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In this episode of the Startup CPG Podcast, host Hannah Dittman sits down with Trevor Rechnitz, Principal at Vanterra Ventures, to explore the realities of fundraising—not just what looks good on paper, but what truly matters to investors. Trevor brings deep consumer investing experience built over nearly a decade, from sourcing and diligence to partner engagement and post-close value creation.
At Vanterra Ventures, Trevor helps evaluate and back visionary teams and companies redefining consumer health, digital health, and enabling technologies across branded products and emerging categories. Vanterra Ventures is the venture and growth equity arm of Vanterra Capital, investing $1-10M checks into seed and Series A rounds across a $6 trillion consumer health category growing 10% year over year—from supplements and functional beverages to digital healthcare and health tech infrastructure.
Throughout the conversation, Trevor breaks down common pitfalls founders encounter during fundraising and diligence processes, what makes an A+ intro call (strong problem-solution articulation and founder-market fit), and why knowing your numbers cold is non-negotiable. He shares practical insights on LTV to CAC dynamics (targeting 3x+ over 2-3 years), why gross margins north of 60-70% matter so much, and how to diagnose weak metrics by breaking them into components—AOV problems, margin problems, or repeat purchase problems (the hardest to fix).
Trevor also discusses the importance of expectation setting with investors (success = results minus expectations), why consistent monthly investor updates are one of the most correlated variables to success, and what revenue ranges typically align with each fundraising round (0M pre-seed, 1-5M seed, 5-15M Series A, 15-30M+ Series B). Whether you're navigating your first fundraising process or looking to level up your investor relationships, this episode offers grounded, practical insights on what investors actually evaluate and how to build with intention from day one.
Listen in as they discuss:
- Trevor's background: nearly a decade from PE consulting to Circle Up to Vanterra Ventures
- What Ventera is: $175M AUM, $1-10M checks, seed/Series A in consumer health products, services, and tech
- Common fundraising mistakes: getting defensive about risks, not knowing numbers cold, failing to interview VCs
- What makes an A+ intro call: strong problem-solution-founder fit, doing homework on the fund
- Advice for founders: success = results minus expectations, send consistent monthly investor updates
- Why high gross margin (60%+) and repeat purchase rate are essential for consumer businesses
- LTV to CAC breakdown: targeting 3x+ over 2-3 years and how to diagnose weak metrics
- Revenue ranges by round: 0M pre-seed, 1-5M seed, 5-15M Series A, 15-30M+ Series B
Episode Links:
Trevor Rechnitz - Principal, Vanterra Ventures
- LinkedIn: https://www.linkedin.com/in/trevor-rechnitz-43b72582/
- Website: https://www.vanterraventures.com/
Don't forget to leave a five-star review on Apple Podcasts or Spotify if you enjoyed this episode. For potential sponsorship opportunities or to join the Startup CPG community, visit http://www.startupcpg.com.
Show Links:
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- Questions or comments about the episode? Email Daniel at podcast@startupcpg.com
- Episode music by Super Fantastics
Creators and Guests
What is The Startup CPG Podcast?
The top CPG podcast in the world, highlighting stories from founders, buyer spotlights, highly practical industry insights - all to give you a better chance at success.
Trevor Rechnitz
Success equals results minus expectations. And expectation setting is oftentimes an overlooked and important part of the like founder and investor relationship. And so setting proper expectations around growth, around margin, around new products, around exit, around what you're looking to kind of get out of the next year or two years, or making sure that overall your timelines and vision are aligned with your investors. Right. Like defining expectations and success I think can set you on the right path and alternatively if you don't do that can really like create a lot of misaligned incentives and negative situations.
00:47
Hannah Dittman
Hey everyone, I'm Hannah Dipman, operations and finance host of the Startup CPG podcast. And today I'm thrilled to be joined by Trevor Reknitz, principal at Ventera Ventures. Trevor brings deep consumer investing experience built over nearly a decade from sourcing and diligence to partner engagement and post close value creation. He's got a wealth of knowledge in company evaluation and executional strategy. At Venterra, helps evaluate and back visionary teams and companies redefining consumer health, digital health and enabling technologies across branded products and emerging categories. Vantera Ventures is the venture and growth equity arm of Venterra Capital, partnering with founders to build long term disruptive businesses in the consumer health ecosystem. In this episode we dive into honest, practical conversations about the realities of fundraising. Not just what looks good on paper, but what truly matters to investors.
