Raising Capital in DTC: Why Founders Get Bad Deals & How to Avoid Them

Company snapshot (DTC / CPG)

• Brand: The Outgoing Co (formerly Ramp Health; rebranded last year due to a trademark issue)
• Founding / first shipped orders: July 1, 2023
• Last 12 months revenue: ~$3M

Products (3 SKUs / product lines)

1. Outdy (Yappari cans / RTD beverages) — historically the “star” product, sold with a subscription

   • Subscription rate: 84%
   • Early RTD traction: >100,000 cans sold shortly after launch window
     • First online sales cited around March 16
   • Gross margin on cans:
     • 62% including shipping (shipping framed through Amazon shipping context)
     • Earlier mentions of 80%+ gross margin on cans “right now,” before shipping nuance

2. Yappari (RTD powder / sachet) — fast-growing line positioned as the future “lead horse”

   • Relative performance is referenced as 90/10 vs 85/15 at different points (context suggests it’s still not the “lead horse” yet)
   • Positioned as more profitable in the investor narrative (scale is described as easier in D2C)

3. Three Punic (daily multivitamin/mineral for nicotine users) — niche SKU

   • Targets nicotine users (nicotine/zinc/magnesium replenishment)
   • Not heavily pushed yet

Positioning / customer use-case

• “Alcohol alternatives” / social use; RTDs and powder differ by customer and channel
• RTDs: positioned as “pre-workout for going out” / date-night use; cans perform well on TikTok Shop
• Powder: stronger economics on own website; social performance is described as materially different vs cans

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Go-to-market & marketing channels (demand generation)

Primary channels

• Meta (Facebook/Instagram) ads: ~90% of budget

  • Issue noted: conversion for cans on Meta is about half of powder conversions on the website (implied offer/creative mismatch)

• TikTok Shop: strong performance for cans / RTD

  • Claim: “cans work 100x better on TikTok Shop than powder”
  • Benchmark: first $1,000 day on the platform for drinks (episode GTM performance)

Target customers (segmented by product)

• Outdy/RTD “envelopes/powder”: described as leaning toward millennial men
• Yappari cans: geared toward women 25–50
  • Many affiliates described as mothers age 30–40
• Three Punic: connected to nicotine-using lifestyle (Zyn/vaping users)

Brand/community assets

• Building an “army” / community:
  • Discord
  • Weekly calls
  • Hired moderator
  • Editor contributing perspectives (used to scale content/testing)

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Key metrics & KPIs mentioned (with targets)

Gross margin

• ~80% gross margin on cans (without shipping framing)
• 62% gross margin on cans including shipping
  • Shipping reduced to $10–$12 per 12-can pack
• Powder target: aiming to reach ~90% gross margin for Outdy via manufacturer renegotiation

Retention & repeat rate (powder / subscription economics)

• Second-order retention

  • After implementing a retention system (Thomas Lawless retention expert): 42% → 67% (month 1 to month 2 in reporting)
  • Now: ~70% for second order, ~30% for third order
  • “One drop still to fix,” implying recovery in ~60 days

• Recurring customer rate

  • Before subscriptions: ~21% total recurring customers
  • After subscriptions: ~46–47% repeat customers

Order economics / profitability approach

• Shifted from being profitable on first order (desired until Sep/Oct 2025) to using a subscription strategy earlier
• Initial subscription discount: 40%
• Goal: recover customer acquisition investment in 30–60 days
• Revenue growth:
  • ~$1M sales in 2025 → ~$4M+ by end of year
  • Peak month cited: >400k/month during summer

CFO / ROAS and AI vendor metrics (tools promoted in-show)

Vendor-reported figures (as stated in the episode):

• Postscript “Infinity Testing”:

  • Incremental revenue: $446,000
  • Incremental ROAS: 32x
  • Click rates: +43%

• Postscript “Shopper”:

  • 23x ROI in courier costs alone

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Operational & growth playbook (processes and “what changed”)

Subscription + retention system (powder)

Framework/process

• “Make money via subscription” instead of pure one-time purchase
• Use a discounted subscription to drive adoption
• Solve retention with automation and offer-flow

Tactics described

• Offer included one-time purchase initially, then leaned harder into subscription
• Retention improvements via:
  • Free gift / cancellation-save logic
  • “Skip a month” option
  • Avoid “fraudulent” tactics; keep it legitimate

Measured outcomes

• Subscription adoption: 83% initially (driven by 40% discount)
• Repeat/recurring customer rate: improved to ~46–47%

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Managing multi-product focus vs capital constraints

• Problem identified: two different supply chains + two different customer/channel strategies complicate the investor question: which is the lead horse?
• Operational conclusion: success exists in multiple lines, but fundraising and narrative clarity require staged focus
• Decision logic:
  • RTD is “promising/future,” but doesn’t outperform powder economics now
  • RTD likely needs physical retail shelf access later, which requires more capital/scale

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Working-capital-first capital allocation (investor lens)

Capital use thesis

• Treat powder as the engine that produces working-capital-backed growth
• Raise cash to fund inventory before margins generate

