Why is 'category size' so important to investors?

Why is 'category size' so important to investors?

Have you created a "niche" product? Here's why your natural business may not be too appealing to potential investors.

The co-founders of leading consumer-focused private equity firm Alliance Consumer Growth (ACG)—investors in EVOL Foods, Krave Jerky, The Honest Kitchen, and BabyGanics—answer questions from natural products entrepreneurs.

Q: Why is 'category size' so important to investors?

A: Category size is very important to investors and it should be equally important to entrepreneurs. When we hear an entrepreneur say they've created a "niche" product, we get concerned. The larger the category, the bigger the potential opportunity there is for a company to build meaningful scale. 

We typically invest in companies that compete in categories generating at least $1+ billion of annual retail sales. But, larger categories also mean more competition. So it's critical for entrepreneurs to create truly differentiated products that solve real consumer needs.

When we invested in EVOL Foods, which competes in the multi-billion frozen food category, we noticed that there was a lack of premium-quality natural frozen foods that featured meat and protein. EVOL solved this need by creating crave-able burritos, flatbreads and entrée bowls with natural proteins from high integrity sources.

Your product will be equally appealing to investors if your product can scale to solve consumers' deep needs in the natural channel.

Have a question for ACG? Email them and they may reply here on newhope360.

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