When speaking with food and beverage entrepreneurs about their biggest challenges, many lament the difficulty of raising capital, especially as they seek early “angel investment” — typically from high net worth individual investors.
Hence the launch of Edible Ventures, which bills itself as the nation’s first angel group investing solely in high growth, ready-to-eat, ready-to-drink CPG companies. Project NOSH sat down with Edible Ventures’ Managing Director, Jeremy Halpern, to find out why there’s a need for this group, why the time is right for its launch and what the group is looking for in entrepreneurs and companies.
Just four months old, the group is already up to 18 members who meet monthly to hear pitches. In keeping with the edible theme, according to the group’s website, meetings include three “main dish” companies that are seeking funding and 1-3 “appetizer” companies that are not quite ready to pitch yet, but want to provide the group an early look at their company.
Right now, the group generally invests about $250,000 to $500,000 in a company, though the hope is to move that number up to $1 to $2 million once the group hits its target size of 30-45 members. Edible Ventures operates not as a fund, where the group collectively invests in companies, but instead members can select the deals on a case-by-case basis if they want to invest.
Halpern, a lawyer and member of several other Boston-area angel groups, was inspired to start the group because he felt that traditional angel groups are mostly technology- or life science-based. Without industry experience, he said, it’s hard for investors to recognize which food and beverage entrepreneurs have a chance to be successful. In life science or technology founders often have education or work credentials that are easy to verify, he said, but with food, the barrier to entry is lower (companies often start with just a recipe and a product), so the pool of applicants is larger. That makes it harder to “separate the wheat from the chaff,” Halpern said.
That’s important because food or beverage company founders are often the CEO as well, and the story of the individual is very closely tied to the company story, Halpern said. In life science or tech, the technology is just as important as the individual who created it.
All the angels in Edible Ventures have expertise in the food and beverage industry. Halpern said this can range from being an investor in numerous CPG companies, working for a supplier for the industry, or being a brand operator themselves. The group’s website lists members that include Wicked Good Cupcakes’ CEO Scott Noonan, Pryority Food Marketing’s former President Michael Sonberg and Sherbrooke Capital’s founding General Partner Bob Stringer.
“In some ways, [CPG companies] are much harder to [perform due diligence on]. In a business to business or life science context, you can validate a customer problem or a clinical problem,” he said.“” You can’t get real feedback from the customer until you launch the product.”
Despite these challenges, Halpern believes the timing is perfect for investing in disruptive food and beverage companies. “CPG companies can now be built more capitally efficient than ever before in part because of the access to technology and tools,” he said. He recounted that 15 years ago, a company’s interaction with consumers was often limited to tasting demonstrations and the only way to get information back about a consumer was to collect it through dated tools such as sweepstakes or coupons.
Given new CRM, email, social media and advertising tools, “now it can be done immediately, it can be done cheaply, and it can be done very effectively to create brand identification, loyalty and connectivity,” Halpern said. “The cost structure of marketing and data gathering and even the back-end stuff, these are now $30-$500 a month tools.”
Technology has also made it easier for brands to hit sales milestones more quickly, Halpern said. Instead of brands spending 10 years building towards $2 million in sales, now “the really successful brands will do that in 12 months or 24 months,” he said.
For their part, he added, companies are less hung up on their initial vision and instead are willing to iterate, something that makes them less risky investments. For example, a beverage company Halpern invested in started with the assumption that its core consumer would be natural shoppers who cared about drinking a single-ingredient product. After being in the market, however, the company realized it could see more success by completely adjusting the packaging look and targeting young, active, on-the-go consumers who care more about hydration properties.
Successful companies, believes Halpern, “are wedded to success rather than their initial vision.” Because this attitude is becoming more of a standard, the industry is seeing more and more successful small food brands, he said.
When asked for his biggest piece of advice for entrepreneurs pitching to Edible Ventures, Halpern said “be data driven” and keep in mind that they aren’t aren’t directly selling the product to investors. “I don’t want to hear marketing words when you’re telling me why to invest,” he said, instead, he prefers to hear about “data, homework and planning” and “want[s] people who are extraordinarily disciplined in their thinking.” That doesn’t mean companies pitching Edible Ventures have to have all the answers. “I don’t know” is a perfectly acceptable answer, Halpern said. “But ‘I don’t know’ should be followed with a plan to find out.”
In regards to why CPG companies should pitch to Edible Ventures and seek their investment. Halpern went back to the rich domain expertise of the angel group. While companies likely will have to give up 20-40 percent of their company, Halpern said angel investment (from the right angels) is about “value creation, not dilution.”
“It’s not the dilution that’s scary,” he said.t’s are you getting diluted without growing the value. If you’re getting great people as investors and board members that are helping you build that business, then it’s almost accretive”All Edible Venture’s members have to agree to play active roles in the companies that they invest in. And the group will also take a board seat as part of their investment deals. But, Halpern notes, the focus is not on controlling the company. It’s about helping the company to grow.
Edible Ventures brings immense respect for fellow members and for entrepreneurs, Halpern said. The group recognizes that speed is of the essence for the companies it sees, and has set the goal of having a pitch-to-close timeline of 30 days (as opposed to the months and months companies sometimes see with other groups). The last thing the group wants to do is drag out the process, Halpern said.
“The process of asking for money is a humbling, ego and soul crushing kind of exercise” Halpern said. “The last thing I want to do is discourage someone. I may say no, but I’ll still try to help and say no in a respectful fashion.”