01:37
Hannah Dittman
Trevor breaks down common pitfalls founders encounter and shares lessons from diligence processes, how investors and founders think about capital allocation and what metrics actually signal durable growth. We talk through LTV to CAC Dynamics how to build investment thesis that resonates with investors, and how to align fundraising strategies strategy with operational execution. If you want to level up your understanding and investor thinking and set your fundraising and growth strategy up with intention, this episode is for you. Enjoy. Hey everybody. Welcome back to the Startup CPG podcast. This is Hannah and today I'm here with Trevor Recnitz, an investor from Ventera Ventures. Trevor, welcome to the show.
02:20
Trevor Rechnitz
Thank you, Hannah. Happy to be here.
02:22
Hannah Dittman
We're so excited to have you today. I'd love to kick off with getting your formal brief background, what your career has been like to date and the path that led you to Vantero.
02:31
Trevor Rechnitz
Yeah, absolutely. I'll try to keep it brief. I grew up in the Bay Area. I did my undergrad at Northwestern, studied communications and economics. I spent a few years after graduating back in San Francisco doing what's called private equity consulting at a firm called Kurt Salman, which was a CPG focused consulting firm. I was on the private equity and strategy team there. So were doing commercial due diligence on behalf of larger private equity funds as they were looking to invest in the CPG space. So tackling work, market sizing, consumer surveys, expert interviews, revenue growth modeling in all sorts of different categories across cpg, food and beverage supplements, et cetera. Ultimately I moved from Kurt Sallman over to the buy side and started my career in VC at a fund called Circle Up Growth Partners. That was in the fall of 2018.
03:18
Trevor Rechnitz
Had an amazing time there. Kind of grew up as an investor there alongside some incredible investors. Keva Dickinson, Alison Ryu, Ryan Kalbeck and I actually had looked at a few deals alongside the Ventera team while I was at Circleup and candidly was just impressed by the process, impressed by the team, the portfolio and when they were hiring for a VP to help institutionalize their venture platform, it was a natural fit. Life was also kind of taking me to New York at the time. So I moved out here to New York in spring of 2021 and started at Amazing background.
03:51
Hannah Dittman
You've got a deep foot into the diligence space and have I'm sure spent a lot of time with a lot of different companies throughout that journey.
04:00
Trevor Rechnitz
Indeed.
04:01
Hannah Dittman
I'd love to also get a firm overview of Vantera including, you know, criteria, mandate, differentiation, check size, stage focus and also kind of where you sit on the VC to growth, to PE spectrum.
04:14
Trevor Rechnitz
Yeah, for sure. So we are a venture growth equity fund. We're investing in the future of consumer health. It's a $6 trillion category. It's growing 10% year over year. Massive, massive space. So to kind of distill it down, we've split consumer health into three core categories. Products, services and tech is what we're calling them. In products we focus on categories like supplements, functional food and beverage, pet health, beauty and personal care amongst others. In services, some examples digital healthcare, health, diagnostics, personalized medicine, even some asset life four wall services businesses. And then in the technology category, categories like picks and shovels, kind of enablement technology and some healthcare infrastructure as well. So relatively broad set of business models and categories all under consumer health.
05:00
Trevor Rechnitz
From a stage standpoint we write our initial checks into seed and series A rounds for follow on checks we can go a little bit later than that into kind of more growthy series B series C rounds. Check sizes for us range from 1 to 10 million. The ability to upsize through LP Co invest as well. And yeah, we closed our second fund in Q1 of last year. That's $100 million fund and that puts our total AUM at about 175 million. And then from a differentiation standpoint, I'll mention a few different things. The first thing is being a sector specialist. So we spend all of our time in consumer health. We feel like that allows us to drive differentiated deal flow to compound knowledge over time.
05:38
Trevor Rechnitz
Ask the founders the right questions, kind of dig into key risks of these deals relatively quickly and then also to build in depth capabilities to add value after investing. Right. So the more time you spend in a particular category, the better you get at helping founders in that particular category. The second piece is being concentrated and taking a high conviction approach to venture. We'll likely have about 15 or so companies per fund. That's a bit smaller than traditional vc, so we're doing deep work on each of these companies before we invest. Kind of the opposite of a spray and pray venture mentality. Right. More of a private equity approach to venture where we have a rigorous due diligence process. We're rolling up our sleeves after we invest, targeting capital, efficiency and profitability in these businesses.
06:17
Trevor Rechnitz
The last part of your question, not to ramble here, but the where we sit in like VC and growth, that makes sense to chat about.
