin structure and visibility to being profitable within a couple of years. I think the team is very important to us. So we want to back founders that can take businesses from inception into hundreds of millions of dollars. It's not always the case that we get there. I've certainly invested in brands where kind of collaboratively worked with the entrepreneur to hire a more experience.

9:23CEO that really likes to preside and run companies that are 50 plus million dollars in sales because it's a lot of administrative kind of managers and stuff at that point. But what we're really looking for are great entrepreneurs that can be very involved with the innovation, the brand, the marketing strategy, and really just represent the brand. So that's how I defined grows for us. The definition is a little squishy because I think you might be LPs that consider what we do very much venture because of our chuck size. But the opportunity that I see in the marketplace for consumer investment firms to focus on these inflection points where there's really strong signals around product market fit that were around maybe 15 years ago because of what's happened with on-the-channel strategies, the ability to collect that and signals from so many different points in the purchase journey for customers.

10:30Really great, fulsome explanation and a lot of interesting nuggets for listeners to pick up on on what you guys consider North Star signals or anchor points that are really important. Could you maybe give an example of a portfolio company that you've invested in and what that life cycle was like up to date, at least? What stage were they at when you came in and how wide were they distributed? What big milestones did they have on the horizon? And what was kind of the dynamic of the partnership really built for? Sure. We have a portfolio company called Array, which is anti-aging solution for air care.

11:07It's both adjustable and topical. And that's a business that has been very capital efficient, which is another thing that we look for with companies, even at the early stages, but had tracked the company and saw that there were some great signs of product market fit, particularly with its direct-to-consumer and Amazon channels and saw a big opportunity within retails as well. We invested in the business when it was about a five-million run rate. And for certain categories, we'll beam a little bit earlier, particularly within areas like EMS, because of the fact the margin structure tends to be pretty high.

11:47Yeah, jealous of the VMS margin. And the fact that these businesses tend to have great direct-to-consumer businesses where the proximity to the customers there. And so, as I said, we invested with about a five-million run rate, growing over 100 % over a year break even. So it wasn't super profitable because of the stage, but wasn't losing a bunch of money. And we just felt this is the profile of the business that we'd be partnering with. An entrepreneur that's built a very clear vision in a market that there was a lot of opportunity. There weren't a lot of other brands coming after the space and had all the red metrics.

12:31and live for those kinds of businesses where we can come in and, again, help build the team, be able with recruiting. I guess one of the detriments of being a very capital efficient business at those stages is you tend to be pretty lean. And so a big part of what we do is leveraging our affinity with a proprietary database and sourcing for, again, talented operators are core verticals across all the puncture areas. So people are pretty effective with helping to fill gaps and these companies particularly at this stage. So it's been a great one to be a part of. Yeah, I feel like anti-aging has been a big trend in hair care for a little bit now.

13:16And I definitely feel like the stickier the segment is, the better it is for you. And it's really helpful you giving those metrics and kind of painting the picture. I think from the investor seat, you know, the founder seat, you're thinking something totally different about your business sometimes than you are from the investor seat. And hopefully by the time you get into a fundraising dialogue, those mentalities are more aligned of where the business goes from there. You know, a founder might not be thinking about the exit every day or how important certain things are to scale or how quickly.

13:49And that's definitely something that's top of mind for investors. when you're saying things like the growth rate was so good, the business was capital efficient, they were small but sizable. How I'm interpreting that is, you know, there was a proof that this was going to be a business that was going to last because it had traction, it had gotten to a scale, it had a big enough customer base that was around for long enough and had a high enough affinity that you could trust that that business was going to be relevant in the future. It was growing quickly, meaning it was on an upward trajectory, not a downward one.

14:23And you felt like you could get conviction behind where the company was going. It was capital efficient, meaning all the money you were going to put into the business wasn't going to get immediately wasted out of the business. And it was going to go to a productive use of funds to continue to grow and scale and ultimately, hopefully build towards an exit. And I think, and not to put words in your mouth, so correct me if that's true. But I think like something I think is important to highlight for founders too is just the way the reason behind why some of these things are important. I think, especially with enough episodes that we've done now, people kind of understand that the checklist that and the watermarks that they might be looking for.

15:02I need to do this. I need to do that. I need to do this. But the real reason behind it and why is because investors are looking for an investment the same way that you would be thinking about buying a house that you're going to flip or a stock that you want to purchase for your own life, there's like the business rationale and the business case behind what gets someone excited about a deal. And those metrics are kind of unveiling some of that conviction in different ways. And the way they might be thinking about things is related, but slightly different than maybe how you're thinking about your business, because you're building, not investing.

