Liquid Death is just one of many venture-backed beverage startups poised to disrupt Coca-Cola and PepsiCo

On March 11, a vigorous The startup announced it raised $67 million at a valuation of $1.4 billion, with 2023 sales reaching $263 million. Do you think this startup is Liquid Death, a canned water company?

Liquid Death has now raised more than $267 million in venture capital, despite being in a category that hasn’t attracted the interest of many investors. The beverage industry is a tough industry for venture capital because it is capital intensive. Requires skills in selecting companies that sell well on retail shelves or other direct-to-consumer means; and inspire repeat business rather than just one time.

Michael Jones, managing director of Science Ventures, told TechCrunch that his company is not interested in getting involved in the beverage industry but supports Liquid Death because of its potential to disrupt legacy players like PepsiCo and Coca-Cola.

“We look for culturally relevant companies in the market that are redefining a stale category with better-for-you products,” Jones said. His investment team considers Liquid Death “a super disruptive brand.”

through the hiss

A number of new venture-backed beverage startups hope to disrupt the industry by creating new beverage categories. Dan Buckstaff, chief marketing officer of retailer data company Spins, said this is similar to what technology companies often do.

“You might think you can’t squeeze into another category here, but you approach it differently,” Buckstaff said. “You get inspiration from others, or maybe there’s a new technology that allows you to do that, or data, which will really allow companies to create hundreds of millions of dollars in ARR.”

He said Liquid Death borrowed marketing and shelf placement from beer, finding success not just on grocery store shelves but at events, bars and restaurants — and even at conferences. (Liquid Death declined to comment.) In fact, at the recent Consumer Products Conference West, Buckstaff hosted a Liquid Death party and his room looked like “we were having a real orgy.”

He conducted an informal poll of attendees, asking how often they ordered beer or wine in order to be seen as social. Half of them said they did. This made him realize there was a huge potential market for companies like Liquid Death, which had brand names and packaging inspired by alcohol but were healthier alternatives.

“For these people, these non-alcoholic brands are well-positioned to do that and have huge potential,” Buckstaff said. “Not just at social events, but at home — people relaxing and drinking beer. . Instead, there are now many options for regulating your mood or relaxing your body and mind.”

Not Beer is one of the companies recognized by these early companies. Founder Dillon Dandurand is launching the new company, which will produce a premium sparkling water brand set to launch on April 9. He said his brand was created for consumers who choose to drink less alcohol.

“Gen Z drinks less than any generation before them,” he said. “These guys still want to have fun, but they realize they don’t need to drink to have fun, or they don’t need to drink as much to have fun. In fact, it’s probably more fun to get a good buzz but not waste it.”

Still, facing the noise can be difficult. Dandurand believes that consumers care about two attributes that provide brands with the opportunity to stand out from the competition: taste and brand.

With so many options, brands have to market why their drink is better than similar drinks in the category, and also why this drink is better than drinks in other categories.

“It’s been an uphill battle,” Danduland said.

Who else is trending?

Water isn’t the only category attracting startups and venture capital, often from celebrity angel investors. Beverages containing vitamins, minerals, supplements and botanicals are also an emerging area.

Companies such as Odyssey, for example, raised $6 million in venture capital in February from an investor group that included Richard Laver from Rocket Beverage Group. The company is adding lion’s mane and cordyceps mushrooms, known for their cognitive clarity and energy-boosting effects, to its drinks.

Other beverage startups attracting venture capital include “better-for-you” soda startups such as Olipop (backed by Finn Capital Partners, Melitas Ventures and celebrity angels such as Camila Cabello) and Poppi (backed by Electric Feel Ventures, Rocana Ventures partners and angel investors). Each company has raised more than $50 million in venture capital. Lemon Perfect, a healthy lemonade alternative, has raised more than $70 million in cash from a long list of venture capital firms, athletes and celebrities like Beyoncé.

Poppi, which owns CAVU Consumer Partners and a group of celebrity investors such as the Chainsmokers’ Russell Westbrook, Olivia Munn and Nicole Scherzinger, has captured about 19% of the drinks market since launching about four years ago. According to Forbes, this figure is 1.5 times higher than that of Coca-Cola. It also became the 11th fastest-growing beverage brand last month, surpassing brands like Monster Energy, Gatorade and Liquid Death.

Poppi CEO Chris Hall has achieved success through “strategic marketing to become part of the culture with an active and loyal following” and “filling a void in the industry by offering delicious, better-for-you options.” e-mail.

VCs are chasing some huge returns in this category. In 2021, Coca-Cola acquired celebrity-sponsored coconut vitamin water BodyArmor for $5.6 billion. BodyArmor has raised $36 million in venture capital. Back in 2016, antioxidant-infused beverage maker Bai sold to Dr Pepper Snapple Group for $1.7 billion after raising just over $10 million in venture capital. Smaller transactions also occur. According to Food Dive, NextFoods acquired tart cherry drink Cheribundi in April 2023 for an undisclosed amount following a $15 million investment round led by Emil Capital Partners in 2020.

Alex Malamatinas, founder and managing partner of food and beverage-focused Melitas Ventures, said that while these startups make good acquisition targets because traditional companies often prefer to buy rather than develop new products of their own, some The company may do well in the public markets.

“Obviously what’s happening in technology and artificial intelligence is amazing, [but] At the end of the day, everyone needs to eat and drink every day, and this is a very large market with an important TAM,” Malamatinas said. “Despite everything that’s happened, the best-performing stocks are Monster Beverages, not tech stocks.”

This is a bit exaggerated. Monster is up about 16% in the past 12 months, giving it a market capitalization of $63 billion, while the world’s most valuable companies are Microsoft, Apple and Nvidia, each with market capitalizations in the trillions. But the argument that its market cap is higher than many tech companies makes sense. For example, only 7 out of 100 companies on the Bessemer Cloud Index are more valuable.

A new innovation cycle for beverages

Buckstaff also noted that Expo West, the largest trade show in the food industry, is booming with more new exhibitors. “This leads me to believe that maybe we have entered a new innovation cycle,” he said.

Jeff Klineman, editor-in-chief of food and beverage media company BevNET, certainly thinks so. Klineman told TechCrunch via email that it’s a story of “haves and have-nots” as beverage startups remain resilient despite tougher funding markets.

“Funds have had more difficulty raising capital over the past few years, strategic acquisition programs have cooled and lending has tightened,” Kleiman said. “CPG capital has been slower to deploy, and for those that are actually growing and Competition is also fiercer for brands that are performing well.”

Nonetheless, beverage startups also face financing difficulties in accessing the venture capital environment. Kleiman said the market is challenging for companies that haven’t hit the “sweet spot” of repeat purchases by consumers, aren’t seeing pipeline expansion or are showing a path to profitability.

Malamatinas said it can be difficult for investors to figure out which brands are long-lasting and which are just a fad. He cited the popularity of CBD drinks as a trend a few years ago, which exploded but has since been much quieter. He said the company has avoided them, perhaps thankfully, because research results on whether low-dose CBD drinks are effective have been mixed.

“There will be some big results in the next few years,” Malamatinas said. “I think the main reason people shy away from this area is that it requires a certain level of expertise. We have experienced operators. These businesses require a certain level of expertise and skills to scale.”

For investors willing to put in the work and time to find those lasting brands, the category seems likely to yield strong returns. It works with white. “Olly Pop” and “Liquid Death” seem to be going well. Now let’s see who’s next.