06:24
Hannah Dittman
Yeah, I know you kind of are flirting with touching on it already, but give it to me.
06:28
Trevor Rechnitz
Yeah, yeah. So kind of split the market into four buckets. The way we think about it. The first is kind of angel and precede. Right. Which is initial founder rounds. There's product risk, there's tech risk, there's business model risk. A lot is unproven from an investment standpoint. That sort of demands that you're taking a lot of swings and it's candidly a higher failure rate and it's a bit too early for us. So we board those rounds. The second bucket is venture and that's seed. In series A, the risk kind of shifts to more scaling and execution risk. There's still opportunity for big returns, but the businesses are kind of at an inflection point. Right. Have proven out dtc but going into retail as an example. And this is really where we're comfortable, where the bulk of the dollars from our fund will be deployed.
07:08
Trevor Rechnitz
The third is growth, kind of series B and C rounds. We'll look at these rounds from a follow on or co investment standpoint, but less so from an initial round standpoint. And then the fourth is later stage vc which is a bit beyond our per view. Lower return profile, higher valuations. Bit too late for us.
07:23
Hannah Dittman
Beautiful breakdown and very crisply stated. It I can see the old consultant in you.
07:30
Trevor Rechnitz
Yeah, a lot of buckets, a lot of frameworks.
07:33
Hannah Dittman
These are the three things I'm going to tell you. Very helpful. Great way to explain it. One thing you mentioned earlier on in your intro that I just wanted to double click and kind of give an explanation of is you mentioned that you could write, follow on or lean into bigger checks with LP Co invest. Could you explain what that means for anyone that may be unfamiliar with it?
07:55
Trevor Rechnitz
Yeah, absolutely. So as a venture fund, we obviously have LPs. Those are the investors that make up the majority of our fund. Right. Those LPs obviously trust us to invest capital, but also like to scale up their own, scale up additional investment into certain portfolio companies that they have conviction in or that they, you know, are particularly passionate about. So typically how it works is we'll invest relatively early in these businesses. As those businesses de risk and become profitable over time and are a bit closer to liquidity or an outcome and raising bigger rounds, we'll invite our LPs to invest alongside us. So as an example in a business called mixlab, which is a tech enabled pet pharmacy, it's our biggest position.
08:32
Trevor Rechnitz
In our second fund here, we've invested a decent amount of the fund, but have invested almost double that in LP co invest. And so it's a benefit to our LPs to get access to these types of deals and obviously a benefit to us as well to be able to scale up our position.
08:45
Hannah Dittman
For companies that might get an LP co invest check, is their experience as a portfolio company any different from any of your other portfolio companies?
08:54
Trevor Rechnitz
No. All of our checks we're writing with the intent to spend meaningful amount of time with each company. Obviously, like as time goes and as positions kind of either grow or don't grow, obviously time allocation shifts. So typically the ones that get LP co invest are the ones we're spending the most time with. But I wouldn't say treatment's any different.
09:15
Hannah Dittman
Super helpful. Thank you for clicking on that with me. Can you touch on maybe common mistakes founders make in fundraising or diligence processes as they go through it with you? Maybe like a diligence process overview and key things that you think people should anchor on or focus on that maybe people don't always get right or fully understand?
09:37
Trevor Rechnitz
Yeah, for sure. So it probably makes sense to just start with an overview of the diligence process and then I can go through like what our expectations are and from there like what founders, what some do well and what some don't. The diligence overview for Antera. So it takes about three weeks, combination of data requests and management team time that ultimately we're using to try to get comfortable with the key risks that we've identified and ultimately determine what the right valuation for the company is. That diligence process typically starts with a first meeting, right? In those first meetings, my hope is that the founder is able to articulate the problem being solved and what makes the solution unique and more compelling than other incumbent and emerging solutions.
10:20
Trevor Rechnitz
Broadly speaking, like differentiation in a way that matters to consumers is a signal of enduring value and so being able to communicate that on an intro call is massively important. In addition to being able to communicate the broader vision for the business, near term and long term growth levers, et cetera. I would say mistakes that founders make, especially on the intro call and intro calls, sort of set the tone for the broader diligence process. Whether the team, the investment team internally is excited about continuing the process, et cetera. There's a couple One is getting defensive about risks almost as opposed to attacking risks head on. So don't be shy about the risks. VCs are, hopefully if they're smart, are going to identify them anyway.
