The Pipes Are Full. Own the Water.

Why Sugar Capital is betting harder on consumer than infrastructure

“Adapt or die.” — Billy Beane, Moneyball (2011)

On a call with an LP yesterday reviewing Fund I & II performance and two new bets from Fund III, both consumer.

“Will your software / consumer investment ratio change in Fund III?”

Fair question. Fund I was 60/40 software to consumer. Fund II: 55/45.

The trend was already there.

That question kept me up. Not because of our ratio. Because of the market’s.

The California Gold Rush taught Silicon Valley to sell shovels, not pan for gold. For twenty years, that worked. Infrastructure was the smart money play. Then something shifted. The prospectors learned to mine.

Since 2020, the best returns haven’t come from the pipes. They’ve come from the water. Rhode sold to e.l.f. for up to a billion dollars on $212 million in trailing sales. Poppi commanded $1.95 billion from PepsiCo. Net of tax benefits: $1.65 billion.

For fizzy vinegar.

Hero Cosmetics fetched $630 million with 40% EBITDA margins.

This isn’t branding. It’s cash flow disguised as culture.

The DTC crash of 2021 was chemotherapy for consumer brands. It killed the weak cells. The Instagram darlings. The 18-month payback mattress plays. What survived was different. Harder. Meaner. These brands don’t tell stories. They are machines.

We saw both sides of this shift. Software won for us early. We backed Reflex, Disco, Motion, Orita (to name a few) - software bets that worked. But the gravity shifted. Permanently. The platforms that made those companies possible started eating their children.

Tony Soprano, slumped in therapy, admits he came in at the end: “The best is over.”

That’s software infrastructure in 2025.

Series A is a knife fight. Q2 2025 deal count down 18% year-over-year. The M&A market dried up. IPOs? Klaviyo and Rubrik. Both underwater. The platforms won. Shopify ships native subscriptions. Native reviews. Native everything. Every venture-backed app feature is now a Settings toggle. Meanwhile, AI turned every Fortune 500 CTO into their own dev shop. Why buy when ChatGPT builds?

The platforms ate their partners.

Now what?

Here’s the rub: you don’t own distribution anymore. You rent it. Google terminates half of all searches without an external click. Facebook treats outside links like poison. These aren’t market conditions. They’re market prisons.

But physical products? They still move through the world. Shelves. Mouths. Medicine cabinets.

The platforms can’t intermediate a morning skincare routine.

So here’s what: own something people put in their mouth every morning. On their face. In their hair. Make it taste good, not just literally, but culturally. Price it right. Compound. Because customers don’t buy the best product. They buy the product they can’t escape. The one that dominates their feed, their shelf, their daily ritual.

Look at the deal tape. Church & Dwight didn’t pay $630 million for Hero because they liked pimple patches. They paid for a machine that turns teenage anxiety into 40% margins. Mondelēz: $2.9 billion for Clif Bar. Coca-Cola: $5.6 billion to own all of BodyArmor. Nestlé grabbed Orgain. P&G took TULA. e.l.f. added Naturium for $355 million.

These aren’t brand acquisitions. They’re distribution arbitrage wrapped in logos.

The winning playbook has three moves:

Habitual consumption. Nobody dreams about their CRM, but they reach for serum before coffee. Rhode gets this. So does OLIPOP at its $1.85 billion valuation. Daily use is the only moat left.

Taste as distribution. Not flavor - culture. Poppi made prebiotic soda feel like a flex. Rhode made skincare feel like old money. When PepsiCo drops nearly $2 billion for functional fizz, they’re not buying a formula. They’re buying relevance. The brand that owns your feed owns your wallet. In the platform age, visibility creates value.

Software discipline in bottles. The best brands now track LTV/CAC like a SaaS founder. They A/B test flavors. Segment cohorts. Expand revenue through SKU architecture, not Super Bowl ads. But here’s the difference: they start with distribution maps, not product roadmaps. They test channels before features. When you hit 40% EBITDA in beauty, you’re not running a brand. You’re running code that ships in glass.

I learned this at POPSUGAR. Distribution was oxygen.

At Sugar Capital we still back infrastructure. But we’re not precious about it. The real money isn’t in the picks anymore. It’s in knowing where to dig.

Our portfolio reflects this. Grüns cracked the code: wellness for the TikTok generation. They turned daily vitamins into colorful, camera-ready content. Every gummy a potential post. Every routine a shareable ritual. Distribution IS the brand - not a channel, but the product’s DNA. Olive & June turned nail polish into recurring revenue before Helen of Troy wrote the $240 million check. Systematic plays, not lucky breaks.

The market is screaming the pattern. Celsius gets PepsiCo distribution plus $550 million. C4 gets Keurig Dr Pepper distribution plus $863 million for 30%. The CPG giants know: acquisition is just distribution arbitrage at premium prices. Pay up front, plug into the machine, print money for decades.

Software scaled venture. Then software ate itself.

The platforms own the pipes. The infrastructure play is over. The best founders stopped selling shovels. They started selling thirst.

They don’t build features. They build habits.
They don’t sell products. They sell rituals.
They don’t chase users. They create addicts.

Time to own the water.

Oh and welcome to Q4!