H Venture Partners’ Microbiome-Focused Studio Prepares To Launch Two CPG Brands Next Year—And More Later

H Venture Partners is looking to tiny organisms to produce the next big consumer packaged goods companies.

Started in 2017 by Elizabeth Edwards, formerly an investor at Maywic Select Investments and West Capital, the Cincinnati-based venture capital firm’s studio is incubating brands focused on the microbiome—the phalanx of bacteria, viruses, fungi and other microbes that inhabit humans—and expects to launch its first two next year. The brands are financed through its second fund, which has raised $24 million, including $10 million from the state of Ohio.

All told, the firm plans to unveil six brands from the studio supported by the second fund, start raising for a third next year and eventually release as many as 13 brands, for which it’s writing $500,000 to $1 million checks to get off the ground. Betsy Bluestone, who spent three decades at Procter & Gamble and was formerly managing director of the CPG giant’s venture arm P&G Ventures, has joined H Venture Partners to lead its studio.

In total, the firm has more than $40 million in assets under management across a portfolio of 15 companies. Among them are Mother Science, Mad Rabbit, Sourse, Felix Health, Cerebelly and Parsley Health. Ninety-nine percent of the capital H Venture Partners has put to work has gone to companies helmed by female, Black, Hispanic and LGBTQ entrepreneurs.

Beauty Independent spoke to Edwards about how the firm’s studio is developing brands pushing microbiome innovation, the retailers they’re destined to sell at, the state of the consumer VC landscape, why she’s been open about the colossal decimation of startups in recent years and the founder mentality she’s completely over.

What are you doing with the microbiome?

This is an area that I think is one of the most overlooked, and it’s unfortunate that biotech funding in general has dried up at the same time that we’ve made the biggest breakthroughs in microbiome science. What followed the Human Genome Project was another project called the Human Microbiome Project, where we attempted to map the entire human microbiome. I think we only have about 2% of it mapped currently.

We are actually more bacterial cells than we are human. They do almost everything for us down to UV protection and producing critical serotonin or oxytocin. If you kill those beneficial bacteria in your gut, the ones that are making your serotonin, you will get depressed. It’s really important that we understand the microbiome and beneficial bacteria.

If you look at the WHO’s top threats to humanity, climate change is No. 1 and antibiotic resistance is No. 2, and it’s because of modern living. A hundred fifty years ago, we started sterilizing everything. Pasteur, the father of sterilization, convinced us there are germs and basically every CPG company has been telling us for the past 100-plus years that germs are bad, germs being bacteria. Turns out some of them are, but not all of them.

In the 1920s, we developed penicillin, and we were able to save people from infections they would have otherwise died from, but then we created superbugs by basically training bacteria to survive anything, and those bacteria now are causing a lot of problems. Bacteria is linked to everything from Alzheimer’s to Parkinson’s. We are just at the cusp of understanding these connections and developing targeted technologies to help balance the microbiome in a much more thoughtful, beneficial way.

Antibiotics are a threat right now because they’ve been rendered ineffective. We need to develop alternatives quickly. Otherwise, we’re going to be in a world of hurt by 2050. They’re predicting that 20 million people a year are going to die from antibiotic-resistant pathogens. What we’re looking to do is completely reinvent the way we think about bacteria and the way that we treat bacteria in everyday products.

We don’t want to kill all the bacteria, and we want to bring a lot of the good bacteria back. Think of everything that P&G, Kellogg, Coca-Cola, Pepsi, Unilever, L’Oréal make today and completely turn that on its head.

What does that mean for you in terms of the studio?

We are incubating brands from scratch, partnering with the top microbiome scientists and biotech firms around the world, completely reinventing almost every consumer category and looking at endpoints both in the near term like eczema or in the long term like Parkinson’s. The first product that we’ll launch is an eczema product and very quickly to follow will be other skincare products, home care products, food and beverage.

We don’t have any brand names currently. We took about two years to study every clinical trial, patent and relevant data out there as it relates to the microbiome. Live bacteria, metabolites or proteins are delicate things to work with, so you have a lot of formulation challenges. There are several platform technologies where we’ve either licensed or partnered with folks that have a specific job like creating ways for live bacteria to be shelf stable.

Do you have a partnership with a corporation like Procter & Gamble on the brands?

We do not have any corporate partnerships. The reason is we hope to sell all these brands to major CPG companies in five years.

How do you make a VC studio successful?

It comes down to commercial talent and technical talent. Venture capital is a matching or pattern recognition type job. You’re looking for an A-plus founder and A-plus technology, but you say no to 99 out of 100 deals because it’s either an A-plus founder with a C-minus technology or a C-minus founder with A-plus technology. When we’re able to select the technology and match the right commercial talent to it, that makes it easier.

We use a scorecard for talent, and we ask, does this person have 10 years or more CPG marketing or finance or supply chain, etc., etc.? And a lot of times they don’t. They’ve got an interesting concept, but not to market at Walmart, and that’s where our brands are destined to be.

We’re right down the street from P&G. We have a ton of PG top executive talent from both P&G Ventures and many categories within P&G, people that have led brands from concept to $1 billion. That’s the type of talent you need to bring something to market and retail and tell the story to consumers. That’s the talent we are recruiting for the venture studio and pairing them with amazing scientists.

What are the challenges of bringing a brand to the mass market today? How do you see the channel evolving as a younger generation of consumers grow in their spending power?

One thing that’s first in my mind is efficacy. We’re in this landscape of unsexy, unsolved big OTC problems. During the last 10 years, new entrants to the market have been priced high relative to the incumbents, and that’s really hurting them now, especially in an environment where we have inflation and consumers are feeling the pressure.

