On March 11, a soft drink The startup announced that it had raised $67 million at a valuation of $1.4 billion and reached $263 million in sales in 2023. Did you guess this startup is Liquid Death, a canned water company?
Liquid Death has raised over $267 million in venture funding despite being in a category that many investors are not interested in. Beverages are a difficult industry for venture capitalists because they require a lot of capital; requires skill in selecting companies that will sell well on retail store shelves or other direct-to-consumer methods; and inspire repeat customers instead of just one time.
Science Ventures CEO Michael Jones told TechCrunch that his company was not interested in being active in the beverage sector, but backed Liquid Death because of its potential to disrupt traditional players like Pepsi and Coca-Cola.
“We were in the market for culturally relevant companies with better-for-you products that redefined a tired, old category,” Jones said. His investment team considered Liquid Death to be “a super disruptive brand.”
Cutting the effervescence
Some of the venture-backed beverage startups hope to fundamentally disrupt the industry by creating new beverage categories. This is similar to what technology companies typically do, said Dan Buckstaff, chief marketing officer at retail data company Spins.
“You might think you can't include another category 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, that leads to companies that can generate hundreds of millions in ARR.”
He said Liquid Death leveraged the beer's marketing and shelf placement to find success not only on grocery store shelves, but also at events, bars and restaurants, even at conferences. (Liquid Death declined to comment.) In fact, while at the Expo West consumer packaged goods conference recently, Buckstaff hosted a Liquid Death party, and his room ended up looking like “we had a real binge.”
He conducted an informal survey of people who attended and asked them how often they ordered beer or wine just to be considered sociable. Half of them said yes. That made him realize the huge potential market for companies like Liquid Death, which have brands and packaging inspired by alcohol but are healthier alternatives.
“For those people, these non-alcoholic brands are well positioned for that and there's huge potential,” Buckstaff said. “And not only at a social event, but also at home: people relaxing and having a beer. Instead, now there are many alternatives to improve their mood or relax them.”
Not Beer is one of those that receives the approval of these first companies. Founder Dillon Dandurand is driving the new company, which makes a premium sparkling water brand launching April 9. He said his brand was created for consumers who choose to drink less alcohol.
“Gen Z drinks less than any of the previous generations,” he said. “These people still want to have fun, but they're realizing that they don't need to drink alcohol to have fun or they don't need to drink as much alcohol to have fun. In fact, getting high without getting drunk is probably more fun.”
However, dealing with noise can be difficult. There are two attributes that consumers are interested in, which presents an opportunity to differentiate a brand from the competition, according to Dandurand: taste and brand.
With so many options available, brands have 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.
“That's a tough battle,” Dandurand said.
Who else is showing up?
Water isn't the only category attracting startups and venture capital, often from famous angel investors. Beverages containing vitamins, minerals, supplements and botanicals are also a booming area.
Take companies like Odyssey, which raised $6 million in venture capital in February from an investor group that includes Rocket Beverage Group's Richard Laver. The company is infusing its drinks with lion's mane and cordyceps mushrooms, known for their cognitive clarity and enhanced energy effects.
Other beverage startups attracting venture capital dollars include better-for-you soft drink startups like Olipop (backed by Finn Capital Partners, Melitas Ventures, and famous angels like Camila Cabello) and Poppi, backed by Electric Feel Ventures, partners and angels from Rocana Ventures. 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 venture capital 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 captured about 19% of the beverage market share since launching about four years ago. Forbes Reports that's 1.5 times more than Coca-Cola. It also rose to become the 11th fastest-growing beverage brand in the past month, surpassing brands like Monster Energy, Gatorade and Liquid Death.
The brand is finding success thanks to “strategic marketing to become part of the culture, with active and loyal followers” and “filling a gap in the industry by providing a delicious and better-for-you option,” said Poppi CEO, Chris Hall, to TechCrunch via email.
Venture capitalists are chasing some of the biggest blockbuster returns in this category. Coca-Cola purchased celebrity-endorsed vitamin coconut water BodyArmor for $5.6 billion in 2021. BodyArmor had raised $36 million in venture capital. In 2016, Bai, a maker of antioxidant drinks, sold Snapple Group to Dr Pepper for $1.7 billion after raising just over $10 million in venture capital. Smaller deals are also made. In April 2023, NextFoods purchased tart cherry 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 new products of their own, some can do well in the public market, said Alex Malamatinas, founder and managing partner of Melitas Ventures, focused in food and beverages.
“Obviously what is happening in technology and artificial intelligence is amazing, (but) at the end of the day, everyone needs to eat and drink every day, they are very large markets with significant TAM,” Malamatinas said. “Despite everything that's been going on, the best performing stock is Monster beverage stock, not a tech stock.”
That's a bit of hyperbole. Monster is up about 16% in the last 12 months with a respectable market capitalization of $63 billion, while the most valuable companies in the world are Microsoft, Apple and Nvidia, each worth several trillion. But the point that its market cap is larger than many technology companies is valid. For example, only 7 out of every 100 companies in Bessemer Cloud Index They are more valuable.
New innovation cycle for beverages
Buckstaff also noticed that the food industry's largest trade show, Expo West, was booming with more new exhibitors. “This leads me to believe that perhaps we have entered a new cycle of innovation,” he said.
Jeff Klineman, editor-in-chief of food and beverage-oriented media company BevNET, certainly thinks so. Beverage startups remaining resilient despite a tougher fundraising market is a “haves and have-nots” story, Klineman told TechCrunch via email.
“Over the past two years, funds have had more trouble raising funds, strategies have cooled their acquisition plans, and lending has been tighter,” Klineman said. “CPG funds have been rolling out more slowly while there is more competition for brands that are really growing and doing well.”
However, beverage startups are also having a hard time raising funds in the tactile venture capital environment. For those that haven't hit the “sweet spot” of repeat consumer purchases, aren't seeing channel expansion or are showing a path to profitability, the market is challenging, Klineman said.
For investors, determining which brands will last and which will simply become a fad is difficult, Malamatinas said. He cited the CBD beverage trend a few years ago, which temporarily exploded but has since been much quieter. The company avoided them, he said, probably fortunately, since the research on whether low-dose CBD drinks work is mixed.
“There will be several important results in the coming years,” Malamatinas said. “I think the main reason people avoid this space is that it requires a certain level of expertise. We have experienced operators. There is a certain level of knowledge and skill for these companies to grow.”
For investors willing to put in the time and work to find those durable brands, the category is likely to produce strong returns. It worked with Bai. Olipop and Liquid Death seem to be on the way. Now let's see who's next.
