How do Consumer Product start-ups raise money?

I have said this before and I will continue to say it, we are living through start-up nation.  It doesn't matter the vertical there are companies being built to change everyone using technology and new concepts.  It is pretty remarkable.  The one area that is really starting to take off is consumer products.  The biggest issue with consumer products is getting funded.

I have the luxury of being connected to the technology world where the investment one makes has a quicker larger return upside vs. investing in a consumer product brand.  It doesn't always work that way as it takes time to build a company but the margins are generally better and the tenacles can reach longer much faster in the tech world. 

CircleUp is providing crowd funding for consumer products that are generating $1m in annual revenue.  It is a welcoming addition to this vertical but how do the products making less get funded?  I am an investor in Willa Skincare.  There is no question that the product is filling a void in the skincare marketplace.  It is a skincare line for tweens/teen to start taking care of their skin now when the damage is getting done.  The customers love it.  My nieces love it because it is theirs not theirs Moms.  They own it and they own it with their friends.  That is powerful. 

The line is being sold online and in brick and mortar stores.  The stores right now are Target, Harrods, more than a dozen of independent Mom and Pop chains that appeal to this customer base such as Lesters and they are in talks with two huge chains.  They are using a factor to fund their orders and can continue to do so but why is it so difficult for a company of this size that is growing, creating a solid brand, building awareness and creating traction to get funded.  Most private equity companies that fund these type of ventures need to see the company doing $8-10m a year.  How can you grow to be that big without an infusion of cash vs factors that only back up the costs. 

There is definitely a void in the marketplace for this type of funding.  Not sure if there are a group of angels out there that I have yet to meet but there are a variety of interesting products being built that need smart investors.  I look at many of them and see what they can become; some big, some small but without the proper funding and team of smart investors it is hard to figure out how to navigate the growth. 

Comments (Archived):

  1. Jill Stern

    Most funding still comes from men and men like and understand tech. Women like and buy consumer goods but they aren’t the bulk of the investors. Is this part of what you are saying?

    1. Gotham Gal

      It is not so much about men like tech but about returns. More people are funding tech start-ups as the ROI can be huge and the growth is not as long. There are few investors who have jumped into consumer products or even consumer brands such as a new t-shirt line with as ferociously as they have in the industry. It would be great if more would.

      1. Ayush Neupane

        Hmmm… but what about Jill’s point that men are less likely to buy consumer goods and thus have less understanding of those products? Most VCs being men does not help consumer brands either, no?

        1. Gotham Gal

          I know more men in the consumer products investing space but at a level where you must be doing $10M in business. This has ZERO to do with gender.

          1. Ayush Neupane

            That also explains the size of the hole that you talked about. Thanks!

  2. JLM

    .To state the obvious, this is exactly the kind of enterprise that the JOBS Act was designed to fund.Of course, that would require the administration and the SEC to get off their collective duffs and write the Rules which has been undone since the President signed the legislation in April of 2012.This is a perfect example of how the implications of governance and legislative expertise impact the marketplace.In a more perfect world, companies like this would be able to do Reg D deals and raise the money themselves.There may be an opportunity in the crowdfunding of factors.JLM.

    1. Gotham Gal

      whatever happened to the local banks?

  3. William Mougayar

    I agree that peer to peer crowd funding is barely getting started, and once it’s in full force, so much more capital could become available to some many more entrepreneurs and at much lower barriers of entries.I just stumbled on this listing of 100 crowd funding related sites:http://crowdfundingpr.wordp

    1. Jumply

      Interesting post. We are noticing that women tend to run service based businesses or sell products. CircleUp is a different idea to address a need for exposing and exposing consumer products.

  4. Dan Wick

    Great insights, Joanne. Totally agree on the void of support for consumer products to come to market. Big opportunity.

  5. Kevin Dorren

    Great post, totally agree in the UK banks don’t do this sort of funding even when you get to $8-10m in revenue! Suppliers can be a great option if you can get them bought into the revenue model

  6. Wabi Sabi Ecofashionconcept

    Wonderful post!! You have really hit the nail here.I have an innovative eco fashion retail start-up business. We have beenoperating for 2 years now and I am currently looking for funding to help expandthe business into the US market.Although we have won several international prizes, have received quite a lot ofmedia attention, and have great monthly growth rates, finding companies willingto invest in retail in its early stages is a really hard task.I have seen so many opportunities for technology companies primarily because ofthe potential for winning big money relatively quickly with a smallstarting investment. To earn big moneywith a consumer focused brand business you need to invest more time and moremoney to start. Although it is not my business, I completely understand why techinvesting is a good bet for investors.Retail is also a good investment. Let meshed some light on why.To start with here are 2 simple reasons:1) Retail consumer goods and fashion can be very profitable businesses.2) They are cash generating operations.There must be some investors our there tickled by Retail, longing to bedifferent…Sooner or later I will find them and hopefully other companies like minewill also.Anyone willing?

  7. Korf

    Thanks for sharing this… Some might ask “why now” for these types of startups especially when one considers entering a very tough to crack business which is more about planograms and the value of shelf space than about the actual product or brand itself.The intersection of cheap or free prototyping, relatively low cost content strategy and marketing, and the lean startup movement make new physical health and beauty products a possibility for entrepreneurs who want to disrupt a marketplace of entrenched products very much lacking in innovation.

    1. Gotham Gal

      well put.

      1. Korf

        do you have any other case studies of companies creating physical products in the beauty space who have gone from idea to prototype to P/M fit then scale? We are big fans of of @pangeaorganics – and of course @aveda & @caldrea http://www.ladieswholaunch…. (here in our hometown of minneapolis). How about other more recent entrants? Willa is a marvelous example. Needless to say we are working on something very needed and very fun in the space.

        1. Gotham Gal

          None that have scaled yet but more boutique and small.

          1. Korf

            @scienceinc… seems to be working on periphery of this sector. Might be interesting folks to tap for insights on both the opportunities and challenges of developing companies, brands, and products in the health & beauty area from a funder perspective.