10:58
Trevor Rechnitz
So being honest and open about them, sometimes saying, I don't know, this is something we're actively thinking through, like invite the investor in as a partner and don't be shy about the risks of your business. Attack them head on and have the honest conversation. The second is, you know, make sure you know your numbers cold. There are certain numbers that investors are going to want to know. I think over time, as you like, pitch a bunch of them, you'll figure out what those are. But things like channel mix or AOV and LTV to CAC or retention, obviously revenue, gross margin burn, et cetera, over the last few months and how they've trended over the last few years, etc. You need to know those cold and you need to understand how those like fit the broader narrative that you're trying to discuss.
11:36
Trevor Rechnitz
I think certainly it's a yellow if not a red flag if I'm on a call and someone's a bit shaky on their numbers. So that's another one. I would say that the third is make sure that you're also spending a bit of time interviewing the VC too. I love when founders are asking questions that make it very clear that they're looking for a partner, asking about your background, asking about how you would add value, what your initial perspective on the opportunity is. Again, turn it into a little bit More of a conversation versus just like a full kind of like deck walkthrough.
12:05
Hannah Dittman
That's really helpful and kind of on the flip side, what gets you really excited about an intro call? Like, you know, it's 30 minutes essentially where someone's kind of giving you the quick, high level overview of themselves and their company. What's like an A plus version of that?
12:23
Trevor Rechnitz
Yeah, it's hard to like really put your finger on. A lot of A pluses look different than one another, but like one thing they typically all have in common is it's just a really strong articulation of the problem and solution and why that founder is the right one and maybe only one who is in position to solve the problem. That's sort of like the most compelling start to all, you know, the A plus pitches is like there's a massive problem. Here's my solution, here's kind of the founder market fit or the reason why, like I'm the right person and the solution I've created is the right solution to solve that problem. So I think communicating that, keeping that very tight is a really good way to start your pitch. The second thing I would say is do your homework. A lot of founders are.
13:01
Trevor Rechnitz
And so when someone shows up and like knows about our fund, knows about our portfolio, knows some of the questions to ask, understands what we look for to a degree, like why they might make sense in our portfolio, et cetera, like that goes a long way I think on these intro calls. And other people are doing it. So I would certainly try to do that as well. And then the third is a bit more tactical, but the right like cadence of information sharing is actually really important and helps you stand out as well. So sharing a deck and a blurb beforehand, following up after having a data room put together, etc. Just like being there with the right information at the right time goes a long way too.
13:34
Hannah Dittman
Could you give an example of a portfolio company that you all work with that you feel like had a really great example, answer or thesis behind the problem solution founder fit that you're describing?
13:48
Trevor Rechnitz
Yeah, Chad Janis, who's the founder of Grooms, had a really impressive initial pitch, basically that he grew up and his grandma would make him like green smoothies. But those smoothies are difficult to make and sometimes didn't have like an amazing taste. But he wanted kind of the same like whole fruits and veggies and vitamins that he would get from those shakes, but in a convenient format. And so, you know, created Grooms, obviously comprehensive daily Nutrition gummies. From a background standpoint, he was a former investor at a fund called Summit Partners and so had unique insight into a lot of these high growth CPG businesses and how they were built just from a fundamental standpoint and so unique solution to a big problem and really kind of special background and perfect background to on why he's the right person to solve it.
14:32
Hannah Dittman
Yeah, that I think that's really helpful color for other founders to understand how to kind of position their background. It's not like you're looking for someone necessarily. I mean, I'm sure it would be a great bonus for someone who's like 15 years exactly in the power lane of exactly what they've done before and doing this. But, but it can be a lot of different backgrounds that seem impressive as long as it makes sense and shows a lot of rigor and hustle. It sounds like an ability to see a vision execute diligently behind that vision on the founder side.
15:02
Trevor Rechnitz
Yeah, it's so true. From a founder framework standpoint, like obviously domain operating expertise and experience is a criteria that is great to have and we certainly use that in our framework. But what we care more about is, you know, are you high horsepower? Are you a good capital allocator? Have you shown or do we believe in your ability to hire and retain top talent? Do you have passion and personal experience that's like associated with this product or idea? Do you have a partnership mindset I was talking about before, Are you responsive to diligence requests? And maybe most importantly, do we believe that you're a quick learner and you're a fast operator and if there's a problem that you're going to be able to understand and adapt to it. So obviously having a direct background in these things is great, but it's certainly not necessary.
