Female founders have found great success in the consumer goods category over the years, as evidenced by the meteoric rise of women-owned startups like Glossier ($1.8 billion valuation), Away ($1.4 billion valuation), and Savage X Fenty ($3 billion valuation). In fact, companies with at least one female founder made up 34.6% to 44.5% of business-to-consumer (B2C) deals between 2016 and 2022, according to PitchBook. But the consumer goods sector may no longer be as fruitful for female entrepreneurs, a shift driven by venture capitalist interests.
Investors are instead turning to tech and B2B startups, which attract higher valuations and larger investment returns.
“Commerce and shopping” and “consumer goods” categories made up 12% of deals in 2022, a nine-point drop from 21% in 2014, according to an analysis of 5,600 startups by BBG Ventures (BBGV), an early-stage fund for female founders. “Commerce and shopping” was the top industry for female founders in 2014, making up 13% of all deals, while “consumer goods” took the No. 4 spot at 8%. In 2022, “biotech” ranked highest, taking 13% of all deals. “Consumer goods” and “commerce and shopping” failed to break the top five categories for female founders.
Susan Lyne, cofounder and managing partner at BBG Ventures, says the share of B2B companies pitched to BBGV, the B2B startups it’s invested in, and the value they’ve driven compared to B2C companies tell the same story. “While there are breakout B2C companies,” she says, “Fewer of them actually become unicorns or decacorns.” Just 22 of the 131 female-founded companies that became unicorns between 2013 and 2022 were B2C (about 16.7%), according to PitchBook data.
Female VCs tell Fortune that consumer-focused categories are overcrowded. “I’m just inundated with female founders starting consumer product companies,” says Maxine Kozler, co-managing director at LDR Ventures in Los Angeles. The funding floodgates for women-owned consumer goods companies just opened in the last decade, but the space has become “oversaturated with so many female founders with consumer product companies,” Kozler says. “The market can’t support it.”
That’s mainly because consumer companies are difficult to scale. While some companies find it relatively easy to finance strong seed rounds, investor interest often wanes during later-stage growth, Lyne says. The push for digital privacy, such as Apple’s iOS14 update, has also made acquiring customers at a cheaper cost challenging.
“We have definitely taken a more cautious approach to anything around direct-to-consumer,” says Anu Duggal, founding partner at the Female Founders Fund. “That’s largely driven by what we’ve seen as a ceiling to growth or scale and unit economics—the cost of acquiring customers has just not been efficient with the paid advertising model.”
Nor does the economic environment portend well for consumer goods as recession concerns and high costs cut into consumer spending, further pushing the sector out of investment favor. Kedra Newsom Reeves, a managing director and partner at Boston Consulting Group, notes that VCs may look at inflation’s effect on consumer spending and deem such portfolio companies non-essential over the next few years, preferring other areas for high-growth opportunities.
That area of high return is coming from B2B or B2B2C companies. BBGV’s third fund has seen a 140% higher multiple on invested capital from B2B and B2B2C than B2C, Lyne says. Across all of BBGV’s funds, B2B is 130% higher than B2C.
That’s not particularly surprising because there’s always a market for products that address business needs, says Kyle Stanford, a senior VC analyst at Pitchbook. On the other hand, consumer products and consumer trends are more fickle, and their ability to swiftly get off the ground also means they run into competitors quickly, he adds.
Even investors who remain bullish on consumer categories acknowledge that successful companies in this space are expanding beyond B2C. “Pretty much all of our consumer businesses are becoming 2B businesses as well,” says Pocket Sun, cofounder and managing partner at SoGal Ventures. “They’re white labeling, selling to different channels, and becoming big partners for Fortune 100 companies.”
Be that as it may, investors aren’t shunning consumer goods altogether. Health and wellness, including beauty, functional foods, and cleaning products, are areas where female VCs tell Fortune they’re still investing. But accessing their funds will come with some stipulations.
These days, VCs require that consumer goods companies have a retail or business integration strategy. Lyne points to Starface, a pimple patch brand in which BBGV invested in 2020. The company has landed retail partnerships with big box stores like Target and Walmart. Similarly, Duggal says the Female Founders Fund has seen success with beauty and wellness consumer brands, including the successful exit of women’s razor brand Billie and significant post-investment growth with makeup brand Winky Lux. Both brands have secured retail expansions, landing on the shelves of Walmart and Target. “We’re very specific about wanting a retail partnership,” Duggal says.
One tool B2B female founders can leverage is supplier diversity programs, which flourished during the wave of corporate DEI pledges in 2020. “Many clients have put some emphasis into their supplier diversity programs, and that’s a huge opportunity for women business owners,” says Newsom Reeves.
Investors also have their eyes set on health tech and the future of work, spaces that more women are entering, says Lyne. Unsurprisingly, some of their appeal lies in the fact that B2B strategy is involved.
The Female Founders Fund’s portfolio includes the women’s digital health clinic Maven, breast cancer screening platform Gabbi, and Ariana Huffington’s corporate and consumer well-being and productivity platform Thrive Global. Although Duggal admits that digital health also has a growth ceiling for consumers, she says these companies have caught onto the importance of securing corporate partnerships like employer health plans for growth.
A growing percentage of women are also launching startups to help build the future of work. In 2021, BBG Ventures supported a $3 million seed round for Anthill, an A.I. platform that connects frontline workers to corporate resources through texting.
What gives female founders an upper hand is that they bring unique perspectives and lived experiences in serving historically underserved markets. And investors consider that knowledge to be highly valuable. “Fortunately—or unfortunately—women are often seen as better purveyors and leaders in spaces that affect them the most,” says Newsom Reeves.
Despite receiving just a fraction of overall VC funding, female-founded and co-led startups drive higher returns than male-founded startups. “If B2B companies are a faster way to reach more people…and they are a better way to drive consistent revenue, then you’re going to find more female founders there,” Lyne predicts.
But VC’s slow breakup with consumer goods doesn’t spell the end for this category. Founders of consumer brands can still build meaningful businesses, even if becoming the next unicorn might be a harder reach.
“If you’re in business over five years, you’ve already beat the odds, and that should be celebrated,” Kozler says. “I’d hate for that not to get the attention it deserves because you’re supposed to be a unicorn.”
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