The Changing Tide of Venture Capital-Backed Ecommerce and CPG Companies: A Comprehensive Analysis


In the dynamic world of ecommerce and consumer packaged goods (CPG), the involvement of venture capital (VC) has been both a boon and a bane. Recently, I came across an insightful post by Ben Cogan, the founder of Hubble Contacts, that shed light on the current struggles of VC-backed ecommerce and CPG companies, prompting me to reflect on my own experiences and delve deeper into the challenges and opportunities facing this sector.  

The Direct-to-Consumer (DTC) Wave: 2010-2018  

The years 2010 to 2018 marked a significant era for DTC companies. Pioneers like Warby Parker, DSC, Casper, and Harry's successfully raised millions, posing a threat to traditional CPG companies. When I founded Zevo, part of P&G Ventures, we felt the pressure as these emerging brands captured market share, though their business model profitability was always questionable. Ben Cogan pointed out that the primary investment areas of these companies were inventory, team expansion, and, notably, marketing, with a heavy emphasis on Facebook ads. The Venture Capital financiers should have just wired their checks to Facebook and Google. That's how much money was spent on ads.  

The Struggle of the DTC Model  

Despite their initial success, these DTC brands faced growth and profitability challenges. VC firms typically seek a 10X return on their investments, a challenging feat in the CPG industry due to continuous customer acquisition costs and heavy advertising expenses. This business model led to a significant increase in inventory, tying up more capital as they grew (unprofitably). Most of these brands eventually expanded into retail giants like Target and Walmart, only to encounter further obstacles around lack of mass awareness and tight contribution margins.  

The Downfall of Public DTC Companies  

The stark reality hit when many public companies from this era saw their stock prices plummet by 75-95% from their peak. Notable examples include Dollar Shave Club's sale at a loss by Unilever and Smile Direct Club's bankruptcy. This trend highlighted the difficulty of achieving a 10X return in a typical 4-6 year VC investment period in the CPG sector.  

The Aggregator Era: 2018-2023  

This period saw the rise of aggregators like Thrasio and Perch, who raised billions to acquire numerous Amazon brands. Their strategy hinged on growing these brands and achieving cost savings through synergies. However, this model also faced challenges, including rapid acquisitions of companies without distinctive brand identities, overpayment of acquisition prices based on inflated pandemic sales, and a lack of investment for growth due to high debt service. Many of these brands struggled with low EBITDA margins and scaling their operations teams to handle all of the complexity.  

A Glimmer of Hope For Aggregators

Despite these setbacks, some newer, smaller aggregators are adopting a more focused approach, concentrating on specific categories and brands with unique selling points. At Cincy Brands, we aspire to be one of these long-term success stories with our operational moat and a gradual, steady growth strategy.  

The Future of VC in Ecommerce and CPG  

The question remains: Will VC return to the CPG and ecommerce sectors? The answer is still being determined, but it may involve a mix of traditional VC and family funds with longer investment horizons. The future likely lies in brands that are online-first but plan to expand to brick-and-mortar, offering unique product experiences and operational expertise.  


As we look towards the future, it's evident that successful brands will need to adhere to the time-tested fundamentals: delivering superior products that offer value to consumers in terms of saving time and money. The ecommerce and CPG landscape is undoubtedly evolving, and adapting to these changes is crucial for sustained success.  

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