15:46
Hannah Dittman
Yeah. And going back to your earlier point when you mentioned, you know, the first meeting, you want to invite the investor and be realistic about the risks. I'm sure also like have some sort of mitigation plan for them. But it sounds that's kind of dovetailing off of this same comment that you just made where it's someone collaborative who's risk on but also learning, growing and ambitious to develop their own perspective as well.
16:11
Trevor Rechnitz
Yeah, for sure. And I think there's like, there's a ton of value in any job of just like knowing what you don't know, kind of approaching things with an open mind that there's probably people out there that are much better at solving that particular problem than you might be. And sometimes the best skill is to like convince them to come work alongside you. Right. I think that's another area where Chad's just totally spiked is team building, selling the vision, building a winning culture and being able to just attract the best. Right. And now he's just got an incredible team around him.
16:41
Hannah Dittman
Super helpful and thank you for the examples. You know, you've worked with all these founders, you've worked with a lot of businesses in your portfolio and over time, if you could tell founders or operators one piece of advice, maybe some key learnings from where you've seen companies go down the road, right or wrong or just in general, what would it be and why do you think it's important?
17:03
Trevor Rechnitz
Yeah, I'll give two bonus. Yeah. One kind of higher level and one tactful. So the higher level one, and it's like a framework that I use in my job in life all the time, is that like success equals results minus expectations. And expectation setting is oftentimes an overlooked and important part of the like founder and investor relationship. And so setting proper expectations around growth, around margin, around new products, around exit, around what you're looking to kind of get out of the next year or two years or like making sure that overall your timelines and vision are aligned with your investors. Right. Defining expectations and success I think can set you on the right path and alternatively if you don't do that can really create a lot of misaligned incentives and negative situations.
17:49
Trevor Rechnitz
So I'd say that's my higher level one that I want to get across. And the second one is very tactful and shout out to Ben Zises who turned me onto this one. But I think it's very true is to send consistent investor updates. It holds you accountable and it's honestly it's such a scalable form of communication with investors of one to many communication that in terms of ROI on time, it's just kind of a no brainer. And it's one of the most correlated variables to success that I see. One of the things that a lot of the home run businesses in our portfolio have in common is that from an early stage they've sent consistent investor updates.
18:26
Hannah Dittman
That's really helpful. What should an investor update consist of for you or you know, what are the typical formats of ones you see in terms of length, content, is it monthly, is there a lot of business changes between investor updates? Could you give a little bit more color and guidance on that for any founder that wants to get started or develop that A little Further.
18:46
Trevor Rechnitz
Yeah. And for anyone that's interested, I'm happy to send templates too, but there's no one size fits all. Honestly, it's always different. Generally they like all include some kind of high level metrics. Right. How did the month go? And usually monthly is the right cadence. Honestly, how did the month go from a top line standpoint? How did it go from a margin, bottom line standpoint? What are kind of the top three or four KPIs that your business is tracking? Is it repeat purchase? Is it Amazon reviews? Is it like whatever those are that you've established with your investor basin board to kind of give a high level update on those and then just kind of key like, hey, like what's gone, what hasn't? And like what do I need help on? Right.
19:22
Trevor Rechnitz
Like that's generally like what's in every single one is, hey, here are my asks if anyone knows a buyer at Costco or if anyone knows like the best SEO agency or whatever it might be. Again, like one to many of putting those asks out there is I think a really scalable way to spend your time.
19:39
Hannah Dittman
Yeah, that's really helpful. And I feel like sometimes I think people can be a little shy about making asks because you're not sure, like is this supposed to be like buttoned up where everything I'm saying is amazing, or is this supposed to be more realistic where I'm just having like an honest update about my business and I can be vulnerable. And I think a lot of founders kind of grapple with that or in general can be anxious about fully disclosing some aspects of their business or talking extensively about what they're worried about or what they're working on for fear of being judged if they're trying to get a fundraise done. So I think it's really helpful perspective and color to see how you're thinking about it and what you're receptive to and that questions are good.
20:21
Hannah Dittman
And identifying risks might also be a positive for a founder to do as well because it shows they're thinking about things in a critical way.
20:29
Trevor Rechnitz
Yeah, I agree. I mean I might bias towards honesty maybe a little bit more than is helpful. But again, like one takeaway is just. And this is actually a decent signal for founders as they're going through an investment process is you should gravitate towards the investors who are willing to have the hard conversations. You should gravitate towards the ones who are like open to hearing and understanding what's not going right with the business. I think generally speaking Our median hold time is five years, can be as long as 10 years. Right. So to think that there won't be really difficult times is just kind of a joke. Right. And oftentimes when you're fundraising, things are going well and when you're closing around, everyone's happy.
