The Art of Holdings #12

Markets
Billion Dollar Hot Chicken

Last week, the news broke that Dave’s Hot Chicken, a rapidly growing fried chicken chain, was acquired by a private equity firm in a deal reportedly valuing the business at over $1 billion.

A billion dollars. For fried chicken.

Now, don’t get me wrong. This isn’t an attack on Dave’s Hot Chicken specifically, though, full disclosure, I’ve never actually eaten there. Some people tell me it's great, others say it’s mediocre at best. But that’s not really the point. The point is what this kind of deal says about the state of capital markets, private equity, and, frankly, the values of our economy.

We live in a world where a billion-dollar investment flows into fried chicken, while fundamental innovation, scientific research, and real technological progress remain massively underfunded relative to their importance. The resources and attention of many of the largest pools of capital are increasingly flowing toward brands that, at their core, aren’t really about product quality or advancing society. They’re about distribution, marketing, and audience capture.

What does it say when capital allocators, some of the smartest people in finance, believe this is the best risk-adjusted return they can find?

It tells me a few things.

1. There may simply not be enough breakthrough innovation deals to fund.
We’ve reached a point where private equity and growth investors are sitting on trillions of dollars in dry powder. The venture world has funded nearly every scalable tech business model imaginable. Software has eaten the world. The biggest tech companies now hoard massive market share, leaving fewer obvious moonshot bets for allocators to deploy serious capital into.

2. OR - they’ve funded everything they can in tech, and still have billions left to deploy.
Private equity doesn't exist to change the world; it exists to generate returns. So, if they can’t find a biotech company that’s going to cure Alzheimer’s, or a next-gen energy company that’s going to solve our power problems, they turn to what they can buy: cash flowing, highly franchisable consumer businesses that can scale distribution quickly. Enter: hot chicken.

3. Audience and branding have replaced quality as the primary driver of value.
In today's market, 2 million Instagram followers is sometimes more valuable than the product itself. The cult following around Dave’s Hot Chicken gives private equity firms confidence that they can scale this thing nationwide, maybe globally, regardless of whether the food is actually excellent. The attention economy has officially become the dominant economic driver. Attention > Product.

We saw the same dynamic in another recent billion-dollar deal: Hailey Bieber’s beauty brand, Rhode, which reportedly sold for a valuation near $1 billion as well.

Is Rhode offering breakthrough dermatology? Revolutionary cosmetic technology? No. What it has is Hailey Bieber’s massive personal brand, millions of followers, cultural relevance, and an audience of buyers. That’s what PE is really investing in. Not hot chicken or skin cream, but audience ownership.

Unfortunately, the consumer usually loses in these deals.

When you inject this much capital into businesses like these, the pressure is on to scale rapidly and maximize returns. Unfortunately, that rarely results in better products. The opposite usually happens:

• Ingredients get cheaper.

• Labor gets outsourced.

• Prices go up.

• Brand gets diluted.

• Quality drops.

The consumer, in the end, pays more for a worse experience, but wrapped in a bigger marketing machine with shinier packaging and bigger influencer partnerships. The food tastes worse, the beauty products cost more, but the EBITDA margin looks great.

The larger philosophical question is this:
How did we arrive at a place where fried chicken and skincare influencers command billion dollar valuations, while the researchers working on cancer cures, climate technology, or quantum computing scrape for grant money and small seed rounds?

How does it make sense that we’ve structured incentives in such a way that marketing reach and brand virality capture far more capital than scientific breakthroughs that could meaningfully improve or even save lives?

Of course, the answer isn’t simple. Innovation is hard, unpredictable, and takes time. Selling chicken sandwiches is relatively simple, predictable, and offers quick scale if you execute the playbook. In a capital system that prizes predictable cash flow and scalable operations, it makes sense — but it’s still a little sad.

This is the state of the markets today.
Private equity is not the bad guy here. They’re just doing their job: finding deals that generate outsized returns. But as an observer of capital markets, it’s hard not to notice the balance of where capital is flowing. The most brilliant scientists, technologists, and inventors in the world are competing for limited funding, while fried chicken franchises and influencer-backed beauty brands easily pull down billion dollar valuations because they’re easier bets.

In the end, it’s not about hot chicken. It’s about what our capital markets reward. And right now, the answer is clear: attention, brand, and scalability beat almost everything else.