If you look at gen Z, they feel inflation, and they really want to see value. When we look at pricing and supply chain choices, it’s got to be something that works incredibly well, better than anything that’s out there in the market at Walmart and Target.

What’s your assessment of the VC consumer landscape, particularly in beauty, today?

It’s pretty brutal. I am hopeful that the rate cut is going to help out a little bit, but the truth of the matter is the industry over the past two years just got clobbered. There’s been quite of bit of recapitalizations and going out of business. It’s not specific to beauty, but I think beauty was hit potentially harder in terms of the ability to raise new capital. With some exceptions, we’ve seen AI and fintech weather the storm more than others because there’s much more interest in them right now.

The companies that have survived are ones that were able to cut to zero burn or get their burn down to a level that’s manageable for existing investors. I really haven’t seen new investors come into new companies. Angels seem to be writing some checks, but new VCs and new rounds are not happening.

You have written on Linkedin and at Forbes about VC struggles and startup failures, mentioning that “50% to 70% of the startups founded in the last five years that had raised more than $1 million in venture capital went out of business in the year 2023.” Why did you want to be open about the failures?

You have to take venture and startups and put them in their own category because whatever is happening in the rest of the market may not be consistent with what’s happening to venture-backed startups. We saw massive, massive closure. In the venture capital industry or the Bay Area, there is a tendency to always say, “Oh, things are great, we’re growing, and the future is always rosy.” In reality, one can’t ignore the level of startup closures last year and the amount of layoffs at big tech companies.

For founders especially, I wanted to put that out there because it’s tough when you yourself are experiencing it or your investors are telling you to lay off 75% of your staff, then people out there talk about the market, and they’re like, “Everything’s great for me,” but quietly they’re actually going out of business. There’s a lot of hot air in this industry.

It’s strange that the VC model is built on an understanding that businesses fail, but there’s such an aversion to talking about failure, and it seems to make failures an existential crisis for startup founders.

I talk about it a lot because I think there’s so much to learn from failure. I was a VC in a last recession. I was in my 20s, and I had a new portfolio we were building out to 10 to 12 companies. We got to five companies in ‘08 and, by the following year, three out of five were out of business.

It happened so fast and not through anything in particular they had done. It was just the capital market disappeared. So, a lot of the assumptions that you make every day like, I’ll be able to make money in six to 12 months, they no longer are good assumptions. That’s the same environment that we just went through.

If you had a 12-month runway and are revenue generating and you still went out of business, there are probably more points to reflect on than somebody that it’s like, I raised a pre-seed round, we couldn’t even get our MVP up. What did I learn from that? I look at companies that have $10 million, $20 million revenue. If you’re not profitable, that would be a good thing to reflect on why. What about your supply chain or your margin profile or your offering is preventing you from reaching profitability?

Is there anything you’ve learned from this moment of startup failures?

The biggest thing I learned is I have to be better at screening out executive leaders who have a “not invented here” mentality rather than a mentality that they’re continual learners and open to feedback, and if you have an expert or a resource they can talk to, they’ll take you up on that.

There are folks that take our money, but not our advice. The whole point of taking our money is that our money comes from 150 of the top executives and founders in CPG, retail and biotech. In pitches, some people are like, “I would love to use your research and talk to someone.” Then, once we wire them the money, crickets. Shockingly, they’re struggling.

If your supply chain is jacked up and the No. 1 supply chain expert in the world wants to help you find 10 more points of margin and is going to give you as many hours as you need for free, and you don’t want to talk to that guy, that’s a fundamental problem. You’re not looking for solutions.

Perhaps this gets into the discussion of “founder mode” versus “manager mode.” Is the “not invented here” mentality based on founders thinking they have to know it all and do it all when it comes to their business?

Founders are trying to project to investors I’ve got this, don’t worry, give me more money, I’m a good risk. There’s a feeling of oh, if I appear like I screwed up, they’re not going to give me money, or with employees, if they knew how tight cash was and how many months we have left, they’d be bolting for another job. There’s a dance, and it’s very tough. I deal with it, too.

VCs like me are actually founders. I emptied out my 401(k) and started a H Venture Partners. I did not take a salary for two years. I’ve raised $40 million. I know how hard it is to raise money, and I run a small business. I take out the trash, I hire people, I fire people, I have to talk to our auditors, regulators. From that perspective, I understand the challenge, particularly on the investor side.

When it comes to startup metrics, what are you zeroing in now versus a few years ago?

The biggest one is the ability to grow profitably without additional cash. We’ve always had a unit economics lens and understanding that the lemonade stand should be profitable before we go make more lemonade, but, over the past couple of years, there’s just more pressure on unit economics.

What are you thinking about with 2025 around the corner?

Something that’s on my mind as we launch brands is, if they’re raising money in late 2025 or 2026 and beyond, what that funding landscape is going to look like. Even with a rate cut, what’s going to happen to the VC landscape is hard to predict because, when we look back at 2008, it really took four, five years to rebound, but each shock is different. It’s tough to predict.

What will be the early indicators of what’s come? One will be how much LP capital is flowing into venture broadly. Another indicator will be IPO exits and M&A, so strategics starting to acquire. I think that will happen before LP capital flows in.

If I had to guess what the domino effect is going to look like, you’ll see M&A and the IPO market start to rebound. Once that happens, funds and therefore their investors start to see returns, and hopefully some of them are like, we want to do more of this. We will then see LP capital flow into funds and funds deploying again.

But, right now, it’s tough out there for startups and founders. Please console yourselves, it’s actually tougher right now for VCs to raise than it is for you. That might be somewhat limp consolation. When you’re getting 999 no’s out of 1,000 pitches, your VC friends are getting 1,000 no’s. As much failure and rejection as you are experiencing, they’re as well. They’re also not talking about it.