21:14
Trevor Rechnitz
But hopefully, like throughout the investment process, there's a hard conversation or two to have around valuation or around risks or whatever that is, so you at least can get a sense. So speaking personally, I love it when founders are kind of mentioning things that are not going well in their investor updates so that I have an honest view. And it's kind of like if everything's rosy, my feelers are up of what are you hiding? Like what's in there for me to.
21:36
Hannah Dittman
Find versus that's that diligence muscle coming out.
21:40
Trevor Rechnitz
Yeah, it's true.
21:42
Hannah Dittman
Seeking for the gremlins and truth finding. I think that's great advice and touches on, I think, how important to your earlier points as well, how important it is to find the right fit, have the same expectations in your business, not from just a numerical standpoint and a performance standpoint, but also from a relationship dynamic and experiential standpoint as well. So I think that's great commentary and great color in terms of lessons learned outside of just advice to operators or founders.
22:13
Hannah Dittman
You know, when you reflect on your investing career, have you learned any lessons or compelling anecdotes in terms of maybe like more external factors like market shifts or trends or product launches or anything kind of more high level that you feel like you kind of wish you knew at the beginning or that might be helpful for others to learn from in terms of like, as they're thinking about embarking maybe on a new company venture and becoming a founder or are kind of earlier in the days of building out a product suite, how they should think about certain things?
22:45
Trevor Rechnitz
I mean, I don't want to say this and like, discourage a whole swath of founders in particular categories. I'm probably not saying things that they don't already know, but I would say that high gross margin is essential and is the silver bullet alongside repeat purchase rate to like surviving as a consumer company, as a CPG company. And there are particular categories, obviously personal care and beauty and supplements probably being the top two that typically come with software esque scalable gross margins. And there are certain categories, beverage and frozen, that usually don't. And it just puts so much money, more pressure on the other parts of your business to have that incredible product, incredible velocities, incredible Repeat purchase rates like to have basically an incredible capital allocation and ability to project forward to make sure that you're like allocating, managing cash appropriately. Right.
23:44
Trevor Rechnitz
So much less room for error in some of these categories. So I would say at least as you know, if you look at our portfolios, you can see where the dollars have flowed. From a category standpoint, a lot of that has to do with margin. So I say that. And if I were to start a business, I would start a business in one of those categories. Like that's typically what makes it easiest for us to get there. From an investment standpoint, what are high.
24:08
Hannah Dittman
Gross margins to you and what is a compelling repeat purchase rate from metric standpoint?
24:14
Trevor Rechnitz
Yeah, from a gross margin standpoint. And everyone defines gross margin a little bit differently. I typically look at it after basically all non marketing variable costs, so including kind of freight and shipping, et cetera. Good is north of 60, greats north of 70. And from a repeat purchase standpoint, it's a little harder to just look at that metric in isolation because it's harder to get someone to repeat purchase something that's a hundred dollars versus $40. And so you kind of have to look at it through the lens of like an LTV to CAC type metric because that tends to capture. It captures a lot, but it adjusts for a lot of those things, like around price point, basically. So I would say like typically we're looking at 3x +LTV to CAC over two years or sometimes three years, depending on the category.
25:06
Hannah Dittman
Could you break that down in layman's terms for me? So when you're saying 3x LTB to CAC over two years or so, if I know nothing about this, what specifically are you telling me?
25:17
Trevor Rechnitz
Yeah, it's a great question. So LTV to CAC stands. LTV is lifetime value. CAC is customer acquisition cost. So it's a fraction, right? So LTV divided by cac. So we start with LTV. It breaks down to a couple of different components. One is aov, right? Which is average order value or how much money someone's spending on your product. Multiply that by your margin that we just talked about, your gross margin, and then multiply that by let's say you're taking a one year LTV to cac, right? So in this particular timeframe, how many purchases does someone make in a year?
25:48
Trevor Rechnitz
So like dollars spent one purchase margin percentage times number of purchases in that particular timeframe collectively, that's going to give you the LTV within whatever Time bound that you just set, you're going to take that number and then divide that by cac, which is customer acquisition costs. Customer acquisition cost is total marketing spend divided by total new customers acquired. And effectively, when you look at that metric LTV to cac, it's telling you like, how profitable is each particular customer to my business in that particular timeframe. And so if we're saying 3x LTV to CAC, we're saying every new customer that you acquire within this particular timeframe is going to be worth three times as many dollars, you know, from a gross margin standpoint as it costs you to acquire that customer.
