Siddhi Capital, a growth equity firm specializing in providing operational expertise to food and beverage brands, recently announced the closure of its $135 million Fund II. This marks a significant milestone for the firm, as it has effectively doubled the size of its previous fund. The decision to increase the fund size comes at a time when the fundraising environment is becoming increasingly challenging due to inflation and high interest rates. In light of these challenges, Siddhi Capital has devised a new strategy to “move upstream” in its second fund. This entails investing in fewer, but larger, consumer product goods (CPG) deals that have high margins and are geared towards generating positive cash flow.
The venture capital (VC) landscape has undergone a shift in recent years, with the industry facing a rough patch. This has led to repercussions for startups, many of which have had to navigate down rounds in 2023. Additionally, VC fundraising saw a record decline last year, with VCs raising $57 billion, a 67% decrease from 2022. Analysts point out that limited partners (LPs) are now more inclined to support funds with strong historical performance, a trend that aligns with Siddhi Capital’s approach. Melissa Facchina, a co-founder of Siddhi Capital, highlighted the changing metrics for CPG exits, emphasizing the importance of margin, cash flow positivity, and neutrality in potential acquisitions.
In Fund II, Siddhi Capital plans to focus on growth-stage businesses in the traditional food and beverage categories, with a smaller portion allocated to food technology ventures. The firm also aims to expand into adjacent sectors such as health & wellness, beauty, personal care, pet, and alcohol. Facchina emphasized the need to lead growth rounds and reduce dilution by limiting the number of additional investors in the funding round. Siddhi Capital’s strategic pivot towards larger deal sizes and broader sector focus underscores its commitment to staying competitive in the evolving CPG landscape.
Siddhi Capital’s investment philosophy revolves around identifying companies with mass market viability that address specific consumer pain points. By transitioning to a more traditional private equity model, the firm has reduced the number of investments while increasing the check sizes. Notable portfolio companies like Super Coffee, Cirkul, Magic Spoon, Immi ramen, Mid-Day Squares, and Momofuku exemplify Siddhi Capital’s focus on products that cater to everyday consumer needs. Facchina emphasized the importance of investing in products that seamlessly integrate into consumers’ lives, eschewing niche products in favor of solutions that resonate with the broader market.
Siddhi Capital’s evolution through Fund II demonstrates a strategic adaptation to the changing dynamics of the CPG landscape. By focusing on larger deals, expanding into new sectors, and prioritizing mass market viability, the firm is positioning itself for sustained success in the competitive world of growth equity. As the industry continues to evolve, Siddhi Capital’s commitment to operational excellence and strategic investments will be crucial in driving the firm’s growth and success in the years to come.
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