15:38The dirty little secret is that that's also what acquirers of businesses are all focused on too, right? They want to find they're buying a home that they're going to put a lot of capital in and appreciates very nicely. And so you have to put yourself in the seat of the strategic, assuming that that's your path that you want to achieve for clarity. And they want to find great calm, calm new businesses that are going to come out for 5, 10, 15 years. And so I bring that up because there's a lot of gigasmanship that I see going on with companies where they step heavily into marketing, grow the business, even in ways that aren't so ROI positive for a period of time and say, don't worry, invest for sport.

16:29We're going to get some scale and flip the switch and focus on margins. And the strategics understand this, and they see the gamesmanship that goes on. So if you're building a business that can sacrifice economics and capital efficiency, even for just a few years, in hopes that you can flip the switch, increase margins, and show a strategic that you can generate 15 % EBITDA margins, they're smart enough. They're going to figure it out. I think that the best path is to show that you can sustainably grow. It doesn't have to be 100 % year over year, but you can grow the business in a capital efficient way and navigate all the changes that can happen within digital marketing.

17:16Trade's one thing, but digital marketing is so dynamic, particularly with what is around the corner in terms of AI. And so I think just showing that you can be nimble on the consistent track record of growing the business in a capital fishing way is really important. And I don't see enough brand doing that. Great point, Brian, and great color, I think. Also, I think the real crux of understanding fundraising and investing sometimes is just understanding the investor's job. I spent many years in diligence and not to put words in your mouth again, so feel free to disagree. But I think such a big part of the investor job is you're asking yourself when you're looking at information, how real is this?

17:56How sustainable is this? How valid is this? How much can I trust that this continues? You know, a founder's job is to have like vision for a future that almost doesn't exist. and an investor's job is to look at what has already happened and predict what will continue to happen or not going forward. They don't have a crystal ball. They're really going off of information you're giving them and trying to understand, okay, great, you had amazing sales growth, but why? Was it because you just threw money at it and it's not that sustainable? Are these all new customers that are never going to come back?

18:35And then when you need to comp this growth next year when I'm involved, we now have to repurchase a brand new suite of customers for even more money. You know, they're thinking about it that way. And you mentioned traction, you mentioned a product market fit that gets brought up so much on this podcast. And I think just to double click on it, the reason why is because that gives people the confidence that they can really trust the metrics in your business to continue in a sustainable way. and that the future business will look similar, if not better, to what it looks like now. And that's something people can get behind.

19:09You know, you don't want to get into a house and realize, yeah, the walls look great, but there was actually mold behind all of them. And there was actually termites under the floorboard, even though they were brand new floors and all this stuff. So, yeah, I think that's at least my perspective on the investor lens. Happy to let you. We'll be right back. Are you going to crush it on Amazon this year? It's such an important channel, but it's so hard to do alone. And most agencies are a total ripoff. We can't afford$5 ,000 a month and a commission on our sales. They just don't get it. That's why I love our partners at Daybreak.

19:42They are full service, meaning they do the creative work, the listings, the logistics, and of course, all the ads, all with the most reasonable retainer out there. I work with them personally. I'm so grateful we have such a good partner to recommend out to you, our community. They do evaluate your product first to see if it might be a fit. So if you want them to have a look, email them. startupcpg at daybreak.agency and they'll do a free audit for you. Good luck, everyone.

20:09You correct me if I'm off on any of that. Yeah, that's all right. I'd love to pivot into a little bit of thought leadership from you. Obviously, you're learning and digesting and meeting a bunch of people and spending so much time in the space. I'm sure trends and theses and different things are jumbling around in your mind all the time. Are there any consumer trends, market shifts, macroeconomic factors that are of particular interest to you right now? So I can tell you my observations. My observations are there's a lot of activity as in a lot of new brands being launched in areas that have had some of the bigger outcomes in terms of M &A, right?

20:51So there's been a lot of activity within health and wellness and BMS. A lot of brands launching there. A lot of brands launching within skincare. That's been the case for several years now. There's a lot of brands that have launched within beverage. And so my observation is those areas feel a little bit overbought. I think it's kind of a public equity analogy there. And I think that there's still, I mean, I love the innovation going on, but some of it feels very derivative in terms of the value propositions. And if I'm in one of those three categories, which again have a lot of very active buyers, maybe skip care of certain states, I would be focused on retail distribution.

