If you’re a better-for-you food and beverage marketer looking for an equity investor, here are some expert tips on finding the right partner.
The “better-for-you” business flurry has a strong head of steam. According to an article last year from Food Business News, the number of food investors has doubled in the last five years, now outnumbering technology investments.
It’s great news for the world that better-for-you food and beverage has become the investment world’s industry darling. It is my belief that specialty and natural grocery is quickly becoming the new conventional grocery. This mainstreaming of transparency, authenticity, and clean-ingredient foods is why, today, it’s only the resistant, non-believer consumer who refuses to connect the dots between what we eat and drink and do to stay active and their direct impact on our health and vibrancy. When I tell these resistant, non-believers that conventional, less-than-healthy products will not be the norm or even around in a decade, many quip back, “What do I care? I won’t be either.”
And why bring this up when talking about finding the right equity partner?
Frankly, some of these non-believers are also equity investors who acquired their wealth during the technology boom and who are in a hurry to help fix your brands. And while this may sound great, I’m here to tell you to be mindful to make certain your investment partner doesn’t bring their Silicon Valley thinking to your brand. Here’s why.
What Investors Need to Understand about Natural Product Founders
Many food and beverage brand creators are likely to be drawn to reassurance in the face of investor bravado. Once contractually together, however, investors will often push for changes that the founder-owner hadn’t anticipated. This can be resolved during the due diligence phase if the founder-owner can look within and ask the following important (and often undervalued) question: Will my new partner possess and behave with the same moral compass that I used to build this business?
Food and beverage brand creators, particularly those who have built their audience based on the principles of natural products, have a common set of fears when it comes to equity investment. One of the biggest is that the industry may perceive the company as a sell-out, especially if the acquiring entity and/or investor does not allow the brand to continue operating with the moral compass the brand was built on.
So, while founder-owners are looking for capital to grow their organization, some are reluctant to bring in partners who have a track record of being heavy-handed in operations, equipment, HR, and anything other than sales and marketing, and of course, funding. This isn’t because the founders don’t understand these key areas as being critical to building meaningful, operationally significant brand systems. It’s more primal than that. Many founders, when faced with the specter of an investor putting multi-expert-hands in their proverbial pie, simply recoil. It makes many feel that potential equity partners or investors are exclusively about growth at all costs.
Investor Types: Which Is Best for Founder-Owners?
The fact is that many investors are driven by the longstanding practice of big companies buying startups to help them stay relevant. Some are out to get the first bite of your brand’s apple so they can help you grow it and flip it to a multinational food, beverage, or wellness holding company. And that is great, as long as all in your organization, including your equity partner, share the vision and brand strategy that you, the founder-owner, worked so hard to create, sweating through sleepless months or years to build your beloved brand into something you believe deeply in. To ensure you do find the right partner, use caution and avoid the following:
- Investors who want to create only the minimum viable product to get it into the market quickly, earn revenue-and then fix the bugs along the way
- “Moonshot investors” who have been involved in many rising-star brands-many of which were left to languish or fade away
- Investors who believe people are a means to an end and that the end justifies the means
- Investors who will view the founder as the most charming, smartest, insight-filled leader they have met…that is, until about one month after the deal closes
Have the foresight to prevent misaligned, unspoken expectations between you and your potential investor. Talk openly and early about handling conflict and who makes which decisions-well before the deal is signed. And it’s a good time for the founder-owner to step back and decide if this approach fits the culture of their naturals brand. You will sleep better if you know and understand your would-be acquirer’s investment strategy. Are they looking for quick flips? Will they invest strategically in building the company out the way you envision, or will they default to a specific point of view once the deal is inked?
As a founder-owner, you are hoping for an investor who can help guide you to greatness. People with a history in conventional food brands are really good candidates because they have a long view of the industry, have seen a few trends come and go, and are best suited to make acquisitions where they can not only invest, but shepherd your team to greatness.
Another Word of Caution
Is your brand a ‘cleaner’ version of a popular or pervasive household name? If so, look out for investors whose main objective is to make their marquee brand better, with your brand solely a means to their end. Founder-owners might think they can teach the old dog investor a few new tricks, but it’s risky if your ingredient and private-label business is significantly stronger-and the investing party has a ‘chop-shop’ mentality when it comes to IP. This is called an “aggregator investor.”
Most founder-owners want to stay involved once the investor is on board. But how does a founder-owner determine precisely what kind of investor they are talking to? We recommend having a list of prepared questions about the investor’s business practices and past wins and losses (as well as references substantiating both). And test their mettle when it comes to the values the natural products industry holds near and dear. Here is a starter question to ask a potential investor: “In the last three years, what has changed the most in our industry?” Investors should be able to speak candidly about the changing nature of consumers, the evolution of their preferences and behaviors-and connect these insights to your brand. Many other situationally appropriate questions can be formed through a meaningful SWOT analysis prior to getting into due-diligence conversations.
For both parties, a successful partnership is built on fierce, upfront dialogue. Be true to yourself and your vision from the very beginning. Listen, ask hard questions, answer boldly and with vulnerability, and whatever you do, don’t tell them what you think they want to hear.
David Lemley is president and chief strategist of Retail Voodoo (Seattle, WA), a creative agency that helps specialty retail brands launch and grow sustainably. Armed with a passion for ideology-driven companies and with over 25 years of industry experience, Lemley focuses his energy on leveraging design thinking and brand strategy, empowering clients to achieve their brand’s goals. As president of Retail Voodoo, David sets the standard for all research, brand strategy, brand positioning, and design development for the firm. He spends most of his time working with brands that share the following: they are enlightened, sustainability-minded do-gooders bent on being a force for good. Clients include: Brooks, DRY Soda, Essentia Water, KIND, PCC Natural Markets, Sahale Snacks, Walmart, and Wedderspoon.