Over the course of 2023, consumer investing saw a slight increase in deals — a sign of normalization since the whirlwind of activity in 2021. Now, with consumer sentiment on the upswing and stabilizing interest rates, investors anticipate that 2024 will be a more active year of IPOs and other transactions — especially for companies that focus on leveraging modern marketing strategies, appealing to increasingly mindful consumers, and creating thoughtful, long-term value.
In a panel discussion at the ICR Conference in January, we spoke with leading investors in the consumer space who provided a look at the significance of 2023 and what we can expect to see in consumer investing in 2024.
A Look Back at 2023
A Recovery Year
Investors look back at 2023 as a recovery year in many ways, especially following the intense deal activity of 2021. “The market overall is still trying to get a little bit more stability from a valuation standpoint, which influences decisions both on the investing side as well as companies’ decisions to raise capital, whether privately or publicly,” says Nicole Brookshire, Capital Markets Partner at Davis Polk.
While some companies did go public in 2023, it was still a thin year from a capital markets and M&A perspective. In terms of M&A in particular, 2023 highlighted a disconnect between buyers and sellers. “We saw a lot of assets that were acquired in the 2020, 2021 period that just need time to season and for people to actually realize some return, and hopefully now we actually get close on where those valuation expectations are,” says Matt Eisen, Director at Hellman & Friedman.
Setting the Stage for Profitability
Last year required companies to prove their worth amid supply chain challenges, inflation, lending challenges, and the Silicon Valley Bank collapse. “Luckily it seems like a lot is behind us, at least for our companies,” says Jordan Gaspar, Managing Partner at AF Ventures.
But those challenges allowed strong companies to stand out and pave the way for a successful future. “2023 was all about a path to profitability,” says Jared Jacobs, Partner at CAVU Consumer Partners. “You have to have a really clear path for companies like CAVU to get involved in your brand or business. Investment firms have higher bars now.”
With 2023 in the rearview mirror, investors are cautiously optimistic about the year ahead.
Consumer Investing in 2024
Conscious Consumers
The driving force behind transactions and deals is, ultimately, the consumer. Overall, investors see a significant shift in consumer preferences toward more natural products. “Consumers want to feel better about themselves, and that starts with what you put in your body, on your body, and around your body,” says Jacobs. “And that’s not going away regardless of the macro-environment.”
In the wake of 2023’s high inflation, consumers also increasingly desire value. “There’s a sort of cautious optimism coming into 2024 as opposed to a feeling that somehow we’re out of the woods,” says Eisen. “So, as we try to predict where the consumer is, and it’s a hard call to make, but we know that the theme of value — in both good and bad times, over a decade-plus — has been really positive.”
A Shift in Marketing
Now, brands are beginning to focus more on Gen Z and Gen A — “What we’re calling Gen Zalpha,” says Gaspar. “Marketing strategies are completely different for those consumers, and households operate differently with those consumption patterns.”
In addition to field marketing, linear and connected TV and experiential marketing, and various digital mediums, investors are seeing the rise of the creator economy with TikTok. By aligning with content creators on the app, brands can achieve hundreds of millions of views in just days.
“Two-thirds of Gen Z is on TikTok,” says Jacobs. “They spend, on average, a hundred minutes a day on the platform. That’s two times any other social media platform, and brands who aren’t thinking about a TikTok-first strategy are going to be left behind.”
Beyond TikTok, brands must carefully strategize to take advantage of the most current opportunities. Gaspar describes a more organic, grassroots effort that leverages Gen Zalpha ambassadors — thousands of individuals “who are on a waitlist, dying to get access [to a product] just to be ambassadors for something that they believe in,” he says. By granting exclusive or early access to a product, brands can garner social media publicity through brand enthusiasts.
Another new opportunity includes gaming centers within programs like Roblox, which enable consumers to access and make purchases from a virtual store within the game.
Overall, investors and brands must be more thoughtful about how they construct marketing teams and allocate dollars. “We make a strong push to maximize working dollars in the marketing budget,” says Eisen. “And increasingly that pie is made of up newer channels.”
Steady Stream of Deals
Investors overall anticipate the IPO market opening back up in 2024. “I think we will have a steady stream of deals,” says Brookshire.
However, investors note that the Presidential election may have some impact the second half of the year, as conversations build around issues like tariffs, immigration policies, and inflation. “For this [consumer] space, we’re trying to be mindful of where those themes will play out and what that will mean for deal activity,” says Eisen.
For companies who want to succeed in this environment, it’s not about trying to time a deal perfectly; it’s about building a business that lasts with a product that will endure whether the company is public or private.
“It’s not a three- to five-year game,” says Gaspar. “To build sustainable brands that are profitable and have differentiation and proprietary components, that takes time.”
Those that build a lasting business models will likely see a bigger payoff. “Best-in-class assets [will get] best-in-class valuation,” says Jacobs.
Investors optimistically look forward to the coming year, anticipating a rise in deals and strategic activity. For a closer look at predictions for the year ahead, download our 2023 Equity Capital Market Review and 2024 Outlook.
