The way to Eutopia: Our 10 point consumer startup framework

We’re often asked, working as a VC at Eutopia, how we assess investment opportunities and decide which to invest in.

The answer you’ll most commonly hear from VCs is based on four criteria:

1. The product: How strong is the value proposition? What problem does it solve? Is there a ‘proof of concept’?
2. The market: How big is the market they are addressing? Who are the competitors they are facing and how do they differentiate from them?
3. The team: Who are they? What is their education & previous work experience? How long have they known each other? What is their common vision and ambition?
4. The figures: How much is the company raising and at what valuation? What does their business plan look like? What is our end-game as an investor, such as expected IRR and added-value on the deal?

During the most recent Upcoming VC event, I had the opportunity to spend the day with ‘wannabe VCs’ and coach them on how to analyze startups. Although I introduced the framework above, I’ll let you in on a little secret… this isn’t the scorecard which we use at Eutopia!

Consumer startups are quite particular animals and need specific assessment. In case you have any doubts about that last statement, take a look at this great piece from Ryan Caldbeck. Over the last four years of existence, we’ve refined and codified our Eutopia methodology which has helped us through 15 investments thus far.

Here then are the 10 magic boxes which need to be ticked to secure a Eutopia investment.

1. Value proposition

Consider the example that of 3,000 new consumer packaged goods launched every year, 85% of them fail within 12 months. To survive in such a market, we need to make sure you’re providing something new and bringing value to the customer. We look at sales figures when possible but, more importantly, we consider customer feedback, clinical studies, community engagement and detailed product reviews that validate the value proposition.

E.g.: the snacking market is a crowded one with very few points of differentiation — same manufacturers, similar claims. If you want to enter this category, your product needs strong added-value, such as better nutritional facts, boosting brain function or probiotic effects; or there needs to be strong excitement around your brand from customers and/or retailers.

2. Viability

Consumer goods businesses might be less scalable that their tech counterparts, but on the bright side they often reach profitability much sooner. We look for businesses with strong margins, reasonable customer acquisition costs and a promising rate of repeat business.

Eg. Food products should target a min. 50% gross margin and beauty products a min. 70% gross margin. This may not be the case from the beginning but should be achievable in the mid-term. In any case, there is absolutely NO WAY to be gross margin negative in consumer goods.

3. Ethics

A big reason for the success of the current range of consumer startups is their ability to build trust between their brands and consumers. To maintain this in the long term, we look for startups with strong values who are committed to making the world a better place through their projects. Some may consider this position cheesy, or even irrelevant in a business context. At Eutopia we consider it part of our DNA.

Eg: we focus on the value chain — where do the products come from? What is the manufacturing process? What is the impact on the environment? We aim to have a portfolio of ‘entreprise à mission’: other than just making a profit, they should have a positive impact on society.

4. Emotional Connection

It is vitally important that consumer startups need to build an emotional connection between themselves and their customers. It can come from many sources: the product itself, such as super tasty food which you cannot stop eating, a community which consumers feel part of or a relatable founder story or brand image which customers identify with. They don’t need to have it all, but a special connection between product and market is crucial.

Eg: for early stage startups, emotional impact can be linked to the founding team. Either because they have an authentic story around which to build their brand, or they have a mindset for creating stories around which the brand is built. Even better in fact, do both.

5. Defensibility

Whilst branding is an important asset, it may be replicable or forgotten if a sexier one happens to pop up. To stay competitive, consumer startups need to build strong barriers to entry on the back-end, specifically know-how in production or product formulation, patents, production facilities, supply, clinical studies etc.

Eg: femcare is very interesting from a market point of view. However, from a product perspective, most brands are working with the same manufacturers and offering the same products. Startups need to have elements which differentiate them other than their brand.

6. Momentum

Seizing upon a market opportunity is key for the success of consumer businesses. We look for projects that not only address the most significant consumption trends but also have positioning which results in incumbents being challengeable, or which they will have trouble to adopt in future.

Eg: There is an increasing push to reduce overall meat consumption. However, traditional meat producers suffer from the credibility of any attempt to lead this market. This means big opportunities are available for new players in this category.

7. Personal Alignment

This could be the most important criteria for Eutopia. In fact, many VCs will tell you that the makeup of a founding team is often more important than their ideas or products. This is also true in the case of Eutopia, but additionally, we look for projects which resonate with their founders history, values and ambitions. For us, it is a way to be certain that founders will stay motivated through a variety of challenges and that the brand possesses an authenticity which will resonate with its target audience.

Eg: We have little interest in pure copycats such as the French version of Glossier, Hims or Warby Parker. That’s not to say that they may not be interesting projects, but for us it is infinitely better if the founders can relate personally to the project and give it a soul.

8. Execution

Having a vision is great but it is just as important to have a team which is able to execute on this vision. For us, product development, marketing and sales are skills which should be mastered by the core team, even before a fundraising phase where those funds will be used to recruit such specialists.

Eg: ex-consultants or former managers from big corporations possess valuable experience and market knowledge. However, in very early-stage startups, they must also be hands-on and able to grind through detailed and often onerous operational issues.

9. Scale

Because consumer markets are large and often ripe for disruption, we search for ambitious founders ready to seize on these opportunities, with the ability to create the next category leaders in their domestic market and beyond. This means that market should be large enough, but also that the go-to-market and distribution strategy has been adapted to it. In pure figures, that means we target businesses which can hit €50m in sales within 5 years and naturally, be profitable within that time frame.

Eg: Much like many other consumer VCs, we took a bet on the pet-food market: it is large (€2bn in France alone) with high purchase frequency and, as yet, barely digital. Within that market, we chose to invest in a low-grain/grain-free brand rather than a human-grade one as that would be more difficult to scale and therefore will remain a niche market within Europe.

10. Trust

Within the walls of Eutopia, we often say that investing in a company (and furthermore taking investment from a VC) is much like a marriage. For that reason, we have to be sure that we are all committed and on the same page. We think it is important to take time to get to know a founding team and to find a fair and balanced deal with which everyone is comfortable, ensuring we’re all motivated for the rest of the journey ahead.

Eg: Whilst we understand that valuation is important for founders, admittedly for their confidence but also because maintaining a large stake keeps them motivated. However, we also believe that a valuation which is too high creates unnecessary pressure and unachievable objectives. We aim to create fair deals which offer founders and investors motivational incentives.

Below is a cheat-sheet of this framework with relevant questions and broad examples. If you, or anyone you know, can tick most of theses boxes, then please drop us a line at hello@eutopia.vc. We would love to chat with you and hear more about you and your project!

As always, big thanks to Philippe Vella for his precious proofreading and advice.