Specific fundraising ask

• Wants $3M to accelerate “dust” scaling resources (powder)
• Valuation discussion:
  • “Asking price” referenced as ~$20 (exact unit/definition unclear from subtitles)

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Fundraising strategy & “avoiding bad deals” (execution guidance)

Narrative & roadmap (staged financing)

• Investor narrative proposed:

  • Use this round to grow powder to ~$20M D2C/online revenue
  • Then expand into RTD + retail, potentially via:
    • Series A
    • DSD / distribution partnerships (mentioned as potential next step)

• Time horizon discussed:

  • Investors often want liquidity events, implying Series A later
  • Mentions 7 years as a “perfect point” (interpreted as typical exit timing)

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Avoiding deal traps / valuation mechanics

• Common pitfall: investors may discount when there are competing narratives (two businesses/products with unclear lead)
• Valuation framing: terms depend on fund stage constraints (LP rules / ownership targets)

• Founder guidance:

  • Don’t anchor too high; avoid being “in the red” on entry price for follow-on rounds
  • Structure early round to make Series A easier:
    • offer attractive terms so later investors are incentivized
    • bring Series A-credible investors in small amounts now to smooth the next round

• Deal structuring considerations raised:

  • SAFE vs convertible note vs primary preferred
  • Preferred multiples and participation details matter:
    • mentions: 1x / 2x / 3x
    • participating vs non-participating

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Risks & failure modes (with mitigation)

Main execution risks cited by TJ

1. Analytics / finance capability gap

   • TJ strong in product/marketing, not a “finance expert”
   • Risk: cannot clearly communicate target CPA and scaling thresholds without stronger financial modeling
   • Mitigation: bring in fractional CFO / deeper financial analysis

2. Inventory / supply risk

   • Mistake: running out of inventory led to lost subscribers (~$100k lost last summer)
   • Mitigation: “cash + planning” and tighter working-capital control

3. Fundraising readiness risk

   • Risk: raising cash before the business and founder are ready
   • Mitigation: position capital use as working capital (not overexpansion) and demonstrate trading history

Operational risk around multi-product scaling

• Risk: investors don’t know which strategy scales faster (“two competing narratives”)
• Mitigation: staged plan; potentially “minimal maintenance mode” for RTD until powder scales

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Concrete recommendations / actionable takeaways (from the episode)

• Focus discipline (core recommendation):

  • Put most attention and inventory behind the most viable scaling engine (powder in the near term), then expand RTD/retail later.

• Retention system is the compounding lever:

  • Implement retention automation early; discount adoption alone is insufficient
  • Measure order-to-order retention (2nd/3rd order) and target recovery within ~60 days

• Working-capital framing for investors:

  • Capital for inventory and growth pacing; not “secondary sale / founder extraction”

• Fundraising deal hygiene:

  • Avoid valuation/terms that make follow-on rounds painful (“in the red” entry)
  • Seek investors whose stage matches traction and who can support future rounds

• Capital allocation logic:

  • Ads alone aren’t enough when scaling (Meta is competitive); subscriptions and retention improve economics

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Company growth plan (how to scale)

• Immediate scaling plan: “do more of what works now”

  • TikTok Shop tribe + Meta spend tuning + subscription scaling

• Content & offer testing constraint:

  • Bottleneck: limited resources prevent scaling landing page/offer testing
  • Goal: scale offer experimentation (e.g., “tenfold” landing pages/offers), but needs capital/time

• Modeling for investors:

  • Built a full financial model using Iris (Drew Fallon referenced)
  • Plan to show an investor-friendly CPA ceiling and spending capability based on real numbers

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Exits (high-level investor view)

• Exit path A (near-term):

  • Reach $20M gross revenue and $2–4M profit
  • Potentially sell in a few years to an acquirer seeking a profitable CPG/D2C asset

• Exit path B (longer-term):

  • Build to a larger exit target ($200–300M) in about 3.5–4 years (via “Goldilocks” planning)

• Notes:

  • Exit depends on revenue/profit scale and investor timeline
  • Mentions “7 years perfect point” and ~3.5–4 years horizon

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Presenters / sources mentioned

• TJ Bonjiorno — The Outgoing Co (formerly Ramp Health)
• Mike — Operator’s Pod co-host (name not provided in subtitles)
• Matt — Operator’s Pod co-host (name not provided in subtitles)

Experts / tools / companies

• Thomas Lawless (retention expert)
• Postscript (AI SMS tools; “Infinity testing” and “Shopper”)
• AfterSell (post-purchase monetization; used as an ad in the episode)
• Northbeam (measurement/attribution platform; Black Friday discussion)
• Richpanel (AI support automation sponsor)
• Fulfill (ERP for D2C; logistics integrations)
• Sarus IQ (AI analytics / data certification tool)
• Iris (financial modeling; Drew Fallon referenced)
• Drew Fallon (Iris)
• Will from IQ Bar (referenced for fundraising/valuation frameworks)
• Greg / Dom (Bloom competitor context; referenced as creators—full names not specified)