21:35I say that because when you have a world where you can pop up a Shopify site and the product category is one that runs itself to a direct-to-consumer channel and you can leverage influencers, creators, streamers to generate attention, awareness, the ability to go in. And, you know, it's important to do those things, but the ability to leverage those things to go and build a great retail strategy and improve your success within those doors becomes a moat. And I think with all those categories, we are looking for brands that have a superpower with digital. We actually look for more digital native founders, but have begun to make the transition into retail and are showing very strong velocities there and understand the roadmap.

22:31Whether it be going from natural to conventional to club or in the skincare space, going from clean to Sephora and so forth. We want to find entrepreneurs that think along those lines, particularly within those categories. Very helpful and a great nugget. I feel like the world has changed in so many ways, but business fundamentals remain the same. And I think being able to adapt across different channels is a real skill set for founders. Like what makes something successfully digitally native doesn't have the same P &L or the fundamentals of a brick and mortar business. And as you scale through, that can really change the business quite a lot.

23:14So, yeah, I think having a really solid perspective and understanding the channel you're playing in and the dynamics of that particular channel are critical to getting it right. Right. What about the more ancillary space like AI? A lot of times that gets brought up now for founders. They're trying to figure out how to roll that into their strategic planning or talk about it with investors. What are your thoughts on AI influencing the CPG consumer landscape? Yeah, I've been thinking a lot about Ajaxic Commerce, as they mentioned at the outset. One of the benefits of being within Gray Thraft is just a proximity to what's happening within all things AI, both at the infrastructure level going into applications.

23:56And I think what people are really excited about on the consumer application front is agents doing stuff on our behalf, right? So if you apply that to commerce, there's a lot of contunding going on. But to me, the answer is pretty clear. AI, all it's doing is it's making the internet come along, right? the internet can be proactive and go do things, have agency, et cetera. And who are the main beneficiaries of an internet that comes alive? It's the major platforms, both with content and things being personalized for you in terms of media consumption, but also with commerce. And so I think the coming wave of Gentic Commerce, which means leveraging AI to do shopping on your behalf, going out there, filling your basket, and building a frequency of purchase almost as like a utility, coupled with the personalization that's going to happen by virtue of whatever shopping platform you're on, seeing your history, understanding you, and your preferences.

25:08I think it's going to benefit brands that have built trust with agents. It's strange as that sounds. And how do you build trust with agents? It's by building reviews. It's by incentivizing customers to talk about your brand on Reddit and the social platforms in positive ways. It's being carried by the right platforms out there, right, that will check the list for the agents as far as convenience, value, and, you know, time to receive your product. So if I'm a consumer brand, I mean, it's early days, but it's really not. You know, building your digital footprint, building your distribution footprint is really important.

25:52And I think that's going to benefit a lot of brands by virtue of the AI shopping cart that I think is going to emerge where the personalization will hopefully allow the agents to add things to your basket. But I also think that once you're sort of in the routine and you're leveraging agents to do this shopping, it's going to be hard to review out, assuming that you like a product, right? It's going to be kind of recurrent. And so to the extent AI benefits or creates any incremental shopping behavior, I think it's going to come about with things like Instacart and Amazon and Walmart and Tomergett and all these places that really have selection and have the capability to deliver quickly and have the data to understand you and your preferences.

26:45Very intelligent and insightful points. Yeah, I've kind of always had the perspective that your digital presence, it's the same as merchandising in store. You know, when you're in Target, you want to be like eye focus on the shelf, you want your brand block. There's a lot of these things in the terms of visual merchandising that really matter for your success as a CPG brand or a consumer brand more broadly. And that thinking can easily be translated to digital presence. Obviously easier to say, harder to execute on. But there are pillars that can really make a difference for your position with consumer attention and ability to scale and cut through the noise online the same way that you can differentiate and cut through the noise on shelf.

27:33it's just a much more vast and a much more evolving shelf space in the digital world but yeah I think times are changing so quickly with AI and it makes a lot of sense that focusing on agents and shopping recommendations and being in the first wave of that ecosystem will be really really helpful for brands I'm sure and I'm sure there'll be some big winners that come out of getting that right the same way that the first to get influencer marketing right the first to get meta ads right, the first to get Amazon right, had a lot of scalability and halo network effects that can really make a business, assuming everything else kind of is in line.

28:13It's like a little bit of the lightning striking. That's a great point. The first adoption within these technology shifts, these platform shifts, gain outsized advantages. And that's because the marketplaces in the beginning are inefficient. And I think you can read a bunch of folks that have invested through both kind of Web 2.0 to mobile to social and all those shifts. A lot of people have written extensively how the people that refer to those shifts benefited just from better economics because the marketplaces were still calibrated. And so I would encourage grants to give out there and start testing and iterating and become a first adopter because chances are you'll figure things out more quickly than others.