The YF Community hosts a range of events for its members. One of the most popular, ‘Things to Think About Sessions’ is designed to deliver key industry-insights. These sessions offer bite-sized advice to SMEs on how to tackle and navigate timely issues facing the FMCG industry.
Seeing as we are over halfway through the year, our recent Things to Think About session, reflected on the funding landscape so far for 2022.
Hosted by Chris Gale from the YF Funding Team, and joined by Emily Bullman from the Growth Investment team at True Global, the conversation covered a short review of consumer mergers and acquisitions and then wrapped up by picking out any key trends they are seeing in the investment landscape, and finally, make their predictions for 2023.
For those of you that were not able to join – here are just a handful of takeaways from the jam-packed session.
The funding challenge
This year has seen a significant decrease in terms of investment. The amount of investment raised is 31% less than 2021 (Beauhurst). It is no surprise that there is increasing scepticism from investors considering the economic climate. With inflation and the continued impact of Covid, it is likely that this challenging landscape will continue into the second half of the year.
Crowd funding still reigns
This does not wipe the opportunity for investment out of the water though. Although VCs tend to be sitting on their hands far more than in previous years, the crowdfunding space – Crowdcube and Seedrs – are reigning at the top of the investment chain. The activity taking place tends to be for sub £1m and continues to be very prominent in the early stages of investment for challenger F&B space.
A lot of the rounds so far have been open for a rather long period of time. This implies that businesses are looking to keep things afloat during a challenging time rather than aiming for expansion. Perhaps these smaller rounds are gearing up to a larger round in the second half of the year.
It is not all doom and gloom
Remain hopeful! Great brands will continue to attract investors. Despite the economic environment and challenges around inflation, great brands with good forecasting will still stand out.
Other trends to bear in mind for the second half of the year
We suspect that valuations will come down from where they have been historically, particularly the D2C businesses which were highly valued during Covid but now seem to be proving challenging with investor appetite.
Omni-channel is attractive but only if it comes with proof of concept across all channels.
Mainstream grocery listings seem to be very attractive to VCs currently. It demonstrates scalability which is hugely important to investors.
We suspect that investment rounds will take longer to close than anticipated. With that in mind, apply for investment when you are not in desperate need of it. Give yourself at least a six month runway.
What categories are gaining attention?
Plant based: There are a whole spectrum of brands attracting recognition. From comfort foods to the more functional, health focused labels.
Beer/Spirits: We have noticed that British based brands seem to be getting quite a lot of attention within this space.
No/Lo alcohol drinks: The brands that have been successful with securing funding seem to have health and functional benefits at the centre of their philosophy, rather than the more fizzy, sugary drinks.
Pet food: This is potentially a hangover from the increase in pet buying off the back of Covid. There has been a real surge in investment in anything associated with pets.
What can you do to mitigate this impact now?
Emily Bullman, from the Growth Investment team at True Global, looks after investments of up to £5m. Here are some of her top tips when considering fundraising in 22/23:
Remain hopeful. Expectations need to be reset but there are some really exciting deals to be done.
Proof of concept. We want to see revenues being generated even if they are at the most early stage. We also want to make sure the brand really differentiates itself from any other competitors on the market. Ideally the product would be the first of its kind, we want it to carve a new space in the market.
Be specific. When you are raising, really think about the exact number that you need. Investors want to know that you have a clear profitable plan with very clear and precise intentions.
Trends do matter. Currently, we are really looking at messages around sustainability. A thriving example of this are the brands in the pet food space. There are some brilliant pet food brands that are up-cycling our food waste. It is a perfect example of the interest in both sustainability and healthy, unique products. Ultimately we are always looking for exciting products that stand out above the rest of the market.
Two ways. An investor needs to offer something to you back – always remember it is a two way relationship.
Tell a story. Your pitch deck should grip the investor. You need to clearly set out the problem and then explain why you are the right team to solve it. Make sure you have a clear overview of the financials alongside your story. We want to know your profitability, your forecast plan and we want to know your social following also. If you can, try to stick to a maximum of twelve sides. I want you to hook me but leave me wanting more.
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