Report: The State of Venture Funding for Diverse CPG Founders

Are there actually more underrepresented founders in the CPG space than other industries?

Over the past year, I’ve spoken with a number of fund managers who invested in consumer packaged goods (CPG) companies founded by women, people of color, and LGBTQIA+ folks. Some have CPG as part of their thesis, others focus on diversity, and some include both. I’ve also seen a number of companies raise on equity crowdfunding platforms like Republic and StartEngine.

This recurring intersection of CPG and diverse founders stood out to me, and led me to ask: are there actually more underrepresented founders in the CPG space than other industries?

Initially, I couldn’t find much data on how many CPG companies are founded by non-white, not male founders. In fact, I couldn’t find much data on CPG companies and venture funding at all. The very little I could glean myself was from looking at platforms like Republic and StartEngine, where I’ve seen a surprising amount of CPG startups.

This initial research led me to another question: if CPG is traditionally a “non-venture backable industry,” why are funds investing in it now?

I hypothesized that this phenomenon of venture-backed, diverse-founded CPG companies may be a result of an unconscious bias. If funds want to invest in more diverse founders, they might believe women and other underrepresented folks would be best at founding consumer-focused companies (a possible implication of Unconventional Ventures’ findings regarding industries with at least one female founder).So instead of seeking out diverse founders in other industries, investors may be focusing on just CPG.

I embarked on this research hoping to find that there weren’t more diverse founders starting CPG companies than in other industries. I hoped that there’d be just as many diverse founders in industries like healthcare, SaaS, hardware, or transportation.

But I was wrong…sort of.

Diverse Founders of CPG Companies: Key Findings

As a percentage, there are more diverse CPG founders raising than in other industries. When looking at companies in various industries raising pre-seed through series B funding, 25.7% of CPG companies were diverse-founded. The average across industries was 15.8%.

But in terms of real numbers, CPG has fewer diverse founders than average: just 576 diverse-founded companies, compared to an average of 1,008 across industries analyzed.

And before proceeding, I want to acknowledge that we can’t know what hasn’t been tracked. There may be thousands of CPG companies happily making millions without ever raising a dime that aren’t logged in Crunchbase. We can only measure the data we have. You can learn more about the methodology in the report:

Another shocking discovery was that diverse‑founded CPG companies received 34.2% of invested capital deployed in pre‑seed and seed rounds, with an average of 19% across industries.

Oftentimes, the sad and sullen funding stats are (rightfully) highlighted: all-women teams receiving a paltry 2% of venture capital, and Black founders receiving even less. So to see such a robust percentage of funding deployed to diverse founders seemed unusual.

And as I continued to compare the funding and performance of diverse and non-diverse founded companies, I found that diverse‑founded CPG companies make up 40% of companies generating significant estimated revenue from pre‑seed to series B stages.

In other words, it seems like investing in diverse CPG founders will generate returns.

Initial Thoughts on Key Findings

Once my research culminated, I wasn’t really sure whether this research was worth publishing. I’ll admit I was frustrated that it didn’t prove my hypothesis correct. I wanted to be able to tell people that diverse founders are equally prevalent in all industries.

But my intent with this report—regardless of its results—was to help investors make properly informed decisions about investing in diverse founders as well as the CPG industry. And that’s what research is supposed to achieve.

How or whether investors interpret or use this information is, of course, their own prerogative. And whether it can change any preconceived notions is another question entirely.

Before I decided to conduct this research, I found that there are two main camps of thought when it comes to CPG companies receiving venture funding. On one hand, those who have a diversity component to their thesis are supportive of investing in CPG companies. On the other hand, some believe that VC funding isn’t meant for CPG companies, period.

Against CPG: Venture Capital is Rocket Fuel for The Hard Things

In a discussion about venture capital on Arlan Hamilton’s podcast Your First Million, Swati Mylavarapu dropped this gem of an insight: “We were supposed to be using capital to solve hard problems. To create things. This is what made us different than other forms of investment.”

Nowadays, it seems that anyone can raise funds for pretty much anything. But that wasn’t the original intent for venture capital. It was meant to fuel ideas that had never been tested before, and as Harry McLaverty recently explained, “Most companies don't need rocket fuel.”

Many of us aren’t convinced that CPG counts as a “hard thing” that requires “rocket fuel.” While CPG companies may be capital-intensive at first, they aren’t an emerging technology that takes years to develop and iterate.

Furthermore, once they do reach profitability, CPG companies are unlikely to generate the outsized returns that venture funds often seek.

In Favor of CPG: Help Businesses Thrive

The business stories we praise—especially those of diverse founders—are often about entrepreneurs who bootstrap their way through impossible odds. And we often attribute that success to pure grit: a motivation to power through difficult times and devise creative solutions in order to achieve a goal.

But does anyone have to struggle in order to start a business, regardless of whether it’s a “hard thing”?

While failure is an inherent part of a free market, businesses shouldn’t fail to launch because of a lack of capital, network, or class. If they fail, it should be because they had a fair chance at getting their product onto the market, and the market determined whether it was worthy of their hard-earned money.

And investors can provide that launchpad to whatever opportunities they deem fit. A VC fund is less likely to get outsized returns from a CPG company, but an investment strategy that incorporates a “traditionally non-venture backable industry” may help balance the risk portfolio of a fund.

And if investors want to see more diverse founders succeed, CPG seems to be a great opportunity to do so.

Let People Invest as They Please

At the end of the day, everyone should be free to decide what to do with their capital. If an LP decides that CPG and/or diverse founders is where they want their money to go, then they should be investing in funds that invest in such opportunities.

It seems counterproductive to limit the options for an entrepreneur to raise capital, let alone dictate another fund’s thesis. If we truly believe in a free market, then by all means, let VC funds invest in CPG companies, and let LPs invest in those funds.