On March 11, mysterious The startup announced that it raised $67 million at a valuation of $1.4 billion and reached $263 million in sales in 2023. Did you guess that this startup is Liquid Death, a bottled 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 are a difficult industry for venture capital to invest in because they are capital intensive; Requires talent in selecting companies that will sell well on retail shelves or other direct-to-consumer methods; It inspires repeat customers instead of just once.
Michael Jones, managing director of Science Ventures, told TechCrunch that his company was not interested in activity in the beverage sector but backed Liquid Death due to its potential to disrupt legacy players like Pepsi and Coke.
“We were in the market for culturally relevant companies with better-for-you products that were redefining an old, outdated category,” Jones said. His investment team considered Liquid Death to be a “highly disruptive brand.”
Cut through the fizz
Some new venture-backed beverage startups are hoping to turn the industry upside down by creating new beverage categories. This is similar to what technology companies often do, said Dan Backstaff, chief marketing officer at retail data company Spins.
“You might think you can't narrow down another category here, but instead you approach it differently,” Backstaff said. “You take inspiration from others or maybe there's new technology that allows you to do that, or data that leads to companies that can create hundreds of millions in ARR.”
He said Liquid Death drew on its beer's marketing and shelf placement to success not only on grocery store shelves, but also at events, bars and restaurants — even at conventions. (Liquid Death declined to comment.) In fact, while Backstaff was at the consumer packaged goods conference Expo West recently, he hosted a Liquid Death party, and his room ended up looking like “we had a real binge.”
He conducted an informal poll of people attending the meeting and asked them how often they ordered beer or wine just 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 alcohol-inspired brand names and packaging but are healthier alternatives.
“For those people, these non-alcoholic brands are well-positioned for that, and there's huge potential,” Backstaff said. “And not just at a social event, but just at home – people are having fun and drinking beer. Instead, there are a lot of alternatives now with mood boosters or relaxation tools.
Not Beer is one of these early companies to get approval. Founder Dillon Dandurand is bootstrapping 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.
“Generation Z drinks less than any of the generations before them,” he said. “These people still want to have a good time, but they realize that they don't need to drink alcohol to have fun or that they don't need to drink a lot of alcohol to have fun. In fact, getting a big buzz without wasting it is probably more fun.”
However, standing up to the noise can be difficult. There are two attributes that consumers care about that present an opportunity to differentiate a brand from the competition, according to Dandurand: taste and branding.
With so many options available, brands have to sell why their drink is better than a similar drink in the category, and also sell why the drink is better than another category.
“It's a tough battle,” Dandurand said.
Who else is featured?
Water isn't the only category attracting startups and venture capital money, often from well-known angel investors. Beverages containing vitamins, minerals, nutritional supplements and botanicals are also a booming area.
For example, companies like Odyssey, which raised $6 million in venture capital in February from an investor group that includes Richard Laffer of Rocket Beverage Group. The company includes lion's mane and cordyceps mushrooms in its drinks, which are known for their cognitive clarity and increased energy effects.
Other beverage startups attracting venture capital money include better-for-you soft drink companies like Olipop (backed by Finn Capital Partners, Melitas Ventures and celebrity angels like Camila Cabello) and Poppi, backed by Electric Feel Ventures and Rocana Ventures and angels. Each of them has 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 includes CAVU Consumer Partners and a host of celebrity investors, such as 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 1.5 times higher than Coca-Cola. It also rose to become the 11th-fastest-growing beverage brand last month, beating out brands like Monster Energy, Gatorade and Liquid Death.
The brand is seeing success from “strategic marketing to become part of the culture, with an active and loyal following” and “filling a gap in the industry by providing a delicious, better-for-you option,” Poppi CEO Chris Hall told TechCrunch in an email.
Venture capital firms are seeking some hot returns for this category. Coca-Cola bought BodyArmor celebrity-sponsored coconut vitamin water for $5.6 billion in 2021. BodyArmor has raised $36 million in venture capital. In 2016, Bay, maker of antioxidant-infused drinks, was sold to Dr. Pepper Snapple Group for $1.7 billion after raising just over $10 million in venture capital. Smaller deals happen too. In April 2023, NextFoods bought tart cherry liqueur Cheribundi for an undisclosed sum following a $15 million investment round in 2020 led by Emil Capital Partners, Food Dive reported.
Alex Malamatinas, founder and managing partner at food and beverage-focused Melitas Ventures, said that while these startups have big acquisition targets because legacy companies often prefer to buy out rather than develop new products of their own, some of them may do well in… Public market.
“Obviously what's happening in technology and AI is amazing; [but] “At the end of the day, everyone needs to eat and drink every day, they are very large markets with large quantities of food and drink,” Malamatinas said. “Despite everything that's going on, the best-performing stock is Monster Beverage, not technology stocks.”
This is a bit of an exaggeration. Monster's value is up about 16% over the past 12 months with a respectable market cap 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 higher than many tech companies is valid. For example, only 7 of the 100 companies in Bessemer's Cloud Index are the most valuable.
A new innovation cycle for drinks
Backstaff also noted that the food industry's largest trade show, Expo West, is thriving with more new exhibitors. “This leads me to believe that we may have entered a new cycle of innovation,” he said.
Jeff Kleinman, editor-in-chief of food and beverage media company BevNET, certainly thinks so. That beverage startups remain resilient despite a tough fundraising market is a story of the “haves and have-nots,” Kleinman told TechCrunch via email.
“In the last couple of years, funds have had more trouble raising money, strategies have cooled their acquisition plans, and lending has become tougher,” Kleinman said. “CPG funds have been deployed more slowly while there is more competition for brands that are already growing and doing well.”
However, beverage startups face fundraising difficulties in the Touch VC environment as well. For those who haven't hit the “sweet spot” of consumers who are making repeat purchases, who don't see channel expansion, or who show a path to profitability, the market is challenging, Kleinman said.
For investors, knowing which brands will stick around and which will become fads is difficult, Malamatinas said. He cited the trend of CBD drinks a few years ago that temporarily exploded but has since subsided. The company avoided it, perhaps fortunately, he said, because of research on whether low-dose CBD drinks are effective.
“There will be many big results in the coming years,” Malamatinas said. “I think the main reason people stay away from this field is that it requires a certain level of expertise. We have experienced operators. There is a certain level of knowledge and skills that these companies can expand upon.”
For investors willing to put in the work and time to find those long-lasting brands, this category seems likely to deliver strong returns. I worked with bae. Olipop and Liquid Death seem to be on their way. Now let's see who's next.
