CAVU Ventures’s Jenna Jackson breaks down today’s tricky funding environment as the firm moves deeper into beauty

Across categories, DTC CPG brands are facing tough times: Glossier has seen several waves of layoffs and shifted to a new wholesale strategy, while DTC alcohol startup Haus has been forced to shut down after Constellation Brands pulled out of its funding round. A-Frame Brands’s Ari Bloom even told us last month that “DTC alone is dead,” and an omnichannel presence may be increasingly crucial to secure funding.

CPG investment firm CAVU Venture Partners has “always really believed in an omnichannel approach to consumer,” Jenna Jackson, principal of growth at CAVU, told us. The firm, which was co-founded by Shark Tank alum Rohan Oza in 2015, has invested in some food, beverage, and wellness brands you might have heard of, like Vital Proteins, Beyond Meat, Oatly, and Poppi, with an average check size of $10–$50 million.

Since October 2020, it's been expanding in the beauty space, first with vegan skin-care brand Osea, followed by sustainable personal-care brand Nécessaire, an effort led by Jackson.

We talked with Jackson about the current funding environment for beauty brands, and whether a DTC-first strategy is still the go-to strategy for beauty brands. 

This interview has been edited and condensed for clarity.

There’s been a lot of talk about DTC CPG funding drying up and brands struggling to close those kinds of deals. Is that something that you’ve seen? We’re hearing some of those same things that before it was easier to raise as a DTC business and “omnichannel” was not a word that investors wanted to hear. And now it feels like “omnichannel” is the word they want to hear. And there’s less emphasis on DTC—we’re definitely hearing that.

Why do you feel like there’s been a larger shift in that direction now? A lot of those businesses have had a hard time scaling and finding profitability. And so a lot of the brands raised a lot of money and spent a lot of money to drive the consumer just to their site. And then again, with some of the tech changes—whether that’s iOS14, or some of the other things that have made it difficult—it’s made it harder to invest in those brands and see their ability to scale and to gain profitability.

The strategy for a lot of CPG brands has been to launch on DTC first to test the waters for a while before moving into physical retail. Do you feel like that’s still the go-to strategy for DTC brands? It feels like it. Even if someone’s going into retail very quickly—I’ve talked to multiple brands—they’ve put up a website, they’ve tested some engagement, they tested the waters with the consumer, gotten a brand out there, had a place for the consumer to go and learn about them, and then gone into retail after that. But some of that has been happening very quickly. It hasn’t been as much like, “Oh, we’ve been DTC for years, and now we’re launching [retail].” Most of the people I’m talking to, in beauty at least, have a retail partnership of some kind lined up or are making a decision on it. And yes, they have a website, but it seems like the cycle is a little bit shorter.

Why do you feel like that is? Some of it has to do with the security around it. We hear brands saying that they want to be omnichannel, that they’re really excited about a partnership. Whether that’s Sephora or Ulta, Target or Walmart. And a lot of times when they’re talking to us, they’re looking to raise capital around the discussion. When you get a purchase order, you know what’s coming, how many units you’re going to sell, you can feel really strongly about a use of proceeds as well, right? “We’re gonna raise this much money because we’re going into this retailer, we already have a PO, we know it’s this much.” And they are needing capital to launch that—from an inventory perspective, from a marketing perspective.

Is that risky to make that agreement with a retailer before you have secured that funding to make sure you can fulfill that purchase order? I see it a lot. And I think it’s because there are capital-intensive needs when you go into retail. You need to order enough inventory to fill their PO. You need to make sure you have enough packaging. You’re then usually buying or supporting in-store marketing, in-store shelving activations around the store, probably sampling, things that really support that they’ve launched.

What are the main reasons for a DTC brand to perhaps not really want to go into retail? A lot of people are worried about the margin pressure when you go into retail. And so they think based on their business model—and they could be right—they're getting a higher margin. And other people don’t feel that it’s right for their brands. They don’t think that they want to show up to the customer how they want to and that they’re worried that it might be brand dilutive to go into some retailers, if they don’t think that the retailer will talk about them the way they want to. A lot of people want to own the consumer experience, and going omnichannel gives away some of that consumer experience.

Do you have any advice for any kind of DTC brand that’s trying to raise funding, whether they have plans to expand into retail or not? You have to stay true to who you are, first and foremost. If you’re a DTC brand, and you really believe that that is the best way to serve your customer, and you’re trying to raise money, to me, it doesn’t work for you to abandon that mission just to raise money. If you feel that it’s right for your brand to expand into retail and for your customer, and you can better serve your customer by going in the channel, that’s a great strategy as well. But to me, you need to stay true to who you are and what’s right for your brand, and go out with that mission when you go to raise money.