On March 11, a carbonated The startup announced that it had raised $67 million at a $1.4 billion valuation and is on track to reach $263 million in sales by 2023. Did you guess that this startup is Liquid Death, a canned water company?
Liquid Death has now raised more than $267 million in venture funding, despite being in a category that doesn’t interest many investors. Beverages is a tough industry for VCs because it is capital intensive. It requires the ability to select companies that will sell well on retail shelves or other direct-to-consumer methods. and inspire repeat as opposed to one-time customers.
Science Ventures CEO Michael Jones told TechCrunch that his company isn’t interested in getting into the beverage business, but backed Liquid Death because of its potential to disrupt legacy players like Pepsi and Coke.
“We were in the market for culture-related companies with better-for-you products that redefined a tired and old category,” Jones said. His investment team saw Liquid Death as “a super disruptive brand.”
Cutting the foam
Some of the new venture-backed soft drink startups are hoping to disrupt the industry by creating new beverage categories. That’s similar to what tech companies often do, said Dan Buckstaff, chief marketing officer for retail data firm SPINS.
“You might think you can’t squeeze another category in here, but instead you approach it differently,” Buckstaff said. “You get inspired by others or maybe there’s a new technology that allows you to do it or data. This leads to companies that can generate hundreds of millions in ARR.”
He said Liquid Death drew on beer marketing and shelf placement to find success not just on grocery store shelves, but at events, bars and restaurants — even at conventions. (Liquid Death declined to comment.) In fact, while at the consumer packaged goods conference Expo West recently, Buckstaff hosted a Liquid Death party, and his room ended up looking like “we had a real binge.”
He took an informal poll of attendees asking how often they ordered beer or wine to be considered social. Half of them said they did. This made him realize the huge potential market for companies like Liquid Death that have brand names and packaging inspired by alcohol, but are healthier alternatives.
“For those people, these alcohol-free brands are well positioned for that, and there’s huge potential,” Buckstaff said. “And not just at a social event, but just at home – people kicking back and having a beer. Instead, there are many alternatives now with mood stabilizers or relaxants.”
Not Beer is one of those getting a nod from these early companies. Founder Dillion Dandurand is promoting the new company, which makes a premium sparkling water brand that will launch on April 9. He said his brand was created for consumers who choose to drink less alcohol.
“Gen Z is drinking less than any of the generations before them,” he said. “These people still want to have fun, but they realize they don’t have to drink alcohol to have fun, or they don’t have to drink that much alcohol to have fun. In fact, having a nice buzz but not getting wasted is probably more fun.”
However, getting in front of the noise can be difficult. There are two attributes that consumers care about that provide an opportunity to differentiate a brand from the competition, according to Dandurand: taste and branding.
With so many options out there, brands need to sell why their drink is better than a similar one in the category, and also sell why the drink is better than another category.
“This is a tough fight,” Dandurand said.
Who else is cracking up?
Water isn’t the only category attracting startups and VC cash, often from celebrity angel investors. Beverages containing vitamins, minerals, supplements and herbs are also a growing area.
For example, companies like Odyssey, which raised $6 million in venture capital in February from a group of investors that includes Richard Laver of Rocket Beverage Group. The company infuses its drinks with lion’s mane and cordyceps mushrooms, known for their cognitive clarity and increased energy effects.
Other beverage startups attracting VC dollars include better-for-you startups like Olipop, backed by Finn Capital Partners, Melitas Ventures, and celebrities like Camila Cabello. and Poppi, backed by Electric Feel Ventures, Rocana Ventures partners and angels. Each raised more than $50 million in venture funding. Healthy lemonade alternative Lemon Perfect has raised more than $70 million in cash from a long list of VC firms, athletes and celebrities like Beyoncé.
Poppi, which has CAVU Consumer Partners and a group of celebrity investors — including The Chainsmokers’ Russell Westbrook, Olivia Munn and Nicole Scherzinger — has gained about 19 percent of the drinks market share since it launched about four years ago . reports Forbes i.e. 1.5 times higher than coke. It also became the 11th fastest-growing beverage brand in the past month, surpassing brands such as Monster Energy, Gatorade and Liquid Death.
The brand has seen success from “strategically marketing to become part of the culture, with an active and loyal following” and “filling a void in the industry by providing a delicious, better-for-you option,” Poppi CEO Chris Hall told TechCrunch. E-MAIL.
VCs are chasing some of the blockbuster returns in this category. Coca-Cola bought celebrity-endorsed coconut vitamin water BodyArmor for $5.6 billion in 2021. BodyArmor had raised $36 million in venture capital. In 2016, Bai, maker of antioxidant-enriched drinks, sold Dr Pepper to Snapple Group for $1.7 billion after raising just over $10 million in venture capital. Smaller deals also happen. In April 2023, NextFoods acquired tart drink Cheribundi for an undisclosed sum following a $15 million investment round in 2020 led by Emil Capital Partners, Food Dive reported.
While these startups make excellent acquisition targets because legacy companies often prefer to buy rather than develop their own new products, some may do well in the public market, said Alex Malamatinas, founder and managing partner of Melitas Ventures who focuses on food and beverages.
“Obviously what’s happening in technology and artificial intelligence is amazing, [but] At the end of the day, everyone has to eat and drink every day, it’s very big markets with significant TAM,” Malamantinas said. “Despite everything that’s happened, the best-performing stock is Monster liquor, not a tech stock.”
That’s a bit of an exaggeration. Monster is up about 16% over the past 12 months at a respectable $63 billion, while the world’s most valuable companies are Microsoft, Apple and Nvidia, each worth several trillion. But the point that the market cap is higher than many tech companies is valid. For example, only 7 out of 100 companies Bessemer’s Cloud Index are more valuable.
New cycle of beverage innovation
Buckstaff has also noticed the food industry’s largest trade show, Expo West, booming with more new exhibitors. “It makes me think that maybe we’ve entered a new cycle of innovation,” he said.
Jeff Klineman, editor-in-chief of food and beverage-focused media company BevNET, certainly thinks so. Beverage startups staying resilient despite a tougher fundraising market is a story of “haves and have-nots,” Klineman told TechCrunch via email.
“In the last couple of years funds have had more trouble raising capital, strategies have relaxed their acquisition plans and lending has been tighter,” Klineman said. “CPG funds are growing more slowly, while there is more competition for brands that are actually growing and doing well.”
However, beverage startups face their difficulties in raising money in the VC touch environment as well. Those that haven’t hit the “sweet spot” of consumers making repeat purchases, aren’t seeing channel expansion or showing a path to profitability, the market is challenging, Klineman said.
For investors, it’s hard to tell which brands will last and which are just fads, Malamantinas said. He mentioned the CBD soda trend a few years ago, which blew up temporarily, but has been much quieter since then. The company avoided them, he said, probably thankfully, as research into whether low-dose CBD drinks work or not mixed.
“There will be a lot of big results in the coming years,” Malamatinas said. “I think the main reason people shy away from the space is that it requires a certain level of expertise. We have experienced operators. There is a certain level of know-how and skill for these businesses to scale.”
For investors willing to put in the work and time to find these long-lasting brands, the category looks likely to produce strong returns. It worked with Bai. Olipop and Liquid Death seem on track. Now let’s see who’s next.