26:32
Trevor Rechnitz
The reason why we care about it is because it's generally it's a metric that helps predict long term profitability of businesses. So the higher the LTV to cac, the more profitable your business can be over time. And as investors, that's important to us.
26:43
Hannah Dittman
Super helpful and concise breakdown. Thank you so much for that. You're mentioning, you know, like 60% gross margins, 3x LTV to CAC. If a founder is falling short on any of these metrics, how concerned should they be or how should they approach that in fundraising or in business management? You know, sometimes it might make sense like you're saying, based on the category or structure of their business, but you know, when should they be concerned and when is it prohibitive to fundraising?
27:11
Trevor Rechnitz
Yeah, the first thing I would say is like being concerned about LTV to CAC is hard because you need to break it down in order to truly diagnose what to be concerned about. Right. So if you take the components that I just laid out of ltv, do you have a margin problem? Do you have AOV problem? Do you have, you know, a repeat purchase problem? If you have an AOV problem, consider going up market. Like why? Understanding the question of why are consumers not willing to pay more for my product versus competition. Do I need to add more premium features? Do I need, you know, like, can I charge more for my product, et cetera, Do I need to bundle it with other products on my website, et cetera? Do you have a margin problem?
27:48
Trevor Rechnitz
Like is that margin going to get better as I scale? Can I sell that story to investors? Do I need to find a new co manufacturer? Do I need to vertically integrate, et cetera? Or like, do I have a repeat purchase problem? I would say Reb Birch's problem is probably the one that I would be most concerned about. It means that like, your product doesn't solve a meaningful problem for consumers and that's A really difficult problem to fix. It's a really hard problem to convince investors that you're going to fix. So the first two may be solvable, the last one potentially not solvable. And then from a customer acquisition standpoint, okay, I have a $50 product costing me $100 to acquire a customer. Yikes. Right? Maybe there's room to change how you're spending on channel spend allocation, spend more on Facebook versus on YouTube.
28:28
Trevor Rechnitz
Maybe there's room to change your content, to attack the top of the funnel, et cetera. So I hesitate to throw a number on it to say, if it's lower than this, don't even try fundraising. I would say, like, break it down, figure out which problems are solvable versus not, and then be honest with yourself. If they're not solvable, then maybe it's not right to rate.
28:47
Hannah Dittman
Yeah. And I think that's really helpful. Color and I. It kind of goes back to the earlier point you made as well, where during that initial pitch, it's the problem solution, but also the kind of narrative of your business. And I think understanding the context of these metrics for yourself and the story of why they are the way they are and how you're going to get to where you need to go with them, I think is an important part of, you know, the fundraising process and. And what investors are obviously thinking about themselves and also looking for leadership from you on to make sure that, again, you're aligned, but also that you're selling them the vision not just in terms of why the vitamin gummy is so great, but also why the business can get so great from an operational standpoint as well.
29:29
Trevor Rechnitz
Yeah, no, I think that's a good articulation. Every investor is trying to answer the question of what do we need to believe? Right. What do we need to underwrite for this to be a successful investment for us? Right. And so are we underwriting improvement in gross margin? Are we underwriting a decrease in cac? Are we underwriting your ability to increase AOE over time? Right. Are the metrics just so good that we're just underwriting your ability to kind of continue, or even that there might be some degradation over time? And that's okay for the investment case. And so all of those questions are what's going through investors heads investment committee discussions? And those are all conversations that get baked into valuation, too. Right.
30:01
Trevor Rechnitz
So the easier that you make it and kind of the more clear narrative that you can paint around, like, hey, like, here are the components of my ltv. To CAC as an example, here's kind of the, you know, the ways I'm going to improve xyz. Here's what you need to believe. Here's why you should feel comfortable underwriting these different things. It's just going to make your life a lot easier to get a fundraise done and to get it done at a good valuation.
30:21
Hannah Dittman
So well said and a great articulation of a lot of these things and the other side of the table as well. Are there any companies that you've invested in that had perfect scores essentially across all of these metrics, or is it pretty commonplace that there's always kind of something that might be a little bit of the risk area in a business and that's something that you are comfortable with going into an investment as long as there's a strategy around it?
