The essentials
- A fund returns its capital thanks to a handful of portfolio companies: statistically, the rest do not make up for it.
- That forces it to look for companies capable of growing a hundredfold, not companies capable of being profitable.
- A consumer brand with normal margins and solid growth can be a great business and a bad fund investment.
- The alternatives are not a consolation prize: debt, revenue based financing and capital from your own community solve different needs.
The maths that explains everything else
A venture capital fund raises money from third parties, invests it in a portfolio of young companies and has to give it back, with a return, within a closed horizon that usually runs from eight to ten years.
The problem is the distribution of outcomes. In a typical portfolio, most holdings return little or nothing, a few return what was invested and one or two return the whole fund. The manager cannot know in advance which one it will be, so they only invest in companies that, if things go well, could be it.
Why a consumer brand rarely fits
A well run consumer brand has a different pattern: solid but not exponential growth, margins capped by the cost of the product, a need for working capital to hold stock, and a customer relationship that is built slowly.
None of that is a flaw. It is a business. But it is a business that will probably grow five or tenfold over a decade, not a hundredfold, and that is exactly the range that does not solve a fund's maths.
| What the fund needs | What a consumer brand usually has |
|---|---|
| To grow a hundredfold in under a decade | To grow steadily and compound margin |
| Software margins | Margins limited by a physical product |
| A clear liquidity event | A business that can live for decades without being sold |
| Scaling with no geographical friction | Country-by-country expansion, with logistics and regulation |
| Capital to accelerate | Capital for stock, stores and working capital |
When a brand like that takes fund capital, the usual outcome is not failure: it is being locked into a growth plan that was never its own, under the pressure of a valuation that has to be justified in the next round.
When it does fit
There are consumer brands that fit perfectly, and it is worth saying so to avoid the opposite caricature.
- When the whole category can be won. A large, fragmented market with a real chance of becoming the reference brand.
- When the model has a non-linear lever. A subscription with very high retention, a replicable network of venues, or a digital product layer that scales separately from the physical one.
- When capital buys time you cannot recover. Taking a space before someone else does, with a window that is closing.
The real alternatives
Once the fund is ruled out, the remaining options are not a consolation prize: they are instruments that solve different needs.
- Bank debt and participating loans. No dilution. They require repayment capacity and, in the case of the participating loan, part of the interest tied to results. It is the natural route for working capital.
- Revenue based financing. It advances cash against future sales, at a cost tied to volume. Useful for stock and campaigns, not for building.
- Capital from your own community. It brings capital and, at the same time, reinforces demand: whoever invests already buys, and buys more. It is the only one of the three that also does marketing.
- Family offices and long-term investors. Fifteen-year horizons and return expectations compatible with a business that compounds slowly.
The comparison between equity and debt instruments is set out in convertible note, participating loan or equity.
The question that orders the decision
Before choosing a route, it is worth answering one thing honestly: what is the money for?
- If it is to buy stock and fund working capital, equity is the most expensive instrument available. Diluting to finance inventory is giving the company away in instalments.
- If it is to open a new market or to build something that takes years to produce cash, then it is equity, and the question becomes whose.
- If it is to accelerate something that already works and you have hundreds or thousands of recurring customers, the most obvious answer is usually the one nobody looks at: them.
Frequently asked questions
Can a fund invest in a profitable company?
It can, and it does. What it struggles with is not profitability but the ceiling: a profitable business with no credible path to a very large return does not solve the maths of its portfolio, however good the business is.
Does raising from my community close the door to a fund later?
No, as long as the structure is the right one. What a fund penalises is not your customers being shareholders: it is finding hundreds of loose lines on the cap table. Grouped in a vehicle, they appear as a single shareholder and the effect is the opposite, because they prove demand.
What valuation makes sense for a consumer brand?
Consumer brands are usually valued on multiples of revenue or of operating profit, with ranges that depend heavily on category, margin and growth. It is a conversation to have with specific advice, and it is worth having before setting the price of the shares in an issuance.
And if I need the money for stock?
Then start with debt or revenue based financing. Equity is the most expensive instrument there is because it is not repaid: it is given up. Using it to finance recurring inventory is the quietest way to lose the company.
Updated 16 Sep 2026. This article is for general information and does not constitute legal or financial advice. The specific terms of each transaction depend on its structure and should be reviewed with professional advice.