30:48
Trevor Rechnitz
Yeah, no business is perfect when we look at it. Hindsight's 20, obviously. Right. So you want to say that the ones that are ripping right now, like when we looked like our framework was perfect and it checked every box, but that's just not true. So it's about checking enough boxes and being compelling enough of a check, I should say, of spiking on particular areas that fund cares about. Right. So you know, if you're spiking on product differentiation and on, you know, on a repeat purchase and on capital efficiency, like for us internally, like, we're going to love that. So. So it is about just checking enough boxes and being really strong at particular things that certain frameworks or processes care about.
31:24
Hannah Dittman
Well said. Thank you. I'd love to pivot into a Slack question. As you know, startup CPG has the largest Slack community in the industry with now over 30,000 members. I'd love to pull a question directly from our channel and have you answer it as a case study for any founder that might have a similar question. Today's question is what revenue size equates to each fundraising round.
31:46
Trevor Rechnitz
Great. I'm going to give you the non answer, then I'm going to just give you answer. The non answer is these rounds have all been stretched and put into gray areas to a degree where it's difficult to put revenue ranges on them. Not only that, but like investors are looking at much more than just revenue and generally looking at other signals of product market fit to gauge whether you're ready for a series A versus A seed. Something like, do you have success in your ultimate scalable channel? If you have dtc, Amazon and your best in class Target Velocities you're potentially ready for a series A even if you're at $4 million in revenue. Right. Versus business that might be $15 million in revenue.
32:32
Trevor Rechnitz
But just on DTC it might not be ready for a Series A because it's really difficult to underwrite that business getting really big and ultimately selling without traction in retail or in Amazon. So that's the non answer is that it's really difficult to say for the answer I would say 0 million pre seed Angel 1 to 5 million seed 5 to 15 series A 15 to 30 plus series B.
32:54
Hannah Dittman
Thank you so much. I love the complimentary answers and I think the context is really helpful. But the brass tacks I feel like helps founders orient quickly and I think that is yeah a great way to break that down. Well, this has been such a fun chat Trevor. You're such a wealth of knowledge and I feel like you have so much tactical great guidance and advice. It's been awesome to learn from you. For founders that want to get in touch with you, where can they find you or what's the best way to get in contact? And then second question for operators or others looking to transition into investing, what advice would you have for them to break in?
33:31
Trevor Rechnitz
Yeah to contact us we have a email on our website. Feel free email a deck or find me on LinkedIn and introduce yourself. Generally pretty responsive. For non investor operators trying to break into vc, that's a tough one. I would say pick a lane. So like in this case likely CPG or wherever you are. Like become a specialist in something like that's probably your way in versus like being a generalist. And two I would say publish your thoughts. Come with a point of view. So investors love when people interviewing for the job are already kind of doing the job. Meaning like they come to an interview and say hey, here's an investment thesis I put together. Here's my map of the women's health market and why I think like fertility and menopause are really interesting places to play.
34:19
Trevor Rechnitz
Here are the business models that I think work best there. Health services in hormonal health and fertility but supplementation in menopause for XYZ reasons. Here are a few different companies that you should look at. I've actually met this founder who you might want to talk to. She's actively raising. It's like okay, it's hard to argue with that and I think like in order to break into investing you kind of have to be hard to argue with. So that's the advice.
34:41
Hannah Dittman
Great advice. And yeah, you're so sharp and have so much nuggets of information. This is a awesome chat and a great way, I think for founders to get a peek not only into some tactical advice, but also into how you think and how you process things on the investor side, which I feel like is sometimes opaque and really helpful to understand. So thank you so much again for your time. Trevor. It was so great to have you here.
35:04
Trevor Rechnitz
Thanks so much Hannah.
35:07
Hannah Dittman
Thanks so much for tuning in everyone. If you like this episode, show us some love with a five star review at ratethispodcast.com startup cpg I'm Hannah Ditman, podcast host and correspondent here at Startup cpg. I hope you'll join me again as we dig into more juice, juicy topics like ops, finance, and all the real talk founders actually need. Come say hi on LinkedIn or ping me on Slack. I'm always eager to hear your questions or brainstorm future episode ideas. If you're a potential sponsor and want to get in on the fun and appear on the podcast, shoot us an email@partnershipstartupcpg.com and last but not least, if you haven't already, don't miss out on our free Slack community for emerging brands and CPG lovers alike. Join at us.startupcpg.com we'd love to have you. See you next time.